Need for Parallel Valuation Methods 

The different views discussed in the section Managerial Aims of Transfer Pricing  often require the use of different methods of valuation that reflect that various goals.

Business results as well as material inventories need to be shown using these different methods in order to meet the various information requirements. This involves the following views:

●     Legal view

The legal view is the view of the individual enterprise that represents the transfers of goods and services between independent companies according to the legal reporting requirements

●     Group view

In the group view, the exchanged goods and services within the group are valuated using corporate‑wide costs of goods manufactured with internal profits between member companies being eliminated

●     Profit center view

In the profit center view, the exchanges of goods and services between profit centers are valuated using internal prices in order to determine the profitability of those profit centers and manage them accordingly (profit center view)

Many companies that require all these different valuation methods are therefore faced with the dilemma of storing these in parallel or creating them at period‑end by means of value adjustments.

When a member company manufactures a product, it typically has to purchase raw materials from “third parties”, or companies outside the group, during different stages of the manufacturing process, and processed or resold in different responsibility areas (legal units or profit centers). During this process different values may arise in the different views.

This example makes it clear that the only way to be ensured of reliable controlling information is to represent the quantity flows involved in the logistic process using multiple value flows. The central features of transfer pricing in Release 4.0 of the SAP system allow you to valuate your quantities using separate value flows that run parallel throughout the financials components.

If you were to only valuate the quantities in this example with one value, you would need to apply blanket valuation methods to your quantities at period end to achieve the information necessary for controlling at the corporate level. This procedure, however, would be linked with a great potential for inaccuracy and considerable effort.