In the Case of a Wholly Owned Subsidiary, If the Fair

question 37

Multiple Choice

In the case of a wholly owned subsidiary, if the fair value of the consideration transferred plus the fair value of the previously held interest is greater than the net fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary:

• A) goodwill has been purchased and must be recognised on consolidation.
• B) the difference is treated as a special equity reserve in the acquirer's accounting records.
• C) the difference is immediately charged to profit or loss in the period in which the business combination occurred.
• D) a gain on bargain purchase results.

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Definitions:

Straight-line Method

A depreciation technique that allocates an equal amount of the asset's cost to each year of the asset's useful life.

Depreciation Expense

The allocated cost of an asset over its useful life, representing how much of the asset's value has been used up during an accounting period.

Capital Lease

A lease agreement that is recorded as an asset on the lessee's balance sheet because it essentially transfers the risks and rewards of ownership.

Capital Lease Obligation

A lease classified as a financial transaction where the lessee essentially buys an asset and borrows the funds through a lease.