Question

a company records a "Gain on bargain purchase' as a result of buying another company in the same industry for less than the fair value of its net assets. what would be the best classification in the reformulated income statement>

a. financial income

b. core operating income from sales

c. core other operating income

d.unusual operating incom

e. financing OCI

Answer 1

Gain on Bargain purchase is the gain due to the bargain with the seller for acquiring the asset. The purchase value of the asset is less than the fair market value of the asset which is gain for the buyer due to its negative goodwill. The gain is treated as an income and is shown under the unusual operating income of the income statement.

There is no classification as Financial income under income statement. It is another term for the income of the business.

Core operating Income from sales; It is not shown under core operating income from sales as the gain is not from the sales of the core operations of the business.

Core other operating income: It is not treated as core other operating income as it is not the core operatiing of the business.

Unusual Operating Income: The gain is from acquiring of the assets which is not usual and regular for the business. Hence, it is treated as an income from unusual operations.

Financing OCI: The revenues or losses which are yet to be realized are shown under Other comprehensive Income (OCI).Here, the gain on bargain purchase is already realized. Hence it should not be shown under other comprehensive income.

Hence option d. Unusual operating income is correct