FAR analysis mainly determines:

Question

BlackTom AI · Accepted Answer

FAR analysis determines the functional profile and the economic contribution of the parties involved.

Relevant knowledge points and concepts:
- FAR stands for Functions, Assets, and Risks. It is a core diagnostic step in transfer‑pricing and economic analyses to understand who performs which activities (functions), who employs which resources (assets), and who bears which uncertainties (risks).
- The output of a FAR analysis is a detailed functional profile and an assessment of each party’s economic contribution to value creation and profit generation.

Step‑by‑step reasoning:
1. Identify the three components: Functions (what activities are performed), Assets (tangible and intangible resources used), and Risks (commercial, financial, inventory, etc.). These together form the FAR framework.
2. For each party, list specific functions (e.g., R&D, manufacturing, distribution), the assets they use (e.g., IP, plant, working capital), and the risks they bear (e.g., market, credit, product liability).
3. Translate these items into economic roles: who creates value, who exploits intangibles, who takes market exposure. This mapping shows relative economic contribution.
4. Use the findings to decide the appropriate transfer‑pricing method, identify the profit‑bearing entity (e.g., principal vs. agent), and quantify remuneration consistent with value creation.

Why the correct answer is correct:
- A FAR analysis explicitly captures both the functional profile (detailed activities and assets) and the resulting economic contribution (how those functions/assets/risks drive profits). It is designed to do both, not just one.

Why other options are incorrect:
- (a) Functional profile alone is incomplete because FAR also assesses risks and assets and thus economic impact.
- (b) Ownership percentage is not the primary focus; legal ownership may differ from economic contribution.
- (d) Economic contribution alone omits the functional/asset/risk detail required to justify that contribution.

Conclusion: Therefore, option c (Functional profile and economic contribution) is correct, matching the provided answer.

FAR analysis mainly determines:Single choice

Similar Questions

Which ONE of the following statements is MOST ACCURATE?

According to Dr Paul Hardisty, when there was a major oil spill off the coast of Louisiana and Texas, the GDP of those states actually increased. This was because: Select a single answer.

Under typical participation exemption regimes, dividends may be exempt provided that:

A US entity owns 100% of several CEs, and it is itself owned 79% by another CE which consolidates the US entity and its subsidiaries. What is the US entity?

When evaluating the performance of hedge funds, which of the following factors can make this task more complicated?[Fill in the blank]

The behaviour by the Reserve Bank of Australia is a key factor underlying the link between __ and _, and is summarised by the aggregate-demand curve.[Fill in the blank]

For a given level of inflation, if a stock market crash makes consumers less willing to spend (the wealth effect), then the _ shifts _.[Fill in the blank]

More Practical Tools for Students Powered by AI Study Helper

Homework AI Solver

Stylized AI Paper Writer

Plagiarism Checker Assistant

Citation AI Academic Writing Tool

In-Class Translation Assistant

AI Note Generator

AI Quiz Answers

Past Exam Questions from University Test Bank

Smart Practice Assistant

Adaptive Practice

Making Your Study Simpler