Where a parent entity acquires an investment in a subsidiary for less than the fair value of the identifiable net assets and contingent liabilities acquired, it is necessary to recognise the item in the consolidation worksheet as a gain in bargain purchase and then to:
A) transfer it to a business combination valuation reserve account
B) goodwill;
C) investment in the shares of the subsidiary;
D) profit or loss.

Question

Quizplus · Accepted Answer

When a parent entity acquires an investment in a subsidiary for less than the fair value of the identifiable net assets and contingent liabilities acquired, the difference is recognised as a gain on a bargain purchase in the profit or loss. This reflects the immediate benefit to the acquirer from acquiring assets at less than their fair value.

Where a Parent Entity Acquires an Investment in a Subsidiary