If the Cost of a Business Combination Is Greater Than

question 25

Multiple Choice

If the cost of a business combination is greater than the acquired interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquiree:

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

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Definitions:

Fixed Costs

Expenses that remain constant regardless of the amount of production or sales, including rent, wages, and insurance premiums.

Mixed Cost

A cost that contains both fixed and variable components and changes with the level of output but not directly in proportion.

Fixed Cost Element

A component of total costs that does not change with the level of output or activity within a certain range.

Fixed Cost

Costs that do not change with the level of manufacturing activity or output, such as rent, salaries, and insurance premiums.