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Transfer Pricing – CTD Ltd Kaplan Exam Kit

This topic has 1 reply, 2 voices, and was last updated 1 month ago by LMR1006.

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August 17, 2023 at 6:33 am #690070
abirla
Participant
- Topics: 3
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Given: The company’s average annual 12% cost of capital is used to calculate the finance charges.
In solution to Part A of the question, there is a computation for interest charge:
Interest Charge
$750K/$1500K * 12% COC
Division FD = (90)
Division TM = (180)
I did not understand how they have worked this out. Kindly explain.
August 17, 2023 at 5:20 pm #690091
LMR1006
Keymaster
- Topics: 0
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Interest charge
Cost of cap * Capital Employed
FD 0.12 * 750,000 = 90,000. RI = Profit – imputed interest charge so 90 – 90 = 0
TM. 0.12 * 1,500,000 = 180,000. RI = Profit – imputed interest charge so 360 – 180 = 180
You are probably looking at this from the wrong division?
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