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 correct?

Question

Quizplus · Accepted Answer

According to IFRS 3/AASB 3, a genuine bargain purchase should be recognised immediately as a gain that is an addition to profit. This gain should be separately disclosed in the income statement as an extraordinary item, unless it arises from the ordinary activities of the acquired entity. Therefore, option A is the correct answer. Option B is incorrect because there is no requirement for the buyer and seller to adjust the value of consideration to eliminate the bargain purchase. Option C is incorrect because it is not necessary to adjust the values of the assets acquired to eliminate the bargain purchase difference. Option D is incorrect because there is no requirement to recognise a bargain purchase progressively over a 5-year period.

In Rare Cases the Cost of Purchasing a Business Combination