ACCOUTING ANALYSIS

Accounting Analysis

[Name of the Institute]

Accounting Analysis2

1.0 Introduction2

Part 1: Question 12

2.0 General Background of Performance Measurement2

Return on Investment and Economic Value Added3

2.1 Return on Investment3

2.2 Purpose3

2.3 Economic Value Added5

2.4 Limitations6

Part II: Question 27

2.5 Purpose7

2.6 Methods of Transfer Pricing8

2.7 Market Based Pricing8

2.8 Advantages and Disadvantages9

2.9 Cost based9

3.0 Advantages and Disadvantages11

3.1 Negotiated based pricing12

3.2 Advantages and Disadvantages12

3.3 Recommendations13

References14

Accounting Analysis

1.0 Introduction

In order to answer the questions appropriately, the following paper is divided into two parts. The first part presents answer to the first question while the second part presents the answers to the second question. In answering the first question, the paper starts with a brief discussion about The Return on Investment and Economic Value added along with their various advantages and disadvantages, and it also discusses about the uses of Return on Investment and Economic Value Added for managers to focus on short term and the decision making. The second part is associated with the various methods of transfer pricing when transferring products between the various divisions of the business and it also discusses their advantage sand disadvantages.

Part 1: Question 1

2.0 General Background of Performance Measurement



According to Simons (2000) “Performance measurement” is the procedure of collecting, divide or reporting qualified information in regards to the performance of a singular, assembly organization, framework or segment. It can include considering over processes/strategies inside organizations, or mulling over designing processes/parameters/phenomena, to see if return are in accordance with what was expected or might as well have been accomplished.

According to Neelyas (1995) Performance measurement has been "the methodology of quantifying the proficiency and viability of past activities", while according to the (Moullin, 2003) describes it as "the procedure of assessing how well organizations are administered and the worth they convey for clients and different stakeholders".

Return on Investment and Economic Value Added

2.1 Return on Investment

According to Ferris (2010) the Return on investment is practice in the modern management that is being used for the analysis of business strategies and operations. The most important application of this practice is in the evaluation of the purchase decisions for the investments in capital equipment or the technology. It is basically a simple measurement of the benefit versus cost. The return on the investment is expressed in the percentage and the formula for the determination of Return on Investment is total benefits divided by the total net present costs. The benefits and the costs are converted into the present values since they usually accrue over the extended periods of time.

2.2 Purpose

Farris (2010) states that the purpose of the return on investment is to measure the rates of the return on the capital investment in a business entity in order to decide if the project should be accepted or rejected or in other terms the project is profitable for the business or not. It is basically a tool that will provide the complete picture to the business about the profitability that is being adjusted for the size of the investment assets tied up in the ...