Question

If the purchase cost is less than the fair value of the net assets purchased, there are merger gains (Bargain) that must be treated as:

As an income, and it is included directly in the income statement.

As a loss it is included directly in the balance sheet statement.

As a loss, and it is included directly in the income statement.

As an income it is included directly in balance sheet statement.

Answer 1

Whenever a business is purchased a purchase consideration is paid for that transaction. If the purchase consideration is more than the net assets acquired on acquisition the excess is for the hidden Goodwill on the contrary when purchase consideration is less than the value of net assets acquired it is to be recorded as capital reserves in the balance sheet of the parent company.

On the basis of all the discussion the Option D is the correct answer.( As an income and is should be directly included in the Balance Sheet)