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Essay / Research Paper Abstract
This 7 page paper assesses both accounting methods. The differences between the two are explored and the paper recommends pooling whenever a company meets the applicable requirements. Bibliography lists 5 sources.
Page Count:
7 pages (~225 words per page)
File: RT13_SA016Pur.rtf
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Unformatted sample text from the term paper:
be used. There are pros and cons to utilizing each one and firms will make decisions based on their unique circumstances. By utilizing cash flow, as opposed to earnings,
in order to measure economic benefits from takeovers seems to mitigate the effect of accounting differences when measuring performances (Healy, Palepu and Ruback 45). In a sample of thirty-eight takeovers,
it was noted that the majority used the purchase method of accounting for the takeover, but the rest used the pooling of interests method (45). Condon reports that in 1998
the number of poolings executed exceeded 500; thus, the author contends that although years ago only a handful were done, they have become more popular in recent years (Condon 124).
Which method is better? There are a great deal of ramifications from utilizing each one, many of which have to do with tax consequences. Reporting is another consideration, as well
as time needed to implement each of the methods. Which is more complex? Does it matter what industry the firms are in? These and other probing questions that should be
examined when a company decides how to proceed. II. A Comparison of Purchase Accounting and Pooling Purchase accounting involves the writing up of assets which typically result
in lower post-takeover earnings and higher post-takeover assets than the pooling of interests method (Fioriti and Brady 20). In addition, purchase accounting requires that the target companys results must
be consolidated with the acquirers and this has to occur as soon as the takeover is official (20). Purchase accounting includes the premise of fair values, where they
must be used and the transaction would be treated as an acquisition of one company by another (20). In such a situation, if the purchase price exceeds the fair
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