What is pooling of interest accounting?

Pooling-of-interests was an accounting method that governed how the balance sheets of two companies that were merged would be combined. The pooling-of-interests method combined the assets and liabilities of both companies at book value.

What is the difference between pooling and purchase accounting?

In pooling of interest method, assets and liabilities appear at their book values, whereas, when purchase method of accounting is used, the assets and liabilities are shown at their fair market value. In pooling of interest method, the recording of assets and liabilities of the merging companies is aggregated.

Why is the pooling of interest method eliminated while accounting for a business combination?

The FASB held that fair values should be used in all combinations. The lack of comparability due to financial statement distortions, which resulted from companies using alternative methods, could no longer be tolerated. Even before the statement was issued, companies were reluctant to use pooling.

What are some of the key differences between the acquisition method purchase method and pooling of interests method?


Pooling of interest method Purchase method
Applicable to merger. Applicable to acquisitions.
Uses book value. Uses market fair value.
Accounts are aggregated. Accounts are taken over.
Reserves are untouched. Reserves are touched.

Is debt a current liability?

Current liabilities are a company’s short-term financial obligations that are due within one year or within a normal operating cycle. Examples of current liabilities include accounts payable, short-term debt, dividends, and notes payable as well as income taxes owed.

What is considered goodwill in accounting?

Goodwill is an intangible asset that is associated with the purchase of one company by another. Specifically, goodwill is the portion of the purchase price that is higher than the sum of the net fair value of all of the assets purchased in the acquisition and the liabilities assumed in the process.

What is a pooling?

Poolingnoun. the act of uniting, or an agreement to unite, an aggregation of properties belonging to different persons, with a view to common liabilities or profits.

What is pooling of interest method in the context of AS 14?

Pooling of interests is a method of accounting for amalgamations the object of which is to account for the amalgamation as if the separate businesses of the amalgamating companies were intended to be continued by the transferee company.

Is pooling of interest method still effective in business combination?

Companies no longer may use the pooling-of-interests accounting method for business combinations. Nor will they account for mergers on their financial statements under the traditional purchase method, which required them to amortize goodwill assets over a specific time period.

What are the different methods of accounting for amalgamation?

Accounting of Amalgamation

  • Pooling of Interests Method: Through this accounting method, the assets, liabilities and reserves of the transfer or company are recorded by the transferee company at their existing carrying amounts.
  • Purchase Method:

What is the acquisition method?

The acquisition method of accounting is used when a company acquires another company through a merger, an acquisition, or a consolidation. Whereas US GAAP distinguishes between these three ways in which a company can takeover another company, IFRS does not.

What are examples of current liabilities?

Examples of current liabilities include accounts payable, short-term debt, dividends, and notes payable as well as income taxes owed.

How is purchase accounting different from pooling of interests?

The purchase accounting method recorded assets and liabilities at fair value as opposed to book value, and any excess paid above the fair value price was recorded as goodwill, which needed to be amortized and expensed over a certain time period, which was not the case in the pooling-of-interests method.

What is pooling of interests in IFRS accounting?

A pooling of interests or merger accounting-type method is widely accepted in accounting for common control combinations under IFRS. Such a method is also prescribed under US

When did pooling of interests end in accounting?

What is ‘Pooling-of-Interests’. Pooling-of-interests was a method of accounting that governed how the balance sheets of two companies were added together during an acquisition or merger. The Financial Accounting Standards Board (FASB) issued Statement No. 141 in 2001, ending the usage of the pooling-of-interests method.

Why are intangible assets not included in pooling of interests?

Intangible assets, such as goodwill, were not included in the pooling-of-interests method and were therefore preferred over the purchase accounting method, as it did not result in having to pay amortized costs, negatively impacting earnings.