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.
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.