Intra-Company Transactions
Each product
sub-segment should correctly reflect the results of that individual product
sub-segment. The respective product sub-segment Income Statement therefore
includes all sales to all other product sub-segments.
Refer to chapter Product Segments and Product Sub-Segments for all specific boundaries between the different product
sub-segments.
For elimination purposes
different types of intra-company sales within a Group Reporting Unit have to be distinguished:
• Intra sub-segment sales: Sales within one product sub-segment. Such sales need to be eliminated in a respective product sub-segment Income Statement.
• Intra-segment sales: Sales from one product sub-segment to another within the same product segment (e.g. sales from the product sub-segment asphalt to the product sub-segment construction paving), both belonging to the product segment other construction material and services).
• Segment sales: Sales from one product sub-segment to another not belonging to the same product segment (e.g. sales from the product sub-segment clinker and cement as part of the product segment cement to the product sub-segment ready-mix concrete as a part of the product segment ready-mix concrete).
Note that for management accounting purposes it does not matter if sales within or between product sub-segments and product segments respectively concern one or more Group companies. It has always to be strictly reported within the defined product sub-segments and product segments. However, for Group consolidation purposes, inter-company sales (between reporting entities) have to be separately reported and the Net Sales has to be disclosed by Group companies receiving the services or products, according with the instruction in chapter
Transfer Price
The objectives of
the internal transfer pricing process is to:
• Replicate competitive 3rd party cement, aggregate, RMX, asphalt and other products market price for internal customers
• Support the price, margin and market share objectives in all business lines in which company is present in a given country
• Maximize sustainable profitability of company across business lines
Internal sales from
one product sub-segment to another (transfer price) must be based on market
prices using the concept of 'most preferred customer'.
• If internal sales are the largest customer, the market price is the same as the one applied to the 'most preferred third party customer'
• If internal sales are not the largest customer, the market price corresponds to the one applied to a third party customer of equivalent size
This will ensure
that product sub-segment results remain relevant on a stand-alone basis.
Examples
• Transfer Price = Market Price = ‘Arms Length’ = ‘Most favoured customer’ In case of material differences in payment terms or in payment risk between internal and external clients, restate prices to comparable levels (basis: local financing cost, historical write off on receivables, tbd.)
• Sales of asphalt from the product sub-segment asphalt to construction / paving are recorded as net sales in the product sub-segment asphalt, but these sales have to be eliminated when reporting the net sales and costs of the aggregated product segment solutions and products.
• Sales of cement from the product sub-segment clinker and cement to ready-mix concrete are recorded as net sales in the product sub-segment clinker and cement as well as in the product segment cement. These sales have only to be eliminated when reporting the net sales and costs at company level.
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