Cost pricing clarification

Question

HI Myob communityJust to clarify when you purchase an item to out into your inventory to sell later is it the price you put in as the purchase price or is it the actual price that you paid. I purchase items internationally as as t he currency changes so does the purchase price.&nbsp;For example I'm just trying to get my head around how MYOB calculates "profit". So if I purchase an item for $20 and sell it for $50 then the profit is $30. Then the following time the item costs $25 so the "profit drops to $25. Does MYOB then calculate the average of these two purchases and sales?&nbsp;Then in part two of the question to make things even more complicated I have this scenario.We have a USA component to our business and we are often sharing equipment purchases. So Au business will buy product A and USA business will buy product B. We then transfer stock between the two businesses.&nbsp;At present to keep the inventory in each business correct I will simply put in X number of product A in sales from Au business and have the invoice total of $0 and similarly have a purchase invoice from USA business will a total of $0.&nbsp;By doing this will MYOB then see the purchase price as $0 and then calculate t he actual profit of the sale as described earlier as now $50 profit as there was no cost?I guess then the inventory costs or sales will be affected as I have sold items at $0 in the system. Would this then show up in the system as -$25 profit?It gets even more complicated as most times the items I am transferring between the two business as priced differently as one business is operating in USD and the other in AUD so exchange rates also come into play.Sorry it's a bit long. Over to you community

steven_m · Accepted Answer

Hi Mark299&nbsp;
&nbsp;
The "fair transfer price agreement" is not something that I would be able to comment on.
&nbsp;
However, there was a question relating to closing off an invoice and purchase without the impact on the bank account. Generally in these situations, you want to use a contra/holding account and use the below process:
&nbsp;

Create a holding account if you don't already have one - Accounts&gt;&gt;Accounts Lists&gt;&gt;New - give the account a number, name and set the account type to be Bank.
When ready to make payment, go to Sales&gt;&gt;Receive Payments&gt;&gt;Select the Deposit to Account to be that newly created account and then process the payment as per normal.
Once that has been created, go to Purchases&gt;&gt;Pay Bills&gt;&gt;Select the Pay from Account to be that newly created account and then process the payment as per normal.

What the above process will do is put the payment from the invoice into the holding account and uses those funds to pay off the purchases. As no "real" bank accounts are involved there is no impact on your bank accounts.

mark299 · Answer

Hi StevenI think this will work. Even though I transfer he equipment between two separate MYOB accounts I should be able to apply a income and expenditure through both of the businesses and still maintain the correct payments.Thanks for the great idea

mike_james · Answer

Hi&nbsp;Mark299&nbsp;, when you buy and sell one item at a time, if there was no stock on hand prior, the cost of each sale will be what the last purchase cost was, in your home currency.&nbsp;&nbsp;However, if you buy one item, and then immediately buy another, MYOB will then hold both items in stock and average the cost, so when you sell each item, the (average) cost would be $22.5 in your example.&nbsp;&nbsp;&nbsp;In your second example, the inventory quantities will be correct, but:- the sale to AUS by USA will generate a loss,&nbsp;- the purchase from USA by AUS will show a 100% margin- this is probably unacceptable under transfer pricing regulations- you need to determine a fair transfer price, probably including freight costs, then each side will report a portion of the margin. You should investigate which currency the transfer price should be set in.&nbsp;&nbsp;

mark299 · Answer

HI Mike Thanks for the prompt reply and I thought this would be the case. Sometimes when you look at the profit and losses they didn't really make sense.

I guess the answer is to get like for like in the transfers so they cancel each other out as a purchase and a sale.

So if I transferred say 65 item A's in a sale to the USA at a value of $6,500 and then did the same transfer for item B (that cost more) but there was less of them equal to the $6,500 value each item would retain it's own profit margin in each business.

The only thing is how we show that transfer of funds to each company withour having it transfer though a bank account

Maybe if I create a credit from each business (based on the sale) and then put the transfer in as a purchase and use the credit to cover the payment. That would show the right figures but would it satisify the "fair tranfer price agreements for each country?

Any other suggestion?

Thanks

mark299 · Answer

HI StevenOK so I have a small issue with the solution. On paper it looked like it would work however what I failed to factor in is that I am running two separate accounts for the two separate businesses.So what I did was set up the electronic bank account for the two businesses as suggested.Then I created a purchase for the items "a" in the australian MYOB (amount was $15490) and then did a corresponding purchase for items "b" in the USA account totalling $15,490. This would then be recorded as "value" in the stock as eached was transferred.So I had to work out how each purchase would then be paid by the corresponding businesses. So in the end I used receive money (did not include GST) and basically received money form the AU and USA businesses. I then used this "electronic" money in the lecetronic business account to pay for the purchases from the two businesses. This cancelled out the amounts in each of the electronic bank accounts however the receive money showed up in the profit and loss as I put it in the Miscellaenous income column. This shows up as profit we have not received.&nbsp;So I have now moved the received funds in the owners capital account (as this is equity) and it does not show up a income int he profit and loss statement, however I wonder what it does show up in and how that will affect the accounting overall?&nbsp;Any thoughts?&nbsp; At least this gives us something to think about rather than Covid!Thanks in advance

steven_m · Answer

Hi&nbsp;Mark299&nbsp;
AccountRight is a double-entry system so there will need to be an impact involved in recording a transaction to two or more accounts.&nbsp;
&nbsp;
For what you originally indicated, as the transaction was recorded to an Income account this would impact the income account thus there would be a flow-on effect to the Profit &amp; Loss, which reports Income, Cost of Sales and Expense amounts.
If you have changed that account to an Equity account i.e. Owner's Capital, this increase(or decrease) that account balance. This would have a flow-on effect on the Balance Sheet of the company file, which is designed to report Assets, Liabilities and Equity amounts.

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Cost pricing clarification

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