Exercise 21.5 ★ ★ BARGAIN PURCHASE The accountant for Carina Ltd, Ms Finn, has sought your advice on an accounting issue that has been puzzling her. When preparing the acquisition analysis relating to Carina Ltd’s acquisition of Lyra Ltd, she calculated that there was a gain on bargain purchase of £10 000. Being unsure of how to account for this, she was informed by accounting acquaintances that this should be recognised as income. However, she reasoned that this would have an effect on the consolidated profi t in the fi rst year after acquisition date. For example, if Lyra Ltd reported a profi t of £50 000, then consolidated profi t would be £60 000. She is unsure of whether this profi t is all post-acquisition profi t or a mixture of pre-acquisition profi t and post-acquisition profi t. Required Compile a detailed report on the nature of an excess, how it should be accounted for and the effects of its recognition on subsequent consolidated fi nancial statements.