The accountant for Carina Ltd., Ms. Finn, has sought your advice on an accounting issue that has been puzzling her. When preparing the acquisition analysis relating to Carina’s acquisition of Lyra 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 acquaintances that this should be recognized as income. However, she reasoned that this would have an effect on the consolidated profit in the first year after acquisition date. For example, if Lyra 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.
Required
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.