Reference no: EM132950872

Problem 1: Which of the following accounting treatment of costs related to business combination is incorrect?

a) The costs related to organization of the newly formed corporation also known as pre-incorporation costs shall be capitalized as goodwill or deduction from gain on bargain purchase.

b) The costs related to issuance of stocks or equity securities shall be deducted/debited from any share premium from the issuance and any excess is charged to "share issuance cost" reported as contract-equity account against either (1) share premium from other share issuances or (2) retained earnings.

c) Acquisition related costs such as finder's fee; advisory, legal, valuation and other professional and consulting fees; and general administrative costs, including the costs of maintaining an internal acquisitions department shall be recognized as expense in the profit/loss in the periods in which the costs are incurred.

d) The costs related to issuance of financial liability at fair value through profit or loss shall be recognized as expense while those related to issuance of financial liability at amortized cost shall be recognized as deduction from the book value of financial liability or treated as discount on financial liability to be amortized using effective interest method.