Where a Parent Entity Acquires an Investment in a Subsidiary

question 17

Multiple Choice

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.

---

Definitions:

Direct Labor

The cost of labor directly involved in the manufacture of products, such as wages paid to workers on the assembly line.

Manufacturing Overhead

All indirect costs associated with the production process, including utilities, depreciation, and salaries of non-direct labor.

Direct Labor

Direct labor refers to the wages paid to employees who are directly involved in the production of goods or services.

Direct Materials

Raw materials that are directly consumed in the manufacturing process of a product and are easily traceable to it.