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. |
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
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