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Dear Sir,please help me to explain the answer of question 262 in BPP revision kit.I do not understand the example of the answer.Why the maximum transfer is the lower of 7usd and 10 usd. Thank you.
You are obviously using a different edition of the Revision Kit because question 262 in my edition has nothing to do with transfer pricing. (I have the 2019/2020 edition – I have not received delivery of the current edition yet).
If you type out the first line of the question I will then check if the same question is in my edition.
Dear sir, thank you for your cosideration. This is the first line of the question: When goods are transferred from one division in a company to another division,and there is an intermediate external market…
I have found the question (and it is question 262 – I was being stupid and looking in a different revision kit!!!)
I don’t know why BPP has given that example because the rule is the standard rule for the maximum transfer price. The maximum TP is the most the receiving division will be prepared to pay, which is always the lower of their net marginal revenue (to pay more would mean the division would make a loss) and any external purchase price (the would certainly not pay the other division more than they would have to pay to buy elsewhere).
I explain the rule, with examples, in my free lectures on transfer pricing.
Dear Sir,
I understand you explain, but I do not understand the answer in BPP, so I will ignored this example ?
Thank you.
Yes – ignore the example (provided you understand why correct statement in the question is correct 🙂 )
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