Where the consideration transferred is less than the fair value of the identifiable net assets and contingent liabilities acquired, the difference must be recognised in the consolidation worksheet as:
A) a transfer to the business combination valuation reserve.
B) goodwill.
C) an increase in the 'Shares in subsidiary' asset.
D) a gain on bargain purchase.

Question

Quizplus · Accepted Answer

The difference between the consideration transferred and the fair value of identifiable net assets and contingent liabilities acquired represents a gain on bargain purchase. This is recognized in the consolidation worksheet as a gain on bargain purchase. It cannot be recognized as goodwill as the consideration paid is less than the fair value of identifiable net assets and contingent liabilities acquired. It is also not recognized as an increase in the 'Shares in subsidiary' asset or a transfer to the business combination valuation reserve.

Where the Consideration Transferred Is Less Than the Fair Value