When there is a gain on bargain purchase at the acquisition date, the net fair value of the identifiable assets and liabilities of the subsidiary is greater than the consideration transferred. Which of the following statements in this situation is FALSE?
A)The acquirer must firstly reassess the identification and measurement of the subsidiary's identifiable assets and liabilities as well as the measurement of the consideration transferred.
B)The expectation is that the excess of the net fair value over the consideration transferred is usually the result of measurement errors rather than being a real gain to the acquirer.
C)Having confirmed the identification and measurement of both amounts paid and net assets acquired, if an excess still exists, it is recognized immediately in profit as a gain on bargain purchase.
D)Existence of a gain on bargain purchase has no effect on the fair value adjustments when the subsidiary has previously recorded goodwill.

Question

Quizplus · Accepted Answer

When a gain on bargain purchase exists, the excess amount must be allocated to the identifiable assets and liabilities of the subsidiary in proportion to their fair values. If the whole excess is assigned to a single asset or liability or to goodwill, it implies an error in identifying or measuring the assets or liabilities. If such errors are not found, then the gain on bargain purchase is recognized immediately in profit or loss. However, this recognition does not impact the fair value adjustments previously recorded by the subsidiary, including goodwill. Therefore, statement (D) is false.

When There Is a Gain on Bargain Purchase at the Acquisition