Final answer:
A gain on bargain purchase arises when the cost of acquisition is less than the fair value of the acquired company's net assets, often due to reasons like a distressed sale. Under IFRS 3, this gain should be immediately recognized in profit or loss.
Step-by-step explanation:
The question addresses the preparation of a consolidated Statement of Financial Position for a company and its subsidiary, which includes details such as assets, liabilities, and equity. Additionally, it inquires about the treatment of a gain on bargain purchase under the International Financial Reporting Standard (IFRS) 3 which covers business combinations.
Understanding Gain on Bargain Purchase
A gain on bargain purchase may arise when a company acquires another entity and the acquisition cost is less than the fair value of the net identifiable assets of the acquiree. This situation may happen due to several reasons, one of which could be a distressed sale where the acquiree is in financial trouble and needs to sell quickly, often resulting in a lower sale price. According to IFRS 3, any gain on bargain purchase should be recognized in profit or loss immediately. It reflects the economic benefits that are expected to be realized by the acquirer as a result of the acquisition.