Reference no: EM133013741

Question - The accountant for BDB Ltd, Ms., has sought your advice on an accountancy issue that has been mystifying her. When preparing the acquisition analysis relating to Ltd.'s acquirement of Tash 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 accounting colleagues that this should be treated as income. However, she figured that this would influence the consolidated profit in the first year after acquisition date. For example, if Tash Ltd reported a profit of $50,000, then consolidated profit would be $60,000. She is unsure of whether this profit is all post- acquisition profit or a mixture of pre-acquisition profit and post-acquisition profit.

Compile a detailed report on the nature of an excess, how it should be accounted for and the effects of its recognition on subsequent consolidated financial statements.