Under P-GAAP, when the implied capital exceeds the purchase price, how is the difference treated?

• A. Recognized as an extraordinary loss
• B. Recognized as income (operating gain) immediately
• C. Deferred and amortized over 15 years
• D. Ignored for financial statements

Answer: (B)

When the fair value of the net identifiable assets acquired exceeds the purchase price, you have a bargain purchase. Under P-GAAP, this excess is recognized as income in the period of acquisition (an immediate gain in earnings, often termed a bargain purchase gain). There’s no deferral or amortization of this amount, and it is not ignored—the gain increases current earnings.

For example, if the net identifiable assets are worth 1,000 and the purchase price paid is 800, the 200 difference is recorded as an immediate gain in the income statement.