Scholarly record

THE BARGAIN PURCHASE GAIN IN PRACTICE OF POLISH COMPANIES

E. Papaj-Wlislocka, O. Grzybek

Abstract

Recent years in business activities exposed rapid changes, especially in the ownership structure. An increasing number of mergers and acquisitions assume increasingly complicated forms, thus becoming incomprehensible for financial statementsВ’ recipients. Among many consequences associated with business combinations, one should notice a specific accounting category, namely the bargain purchase gain. Describing the basic assumptions as well as legal regulations concerning the bargain purchase gain isone of the main goals of the article. The theoreticalpart points out the main causes of the emergence of BPG, a.o. a forced sale, financial distress of the target firm and flaws in the bidding process. According the accounting theory the BPG could be treated in several ways: as a reduction from so called allocation assets, as a component of comprehensive income,as a deferred credit that shall be amortized to income or as a component of earnings. IFRS 3 allows only thelast fashion. The article also features an empiricalpart, based on the analysis and synthesis of consolidated financial statements of Polish companies listed on the WIG20 Index.On the basis of a research sample, consistsof 100 consolidated financial statementsin research period 2012-2016, 125 business combinations were distinguished.In thecase of 10% of observations, bargain purchase gain was revealed.The article also underlies theimpact of BPG on the financial statements:Without BPG financial result would be significantly lower (20% and more) in 33% of business combinations in our sample. Research also shows a relatively weak range of disclosures in transactions with bargain purchase gain. Only 25% of companies disclose real economic explanationfor the occurrence of BPG, which is the most important disclosure in such business combination. Taking into consideration a slight number of empirical studies around bargain purchase gain in Poland, the article isuseful for both practitioners and theorists of accounting.

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