what we are plan to do is now in the LMS learning management system contents are updating there are some materials are available with some video sessions then what you need to do is you have to go through that LMS content I mean the lecture materials plus the video session then I will do the recap sessions within this uh in this online mode we are soon okay then I will use some of my materials also I will upload all those materials to the to my Google Classroom okay so anytime if you have any doubts regarding this subject you can simply post on the Google classroom goog I will come up with the solution okay uh yeah it Shar eight then we can start okay normally it is my responsibility is to tell something about this subject subject is advanced management accounting you just finished up the subject of cost and management accounting in your second year okay so content will should be tally with that okay content of advance management accounting is should t with that the basically when you go through the past papers you may identify something from those areas also I mean difference between cost accounting and financial accounting management accounting and the financial accounting those things will be tested again so but as you still de it for the exam in case of cost and management accounting I recommending better go through that those notes also here most of the I think 80% of this content are same as earlier okay we are going to discuss something when it become variance analysis we are going to discuss something uh complex when it's going budgeting we are going to discuss something complex when it's become marginal costing and absorption cting too same thing when decision making those things okay and trans pricing is not the first session actually I think I uh as it is easy to cover up this session in online mode I think we this content have been up upload updated in the LMS so I think it's good because this is somewhat new for you but already you are having some idea about the uh decision making process how we are going to in you may discuss under the contribution marginal and absorption cting you may discuss something about how we are going to take some uh decisions I mean uh accepting or rejecting order then or otherwise expansion of institution expansion of business or not as like that you may discuss reprocessing under process cting and Joint product you may discuss whether we are going to uh process further or sell at that point split of point you may discuss so those knowledge it will be important here also okay basic costing knowledge cost and management accounting knowledge so today what I'm trying to do I I also today morning I also go went through the LMS update updates that those materials here I think it's available still yes really good uh material available here wait just give me a few minutes I'm asking about so it's better come up with that knowledge also here today I hope that at least you may go through that lecture session which is available in the LMS so here I am going to discuss some practice questions relates to the transfer pricing so as there are some of you may not go through that lecture session so I just going to say something about transfer price I will come up with the example when it's become organization structure we can identify two main categories within the organizational structure some one part is decentralized organizational structure and one is centralized organizational structure here when it's become centralized organizational structure the one the power has centralized to a particular person or particular team then particular person or team is going to take such a decisions belongs to that particular organization okay in Strategic Management you may discuss these things or management or when it's become decentralized organizational structure there are some divisions you may studied about cost centers profit centers in cost and management accounting so such a division is uh having a particular person who is having the responsibility for that division then that division having the power to take certain decisions regarding that particular section within the organiz for oration so here the transfer pricing is vital in case of such organization that means decentralized organizations which are having decentralized organizational structure here what is happening I will come with an example okay here this is what is happening actually in case of organiz transfer pricing okay here I am taking the example from the uh John KES when it's become John KES they are having different types of uh subsidies okay otherwise companies like he supermarkets elephant house uh cinamon Hots okay let's say k supermarkets and cinemon hot elephant house are having some soft drinks items okay then k supermarkets also doing sing of that uh soft Rings items then cinamon hotels also need that sof Rings items we can assume that both the parties I mean k supermarket and the cinnamon hotels are purchasing are getting the sof ring items from the elephant house which is available within available organization of the same uh group then in here even they are within the same group of company elephant house should send this product sell this product to e supermark okay so as they are within the same group of company they they can have such a negotiations okay even within the normally when elepant KS public limited company group elant house Supermarket cinon hotels items definitely they are going to that product for external par that just forget that one in addition to that they are going to sell the product to field supermarket and the cinnamon hotels in such cases they may have certain negotiations okay then transfer pricing refers okay price which has incurred when selling items for internal parties as supermarket and cinnamon okay party selling section another party is receiving section okay when it's become selling section if you are selling the product to internal section Like Elephant house to kill Supermarket no need to incur additional selling and distribution expenses they can use their own way no need to use advertisement expenses such a things no need as like that you can reduce so many ad uh other expenses okay that benefit they can get as a section and as a group when it become receiving party normally when in case of purchasing process there are so many steps need to be follow that is the that benit can be get one of these of the day total I think now you are having the idea let's see now benefits of having decent price organizational structure these things you can read it okay you can read now come to the point transfer price a transfer price is the price one subunit that means in our John K the uh uh example key Supermarket okay subunit charges for a product or service supplied to another subunit sorry not the KE Supermarket elepant house charging when they are supplying product the he supermarkets that's the transfer price transfer price is the price one subunit charges for a product or service suppli to another subun of the same organization it can beate always not it can be an intermediate what is intermediate product I'm not going to discuss those things intermediate products are the products transferred between no elephant house giving this product to the he Supermarket after receiving that they may do some further processings and they may Inc some additional CS they may can do some packings or something forur the processing anything for May can do some additional cost to okay now let's see now here elephant in this example elephant house management management of elephant house section or elephant house subsidy stop okay elephant house should decide which price they are going to take on HEK okay there are some ways it can be based on market price it can be based on cost or it can be based on Cost Plus a margin it can be based on the marginal cost or variable cost okay basically in transer pricing we can adopt main three or four ways one is Market based transfer prices next one is cost based transfer prices other one is negotiated transfer prices I think you got the idea then okay end of the day what will happen each section will get the benefit or one section end of the day the John kills group will get the all benefit of this process let's discuss this matter by using the example okay here Market answer surprising I think M chamika from a g has disussed very clearly these things so I'm not going to touch again okay just read these are usually based on listed price on an identical or similar product or Services the actual price the supplying division sells intermediate product to the external customers or the price of competitor offering okay so here example let's see how to do this type of example I believe that you didn't study these things early within this our c h andda syab okay so it will be important to do these sums okay let's see XY Z has two subunits A and B A sells okay a sells half of its output a output on the open market that means half of the goods are sold out for the external sub Market not for the internal sections on the open market and transfer the other half to B cost and external Revenue in the accounting period are [Music] follows okay let's see external sales a external sales refers the sales which done for The Outsiders is 80,000 B has done external sales 240 section B same two section within same organization called X and Y cost of production keep in mind that not means the cost of this 80,000 then okay can you send me a message what about the total production of a section A total sales or something to I mean total production toal production what about that yeah good 160 yes 160 you got the point now that knowledge should be important that mean this cost of production this 120 refers to the whole production means this 80,000 plus another 80,000 having which we transferred to B okay I think you got the idea okay now what is asking company setting a transfer price at market value oh we got the idea because 80,000 we got sold for Outsiders that means same price we incurred from the section B also B okay let's go to the sum question number one it's better to having a table like this here you can see description here section A I am using two columns then section B I am using two columns and XY Z this is the group that means main company okay take one minute and just draw for simple I'm going I have planned to do something okay now I hope you have ready now when it become a here go to the sum again external sales of a is 80,000 and ex external sales of B external sales of B is 2 now what we are going to do why now we are going to calculate the profit belongs to the section A calculate the profit belongs to the section B and calculate the whole profit belongs to the company okay okay let's see now first external sales what we have to do when we are calculating the profit we we have to identify the revenues when then we have to deduct expenses then answer will be the profit okay that's what we are going to do here when it become a we are having 880,000 sales for external market then when it become B we are having 240 for external Market okay then from a we are transferring some for B it's saying half of its output on the market and transfer the other half to B then in such case transfer price is market value that means same as this [Music] external for we are earning a section A earning by transferring to B also same amount 80,000 okay that is transfer Revenue but when it's become b b is not having such a negotiation with a or other section so B is not going to having any transfer Revenue now another Point okay now when a sold his product to B a earnings 80,000 worth of Revenue so when it become B A earnings 80,000 means have to incur a okay then B transferring cost we told that as transfer cost transfer cost transfer Revenue belongs to a transfer cost belongs to B okay I think you got the idea it's minus 80,000 as course I put as Min then in case of a a is not taking any product from uh subunits so no any transfer cost the production cost let's see the sum please cost of production when it's become a cost of production is 120 what is this 100,000 cost belongs to B is going to do some adjustment or let's say some packing or something or some further processings or let's say something moderations some moderations are going to do okay then this is the production cost of B okay then we can adust that production cost belongs to a is 120 then production cost belongs to be 100,000 okay now we can do finished get the total revenue of a 80,000 + 80,000 160,000 then total cost 20,000 then profit belongs to section A is 40,000 160 minus 120 become when become management accounting no need to follow certain structure whatever the method you can use but it should be [Music] rational financi okay let's see B total profit 240 total cost 100,000 plus 80,000 180 profit 60,000 okay here now let's see company I think you got the point so here this transfer cost or Revenue no need to consider here when we are calculating the profit belongs to the X and XY we just need to consider total revenue got from external Sales Plus total cost which we incurred so when it become X and Y XY is it company that means group of company the total sales revenue should be external sales revenue 320 then cost should be we are not considering the transfer cost or transfer Revenue when it become the group as it is the internal matter automatically they are adjusting then total profit of the group is 100,000 see profit belongs to a 40,000 profit profit belongs to B 60,000 profit belongs to the company 100,000 this is the way which we are following when we are calculating the profit of the group that means XY Z I think you got the [Music] idea okay I will give two minutes well if you have any doubts please message doubts on message yeah uh someone is asking how to get this transfer cost okay yeah yeah I I I will explain then I will explain again in English [Music] Okay has subunits A and B A sells half of its output on the open market [Music] external just doing the external sales on only not giving any information regarding the transfer from internal transfers internal [Music] trans for I think now you got the idea okay okay I will it's better I hear some Muslim also there then it's better I will explain in English again here it say 880,000 worth of sales a has done for Outsiders then B has done for Outsiders 240 and here it is saying a is done half of sales for outside and open market and transfer the other half to B here it's saying about the external sales then as here mentioned other half is transfer to B that means they have transferred this both of that means 80,000 both of goods for B at market price here it has been given market price okay now when it's become here external Revenue we can put 8,240 they have given properly that is given data then transfer Revenue a has transferred half of it product that means same as external Revenue we can put 8,000 cost of Revenue of a means in as this is the internal transfer the cost also should should incurred from the internal party one of the internal party here 80,000 has incurred from B that's why I put here transfer cost I think got the idea then product cost also have been given 120 then someone can having a doubt why this 100,000 production cost then it can be further processed some modifications okay that's all why here when it's become company this transfer revenue and transfer cost is not considering as it is internal met no need to consider that okay I think you got the idea is that clear okay if you not clear it's better go through this again and again then you can identify go through the LMS video then go to this I will also will try to upload this recorded video session to my Google Classroom then you can use this again and again because some students are they not having Internet Internet facilities to join so we should facilitate them too yeah okay now auta Market base now we discuss here we are having some other bases also cost base and negotiated price base as like that let's see then I am not going to hear these things you it's better you read those things okay then cost based transfering market price here cost just simple you can read these things here threee methods can be there full cost it can be full cost it can be Full Cost Plus Market transfer price or it can be marginal cost based pricing to okay let's see First full cost based transfer price let's see here same example same example full cost based transfer price here what is the change transfer price at full cost earlier one transer price determined at market price okay is market price then full cost Tak okay first read the sum carefully and try it I think it's better take one minute and try then you can check whether my method is okay or not here all the details same as earlier uh only thing is going to change the cost okay let's go to the sum here also then external Revenue same as earlier from B also same as earlier 40 okay then here transfer Revenue how did we identifi 120,000 divided by 2 you can put under workings then transer Revenue 60,000 how we put this 60,000 transfer cost 60,000 earlier we put 80,000 why I divided this 120 by 2 the thing is earlier we valued this value this figure on Market base okay that means market value of this uh output is 80,000 because as it is half okay here we are going to decide this transfer price on what on [Music] cost the cost belongs to the not the actually 120 it should be the total value 80,000 into 2 80,000 into two okay here that means 160,000 worth of sales on market value we have processed okay cost of that 160,000 Market valued stock cost is 120,000 cost is 12,000 yeah it's okay okay then 120,000 here belongs to Total production half of this production is going to sold out for external parties and half of that is going to sold out for B then from this 120,000 60,000 belongs to that Goods which sold for B for 120,000 divided by 2 as we are going to transfer half of the product for B okay okay then transfer Revenue belongs to a is 60,000 so no transfers from B then B is no transfer revenue for B then transfer cost as transfer Revenue belongs to the a is 60,000 so here it should be same for B also the cost 60,000 minus then no cost for a no transfer cost then production cost details have been given as earlier production okay now we can calculate total revenue belongs to a is 140 total revenue belongs to B is 240 here total cost belongs to B 160 total cost belongs to a 120 profit of a 20,000 profit of B 80,000 here external revenues we need to consider when it become the group then that is 320 then total cost is 220 no need to consider transfer revenue and transfer cost then profit seeit is okay complete this if you have any doubts now you can I think I am doing you can identify this okay then that is about full cost based transer price then uh these things see doubt now uh please go through this notes I am not going to discuss because so many sums I have inserted here now let's see uh if price is going to decide on Cost Plus markup price transer price is going to it's easy right here just one point going to change company setting a transfer price at Full Cost Plus a markup of 25% it's easy I think now you can Dole number three for a it's easy 80,000 for B external sales 240 here what we need to do 120,000 divided by 2 that is the cost into 125 we are going to add the 25% of margin for this cost what the idea okay then need about 70 5,000 no cost for the B then transfer cost no cost for a when it's become B same as transfer Revenue it's 75,000 then we can put the production cost then do Revenue you can get for a and b then total cost you can get for a and b then that don't worry any anyway I will upload this Excel sheet which I Amy doing my sums also I will upload to the Google Classroom then it will be helpful to you all then total sales see end of the day our profit each and every method our profit same as okay any doubts I think now no doubts no please [Music] ask okay hope everything is okay then let's move without wasting any time now marginal cost based trans pricing it's simple than yeah yeah I will upload this video session recording I'm recording this I will upload that for Google classroom but I kind request don't share the links with others okay don't keep that with you okay uh now marginal cost it's easy goods are transferred among the internal divisions at the variable cost or variable cost plus a market price earlier we considered the full cost that means variable cost plus fixed cost but here we just going to depends on the variable cost let's go through the example without wasting any time yeah previous question un need previous question okay this is the question okay now all others are same as earlier now it's going to change this point division a cost per unit is 150 that means fixed cost is 60 and variable cost is 90 company is transfer price at variable cost why they have been given this 150 can you suggest any idea why they have given this 150 now earlier they didn't to anything was about the cost per unit anyone okay here we have to identify variable cost and multiply this by number of units okay for that we have to identify number of outputs for [Music] have number of units therefore let's see how to do this one external sales same as earlier yes for B also here when it become transfer see 120,000 divide by 150 12,000 means total cost belongs to a multiply that by 90 means we are identifying total variable cost as here we are going to Value I decide the transfer price based on the variable cost transfer Revenue this Revenue will be a transfer cost of B can complete complete the sum otherwise if you have any doubts now you can ask don't worry all the things I will upload to the Google Classroom okay okay tell move to the pass paper discussion yeah uh fun is asking uh can you explain how we get for for of okay now let's go to discuss some p pap questions let's [Music] see question for if you have any doubts I'm going to discuss 2017 P paper question and question how to answer that question then you have to go through other questions please go go to that video LMS it's really clear two videos available regarding trans pricing you can get all the theoretical things from that video before to this session I think you should go through that and come as I am not going to discuss all these theoretical part anyway please go through that then you can get some huge knowledge right okay then let's see how to ask for this question okay let's see please read the sum carefully 3 PC operates two divisions X and Y X is a comp uh yeah X and Y X is a component of manufacturing Division and Y is an assembly and final product division both division produce one type of output only there division y needs one component from division X for every unit of product W that means Y is producing the product W for that the output of X is white can input division X transfers to division y all the components needed to produce product okay all the comp further division X sell components on the external market and balance are transferred to division y external Market okay then keep in mind X is selling the product to both external market and internal y y okay why just purchasing this item from X X okay the following budgeted information is available for each division okay market price per component 80,000 market price x g market price per component uh 1,200 production cost C per component 600 assembly cost then non production fixed cost 1.5 million and 1.3 million see external demand external demand 10,000 total capacity 22,000 okay ladies and gentlemen now anyone can tell me please how many units of items will sell so transfer from X to Y 12,000 yes 12,000 that's good got the [Music] ideacity yes all answer good good then 60% of production cost per component is variable that means production cost per component 600 from this 60% is variable the fixed production cost absor based on the budgeted output division sets as transer price marginal cost your marginal cost simply keep in mind variable cost okay variable cost plus 70% okay H let's see how to do first take some time and draft let's I going to use a draft like [Music] for okay now first calculate the profit after tax generated by each division division profit after tax tax then when it's become total revenue there should be two items external sales and the transfer revenues in exter external demands 8 10,000 units market price is 800 then external sales of X can be identified 8 10,000 into 800 10,000 into 800 then how we are going to identify the number of items which is going to transferred from X and Y as one of our guys told we have identified here here in here I am going to do that calculation total capacity 22,000 we are going we are having external sales 10,000 units that means 22,000 minus 10,000 the number of units going to transfer from X to Y is [Music] 10,000 let's see 60% of production cost per component is variable division excepts transfer price at marginal cost plus 70% that means variable cost plus 70% production cost per component is 600 it's easy see here production cost per unit 600 then variable cost 600 into 60% 360 now transfer price 660 no 6 uh 360 into 170% about 620 then transfer Revenue we can identify units number of units that means 120,000 yeah [Music] 12 capacity 22,000 then here 10,000 okay then transer Revenue okay now here we can go the total cost not water Revenue then here we are going to calculate the cost when it become the cost production cost number of items which we have produced we have to consider either it belongs to external sales so it belongs to the internal sales we have to consider the total cost then total cost per unit total C production cost is 600,00 600 number of product item that means of a capacity 22,000 then non production cost have been given as 1.5 million belongs to X division. milion then total of that two items is the total cost cost then profit belongs before tax we can identify total revenue minus total cost then we can get the profit before tax from that it is saying tax rate belongs to X division is 25% it's easy now you can calculate the tax profit before tax into 25% then then you can get the tax value then profit before tax minus tax expenses you can get the profit after tax belongs to the X division then y division in the sum it is saying see market price of w is 1,200 then from X they are Y is going just purchasing items from X from X we got 12,000 items to okay then number of production we can assume equals to 12,000 as it has mentioned one unit of X need for the each and every item of w May w then we can get external sales value we are going to S sold out this product 12,000 items for 1,200 per unit value then you can get the external sales value here from why we are not going to transfer any item to any subunits therefore no transfer Revenue then external total revenue we can get same as the external Revenue then transfer cost already we have identified that is the transfer revenue of the X division then in the Sumit has mentioned there is assembly cost per unit of 400,000 so we can add assembly cost here under the cost here this should be 12,000 not B 400,000 into 12,000 then non production fixed cost have been given in the sum 1.3 million sorry there's our sum 1.3 million yes we can put it that also then total cost can be identified transfer Cost Plus assembly Cost Plus non product Fe fixed cost then total revenue minus total cost we can get the profit before tax then tax rate of the division y has mentioned as 30% here then you can calculate the tax belongs to Department why then you can deduct that amount from The Profit before tax answer will be the profit after tax for okay now some different types of questions can be there other than this okay I will cover up that one also then it will be complete oh otherwise uh it's 92 no uh let's discuss uh 2017 question number four in next class okay up to now if you have any doubts you can ask can you show PS calculations yes I will show and I will upload all these things to your students I will upload all these things to the Google Classroom then I will complete this session this question uh 2017 balance part in uh next class that means next mostly on next Monday yeah now I will upload then you can go to yeah I will upload the pass paper also uh yes all the theoretical Parts uh have been covered up not only theoretical Parts actually all these sums also have cover up in the LMS videos it's a really good video regarding the there are two videos okay you just download that one and follow follow those yeah okay uh I think it's time to wind up I think uh I did the session at my best okay I think it the full session for all of you and you also gave me a full support thank you very much for that one