Question

"Which statement is FALSE concerning a bargain purchase with noncontrolling interest at the date of acquisition?

a) A bargain purchase may arise when the fair value of the net identifiable assets acquired exceeds the consideration transferred.
b) In a bargain purchase, the acquirer recognizes a gain in the income statement at the acquisition date.
c) In the presence of a noncontrolling interest, the gain recognized due to a bargain purchase is allocated proportionately between the controlling and noncontrolling interests.
d) A bargain purchase implies that the total fair value of identifiable net assets acquired is less than the total consideration transferred."

Answer 1

The false statement about bargain purchase with noncontrolling interest is that it implies net assets acquired are less than consideration transferred, when it actually occurs when the fair value of net assets exceeds the consideration.

Step-by-step explanation:

The statement that is FALSE concerning a bargain purchase with noncontrolling interest at the date of acquisition is: "A bargain purchase implies that the total fair value of identifiable net assets acquired is less than the total consideration transferred." In fact, a bargain purchase occurs when the opposite is true; it arises when the fair value of the net identifiable assets acquired exceeds the consideration transferred. This situation may lead to the acquirer recognizing a gain, which is reported on the income statement.

Furthermore, the allocation of gain in the presence of a noncontrolling interest does not necessarily happen proportionately in practice. Although the gain from a bargain purchase is reflected on the income statement, the distribution between controlling and noncontrolling interests is subject to the specific acquisition arrangement and relative values of controlling and noncontrolling interests. The noncontrolling interest's share is measured at its proportionate share of the acquiree's identifiable net assets, which does not automatically result in a proportional share of the gain recognized from a bargain purchase.