In rare cases the cost of purchasing a business combination may be less than the sum of the fair values of the identifiable assets and liabilities acquired (bargain purchase). Which of the following statements concerning the requirements of IFRS 3/AASB 3 in this situation is true?
A) The buyer and the seller must adjust the value to the consideration to eliminate the bargain purchase.
B) Any bargain purchase difference should be eliminated by adjusting the values of the assets acquired as it is not possible to recognise a bargain purchase.
C) A genuine bargain purchase should be recognised immediately as a gain that is an addition to profit.
D) A genuine bargain purchase should be recognised progressively as an addition to profit over a 20 year period.

Question

Quizplus · Accepted Answer

According to IFRS 3/AASB 3, in case of a bargain purchase, a genuine gain arising from the business combination should be recognised immediately as a gain that is an addition to profit. The buyer and seller do not have any requirement to adjust the value to the consideration or adjust the values of the assets acquired. Also, there is no requirement to recognise the gain progressively over a period of time. Therefore, option C is correct.

In Rare Cases the Cost of Purchasing a Business Combination