Bargain purchase
Definition
An acquisition where the fair value of the net assets acquired is higher than the price paid. After the acquirer checks its figures, the excess is recognised as a gain in profit or loss.
Why does it matter in a group?
A bargain purchase is unusual, so the acquirer first checks that it has found and measured every asset and liability before it records a gain.1 Under IFRS 3 the gain goes to profit or loss on the acquisition dateAcquisition dateThe date on which a parent obtains control of another company. The new subsidiary's results are included in the group accounts from this date.Open the glossary entry. It is not trading profit, and readers of the group accounts should be able to see it.
A small example
Zenvara pays GBP 3,200,000 for all of a company whose identifiable net assets are worth GBP 3,600,000 after the check. The difference of GBP 400,000 is the bargain purchase gain.
Sources
- IFRS 3 Business Combinations, paragraphs 34 to 36.