Question
The accountant for Bingo Ltd, Ms Diva, has sought your advice on an accountancy issue that has been mystifying her. When preparing the acquisition analysis
The accountant for Bingo Ltd, Ms Diva, has sought your advice on an accountancy issue
that has been mystifying her. When preparing the acquisition analysis relating to Bingo
Ltd's acquirement of Tasha 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
colleagues that this should be treated as income. However, she figured that this would
influence the consolidated profit in the first year after acquisition date. For example, if
Tasha Ltd reported a profit of $50,000, then consolidated profit would be $60,000. She is
unsure of whether this profit is all post- acquisition profit or a mixture of pre-acquisition
profit and post-acquisition profit.
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 financial statements.
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