Where the consideration transferred is less than the fair value of the identifiable net assets and contingent liabilities acquired, the item must be recognised in the consolidation worksheet as:
A) a transfer to the business combination valuation reserve.
B) goodwill.
C) an increase in the 'Shares in subsidiary' asset.
D) a gain on bargain purchase.

Question

Quizplus · Accepted Answer

When the consideration transferred is lower than the fair value of the identifiable net assets and contingent liabilities acquired, it is recognized as a gain on bargain purchase. This means that the acquirer paid less for the subsidiary than the fair value, resulting in a gain for the acquirer. This gain is recognized in the income statement as a non-recurring item.

Where the Consideration Transferred Is Less Than the Fair Value