Accounting For Acquisitions

Prior to 2001, when one firm acquired another, the bidder had to decide whether the acquisition would be treated as a purchase or a pooling of interests for accounting purposes.

Ross et al.: Fundamentals VIII. Topics in Corporate 25. Mergers and of Corporate Finance, Sixth Finance Acquisitions

Edition, Alternate Edition

CHAPTER 25 Mergers and Acquisitions 847

Through the years, a great deal was written on the two approaches, discussing their pros and cons. This issue was made moot in 2001 because the Federal Accounting Standards Board (FASB) eliminated the pooling of interests option. We discuss both approaches next to illustrate some issues, but, because pooling is no longer allowed, our treatment of it is brief. In all of this, keep in mind that we are examining purely accounting-related issues. How a merger is treated for financial reporting purposes has no cash flow consequences.

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