COST ACCOUNTING
TRANSFER PRICING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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When the CUP and TNMM methods can be implemented reliably, the TNMM method should be prioritized
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When the Resale Price and CUP methods can be implemented reliably, the Resale Price method must be prioritized
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When the Resale Price and TNMM methods can be implemented reliably, the TNMM method must be prioritized
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When the Cost Plus and TNMM methods can be implemented reliably, the Cost Plus method must be prioritized
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Detailed explanation-1: -TNMM I: Net Cost Plus Margin. The Net Cost Plus Margin is the ratio of operating profit to total cost. As “Operating profit” usually Earnings before Interest and Taxes is used, or simply “EBIT.” Total cost means the direct and indirect operational costs without extraordinary items.
Detailed explanation-2: -Cost plus method: this method is typically used to calculate the transfer price for finished goods where a mark-up is added to the production cost of the goods.
Detailed explanation-3: -Pros: The TNMM’s relatively relaxed comparability requirements make it one of the most widely used transfer pricing methods. Net-profit data is often publicly available, and the TNMM is less sensitive to minor differences between comparable transactions.