When There Is a Gain on Bargain Purchase at the Acquisition

question 47

Multiple Choice

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.

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Definitions:

Price Elasticity

A measure of the responsiveness of the quantity demanded of a good to a change in its price.

Quantity Demanded

The total amount of a good or service that consumers are willing and able to purchase at a specific price point.

Equilibrium Price

The cost level where the amount of a product or service that consumers want to buy equals what is available, resulting in a balanced market situation.

Supply Curve

A graphical representation showing the relationship between the price of a good or service and the quantity supplied.