Lessons
- CFA Level 2: Financial Reporting Part 2 – Introduction
- Intercorporate Investments Accounting - Ownership Categories
- Minority Passive Investments – Accounting Classes
- Minority Active Investments and the Equity Method for Financial Reporting
- Joint Venture Investments
- Controlling Interest Investments: Accounting for Business Combinations
- Purchase Method of Accounting for Controlling Interest Investments or Acquisitions
- Pooling of Interests Method to Account for Controlling Interest Investments
- Purchase Method vs. Pooling of Interest Method
- Acquisition Method to Account for Controlling Interest Investments
- GAAP Purchase Method, IFRS Purchase Method, and GAAP Acquisition Method Accounting
- Variable Interest Entities (VIEs) and Special Purpose Entities (SPEs)
- Defined Benefits Plans vs. Defined Contribution Plans
- Measuring the Defined Benefit Obligation
- Pension Expense (both GAAP & IFRS) for the Income Statement
- Defined Benefit Plans & the Company Balance Sheet
- The Role of Actuarial Assumptions in DB Plan Accounting
- Economic Pension Expense
- Pensions and the Statement of Cash Flows
- Accounting for Stock (or Share) Based Compensation
- Financial Statement Consolidation of Multinational Operations
- Consolidation: Presentation Currency vs. Functional Currency vs. Local Currency
- Foreign Currency Translation
- Temporal Method for Translation of Foreign Statements
- Current Rate Method for Translation of Foreign Statements
- Consolidating Financial Statements: Determining the Functional Currency
- Translation Methods and Financial Statement Effects
- Accounting for Subsidiaries in Hyperinflationary Economies
- CFA Level 2: Financial Reporting 2 - Recommendations
- MBS Weighted Average Life
Purchase Method vs. Pooling of Interest Method
The following table illustrates some of the consolidated financial statement differences between the purchase method and pooling of interest method.
| Item | PURCHASE METHOD | POOLING OF INTERESTS METHOD |
|---|---|---|
| Book Value | Typically higher than pooling method. | Typically lower than purchase method, as no goodwill asset is created. |
| Earnings Trend | Typically lower than the pooling method because pre-acquisition income statements are not combined. | Typically higher than purchase method because income statements are combined retroactively. |
| Sales Trend | Typically distorts growth perception of the acquiring company, as much of its sales growth can be attributed to the acquisition. | Typically more accurate than the purchase method, as income statements are combined retroactively. |
| Earnings Per Share | Typically lower than the pooling method. | Typically higher than the purchase method, as the income statement is combined for the entire reporting period, rather than as of the acquisition date. |
| ROA & ROE | Typically lower. | Typically higher. |
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