Question

FASB ASC 805, Business Combinations, provides principles for allocating the fair value of an acquired business. When the collective fair values of the separately identified assets acquired and liabilities assumed exceed the fair value of the consideration transferred, the difference should be:
a. Applied pro rata to reduce, but not below zero, the amounts initially assigned to specific noncurrent assets of the acquired firm.
b. Treated as negative goodwill to be amortized over the period benefited, not to exceed 40 years.
c. Treated as goodwill and tested for impairment on an annual basis.
d. Recognized as an ordinary gain from a bargain purchase.

Answer 1

Answer:

d. Recognized as an ordinary gain from a bargain purchase.

Explanation:

ASC 805-20 provides further guidance on the acquisition method, specifically discussing the recognition and measurement of the following:

Identifiable assets acquired Liabilities assumed Noncontrolling interests, if any, in the acquiree