Case Study 17: Applying AASB 3/IFRS 3
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 professional acquaintances that this should be recognised as income. However, she reasoned that this would increase the consolidated profit in the first year after acquisition date. As she is aware that the preacquisition equity of the subsidiary needs to be eliminated on consolidation, she is unsure of whether this profit is all post- or pre-acquisition profit or a mixture of the two.
Required
Compile a detailed report on the nature of the gain on bargain purchase, its recognition on
acquisition and the effects of its recognition on subsequent consolidated financial statements.
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