- Trending Categories
- Data Structure
- Operating System
- C Programming
- Selected Reading
- UPSC IAS Exams Notes
- Developer's Best Practices
- Questions and Answers
- Effective Resume Writing
- HR Interview Questions
- Computer Glossary
- Who is Who
Distinguish between pooling of interest and purchase method
According to accounting standards 14, amalgamation is done according to the nature of merger and nature of purchase. Amalgamation is the process of unification between two or more companies involved in similar business to form a new company.
If the amalgamation nature of merger, method of accounting is used in pooling of interest method and if amalgamation nature of purchase then purchase method of accounting is used.
Pooling of interest method
In this acquired form the capital account is removed and this removed account is replaced by new stock of the acquiring company. In this method deal is nothing but exchange of equity securities.
In this, on the date of acquisition assets are depicted in books of merged firms at fair market value and liabilities at agreed values. In this transferee company records amalgamation either existing carrying amount or at purchase considerations.
The major differences between pooling of interest and purchase method are as follows −
|Pooling of interest method||Purchase method|
|Assets and liabilities are combined and recorded at their book value.||Assets and liabilities are combined and recorded at their fair value.|
|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.|
|Differences of purchase and share capital are adjusted to reserves.||Differences of purchase and share capital are adjusted to capital reserves/goodwill.|
|Book value is lower than purchase value.||Book value is higher than the pooling of interest method.|
|Higher earnings.||Low earnings when compared to the pooling of interest method.|
|Accurate sales.||Less accurate sales.|
|Higher earnings per share.||Low earnings per share, when compared to the pooling of interest method.|
|Both Return On Asset and Return On Equity are high.||Both Return On Asset and Return On Equity are low.|
Both these techniques are important accounting techniques used in merger and acquisitions. They differ in terms of the value of the combined balance sheet of the company on assets of the transferor company.
- Differentiate between Asset purchase method and stock purchase method
- Differentiate between purchase book and purchase account
- Distinguish between entrepreneurship and management.
- Distinguish between profitability and liquidity.
- Distinguish between GST and SST
- Compare asset purchase and stock purchase.
- Differentiate between fixed interest rates and floating interest rates.
- Distinguish between EBIT and net income.
- Distinguish between active and passive investment.
- Distinguish between the TCP and UDP.
- Distinguish between contingent liabilities and provisions
- Distinguish between period cost and product cost.
- Distinguish between contribution margin and gross margin.
- Distinguish between Connection-Oriented and Connectionless Service
- Distinguish between Pure ALOHA and Slotted ALOHA