If the Consideration Transferred Is Greater Than the Acquired Interest

question 17

Multiple Choice

If the consideration transferred 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 purchased and must be recognised on consolidation.
• C) the difference is treated as a special equity reserve in the acquirer's accounting records.
• D) the difference is immediately charged to profit or loss in the period in which the business combination occurred.

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Definitions:

Valid Consideration

An essential element of a contract, which constitutes something of value exchanged between the contracting parties.

Forbearance

Forbearance is the action of refraining from enforcing a right, obligation, or debt in a legal agreement, usually as an act of leniency by the creditor.

Sufficient Consideration

A legal concept indicating that the value exchanged in a contract is recognized as adequate, making the contract binding and enforceable.

Illusory Promise

A situation in which a party appears to commit to something but really has not committed to anything. It is not a promise and thus not consideration.