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QUESTION 2 [10 MARKS] a) State the types of intercompany transactions for which a transfer price must be determined. (3 Marks) b) Goodlife Company manufactures food blenders in the United Kingdom at a production cost of £80 per unit and sells them to uncontrolled distributors in the United Kingdom and a wholly-owned sales subsidiary in Canada. Goodlife's UK's distributors sell the blenders to restaurants at a price of £200, and its Canadian subsidiary sells the blenders at a price of £250. Other distributors of blenders to restaurants in Canada normally earn a gross profit equal to 30 percent of selling price. Goodlife's main competitor in the United Kingdom sells food blenders at an average 30 percent markup on cost. Goodlife's Canadian sales subsidiary incurs operating costs, other than cost of goods sold, that average £160 per blender sold. The average operating profit margin earned by Canadian distributors of blenders is 10 percent. REQUIRED: Determine the transfer price (arm-length's price) between Goodlife Company Canadian Subsidiary using the following method: 1) Cost plus method 2) Resale price method 3) Comparable profit method

          QUESTION 2 [10 MARKS]
a) State the types of intercompany transactions for which a transfer price must be
determined.
(3 Marks)
b) Goodlife Company manufactures food blenders in the United Kingdom at a production cost
of £80 per unit and sells them to uncontrolled distributors in the United Kingdom and a
wholly-owned sales subsidiary in Canada. Goodlife's UK's distributors sell the blenders to
restaurants at a price of £200, and its Canadian subsidiary sells the blenders at a price of
£250. Other distributors of blenders to restaurants in Canada normally earn a gross profit
equal to 30 percent of selling price. Goodlife's main competitor in the United Kingdom sells
food blenders at an average 30 percent markup on cost. Goodlife's Canadian sales
subsidiary incurs operating costs, other than cost of goods sold, that average £160 per
blender sold. The average operating profit margin earned by Canadian distributors of
blenders is 10 percent.
REQUIRED:
Determine the transfer price (arm-length's price) between Goodlife Company
Canadian Subsidiary using the following method:
1) Cost plus method
2) Resale price method
3) Comparable profit method

QUESTION 2 [10 MARKS]
a) State the types of intercompany transactions for which a transfer price must be
determined.
(3 Marks)
b) Goodlife Company manufactures food blenders in the United Kingdom at a production cost
of £80 per unit and sells them to uncontrolled distributors in the United Kingdom and a
wholly-owned sales subsidiary in Canada. Goodlife's UK's distributors sell the blenders to
restaurants at a price of £200, and its Canadian subsidiary sells the blenders at a price of
£250. Other distributors of blenders to restaurants in Canada normally earn a gross profit
equal to 30 percent of selling price. Goodlife's main competitor in the United Kingdom sells
food blenders at an average 30 percent markup on cost. Goodlife's Canadian sales
subsidiary incurs operating costs, other than cost of goods sold, that average £160 per
blender sold. The average operating profit margin earned by Canadian distributors of
blenders is 10 percent.
REQUIRED:
Determine the transfer price (arm-length's price) between Goodlife Company
Canadian Subsidiary using the following method:
1) Cost plus method
2) Resale price method
3) Comparable profit method

Added by Rocio H.

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