Transfer Pricing Concept

Transfer Pricing Concept

Transfer pricing is a concept related to internal sales i.e. sales is made by one department to another department. The prices at which these transfer are made are known as transfer price. Transfer price does not affect the overall profit, because profit on division is cost of another division.

Transfer Pricing Objective

1.    Full autonomy

Transfer pricing is source of full autonomy of decision making to the divisional manager. It means divisional manager enjoys full authority of decision making and therefore is total responsible for investment center performance.

2.    Fair Performance Valuation

Transfer pricing ensures fair performance evaluations. Transfer pricing allows selling department to charge a fair price for its goods. Thus performance of selling department would not be negatively affected by such transfer.

Types of Transfer Price

Transfer can be made on cost and above cost (adding some profit) and market price.

1.    Transfer at Cost

Selling department may transfer the goods to purchasing department either on marginal cost or full cost. It means that transfer cost may be categorized into full cost and marginal cost method.

2.    Transfer at Cost Plus

Selling department may charge some profit to the purchasing department. Management will decide about the profit margin on the transfer.

3.    Transfer at Market Price

Selling department may transfer the goods to purchasing department at market price. This method can only be used where external market for good exists.

Advance Happy New Year 2016

Advance Happy new Year 2016

We are Positive

we are celebrating the new year in advance, because most of the people in the world are positive about this life and this world, which is good news for us.

We are Optimistic

The other main reason for celebrating the Happy new year in advance is majority of the people in this world are optimistic , which is again a healthy sign.

World is beautiful Place

Third reason for celebrating happy new year in advance is our belief that , this world is a beautiful place created by Allah for us.


There are so many reason for celebrating the Happy new Year in advance.

Performance Pyramids Theory Characteristics

Performance Pyramids Theory Characteristics

1.    Different level

Pyramids approach focuses on fact that organization work at different level. It means that different department and manager have different tasks and objectives and every department is interested to achieve those objectives.

2.    TOP Level Objective is Target

Every level of hierarchy have different performance targets, however, each level should support top level objective. It means despite having different objective, there is a linkage between these objective i.e. lower hierarchy objectives should support higher hierarchy objective.

3.    Customer Satisfaction

Customer satisfaction is one of the key objectives .it means customer satisfaction should be given due consideration by the organization and any negligence in this part is not acceptable situation for organization.

4.    Flexibility

Organization must be flexible both internally & externally. It means that organization must be able to respond the changes occurring in the business world. In modern world the business required dynamic approach for existence and growth.

5.    Productivity

Organization must focus on the productivity i.e. effective utilization of resources. In modern business competitive advantages is key for success, organization should increase the productivity of the organization to be more competitive.

Balanced Approach Theory Characteristics

Balanced Approach Theory Characteristics

1.    Long Term Measurement

Performance is measured in relation to long term objectives. The basic criteria of balance approach is achievement of long term objective, however, short term objectives are given due consideration to achieve long term objective.

2.    Financial & Non financial Aspects

Organization has financial and non financial aspects. Primary aspect is financial aspect, however, non financial aspect should also be given due consideration.

3.    Setting Targets

In balance approach targets are set for each aspect of the business. Organization tries to achieve the set targets.

4.    Conflicting objective

In balance approach there may be conflicting objective and therefore a balanced approach is recommended to achieve long term objective. This balanced approach is key to achieve the long term objective in a balance way.

5.    Four aspect

In balanced approach there are four aspect of organization i.e. customer prospect, internal prospect, innovation & learning and financial aspect. For each aspect measuring tool are defined or identified.

6.    Customer Prospect

Organization must identify the customer value and prioritization. In simple term organization must identify the customer value. The customer value may be measured by customer satisfaction, customer retention, customer addition, etc.

7.    Internal prospect

Second prospect is to identify the process required to satisfy customer value or demand from the organization. Measure for internal prospect may include material wastage controls, internal controls, etc.

8.    Innovation & Learning

Third prospect is creating value for the customer, which is off course is not possible without innovation process. Possible measure of innovation & learning is product quality, employee satisfaction, employee efficiency, etc.

9.    Measure the Value

Fourth aspect is to measure the value created by the organization i.e. increase in profitability or earning per share.

Planning is Important

Planning is Important

In the modern business environment, effective planning is the need of every business, and without proper planning, it is almost impossible to survive in the modern business world.

1.   Grab Future Opportunities

Management must plan to grab the future opportunities, if management fails to plan for future, then those opportunities would be snatched by the competitor.

2.   Planning is everything

Planning is everything in business, if a business has no plan for future, it means it has no destination, and it is more like a free floating kite, which would ultimately be lost in the sky.

3.   Age of Survival

Many organization has ceased to exist, who could not plan the future appropriately. Modern business world is age of survival. Due to technology explosion effective planning has become a dire need of every business.

4.   Business is Dynamic

Business world is dynamic in nature, and therefore a continuous planning is required to compete in the market. Management must have appropriate short term & long term plan for the business.

5.   Your Goals need planning

Business ultimate goals cannot be achieved without proper planning. Management must plan to achieve the strategic objective of the organization.

Reasons of Liquidity Reduction

Reasons of Liquidity Reduction

Liquidity reduction is referred to a situation, where current asset are not increasing with same rate as current liabilities. It means when current liabilities are rising at higher rate than current asset. This situation will result in more current liabilities and less current asset.

1.    Operating Losses

Liquidity reduction reason includes operating losses i.e. operating losses is financed by the current assets and therefore current asset are reducing. It means to improve current asset ratio, organization must improve its profitability.

2.    Purchase of Fixed Asset

Liquidity reduction reasons also include purchase of fixed assets i.e. utilization of cash for the purpose of fixed asset; it means that no less cash is available for operational payment.

3.    Loan Repayment

Liquidity reduction may also be due to a loan repayment. It means that due to huge cash outflow of loan installment, current asset has declined. Loan payment will deteriorate the liquidity within organization.

Significance of Liquidity

Significance of Liquidity

Liquidity is a concept related to sufficiency of cash i.e. organization must have sufficient cash to remain operation & functional.  Organization requires cash or funds for many purposes which include operational payment, loan payments, and payment to supplier.

1.    Operational Expenses

Liquidity is a fundamental requirement for the organization to remain functional and operational.  In case of failing to pay operational expenses, it would be difficult for the organization to remain functional & operational in the market.

2.    Loan Payment

Liquidity is also required for the payment of loan obligation i.e. loan installment. In case default, organization may be declared as insolvent. There are number of disadvantages associated with insolvency and company will face those disadvantages.

3.    Goodwill

Liquidity is required to maintain goodwill of the organization. Delayed or nonpayment of obligation damages reputation of the organization, and organization may face difficulties for arranging new finances in cases of default history.

4.    Supplies

Liquidity is also necessary for making payment to the supplier. In case of default, the supplies may be stopped by the supplier, and organization would not be able to continue production. It will also reduce the free credit facility (credit supply).