If the consideration transferred is greater than the acquired interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquiree:
A) a gain on bargain purchase results.
B) goodwill has been purchased and must be recognised on consolidation.
C) the difference is treated as a special equity reserve in the acquirer's accounting records.
D) the difference is immediately charged to profit or loss in the period in which the business combination occurred.

Question

Quizplus · Accepted Answer

When the consideration transferred in a business combination exceeds the acquirer's interest in the net fair value of the identifiable assets, liabilities, and contingent liabilities of the acquiree, the difference is recognized as goodwill. This goodwill reflects the premium paid for expected synergies, intangible assets that cannot be separately identified, and other factors. It is capitalized on the balance sheet and subject to annual impairment tests, rather than being charged immediately to profit or loss or treated as a reserve.

If the Consideration Transferred Is Greater Than the Acquired Interest