Corporate executives preferred pooling-of-interests method

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Reference no: EM131814038

During the 80's and 90's many corporate executives preferred the pooling-of-interests method due to the lower drag on earnings per share, despite the lack of cash flow implications. In 2001 FASB eliminated the pooling method and required the purchase method for all transactions. Also FASB eliminated the amortization of goodwill and certain other intangibles, requiring regular appraisal tests to determine if their values should be written down. FASB's thinking is that an acquiring firm should account for the merger the same way it would when making any other asset purchase that is based on the market value of the assets purchased.

If this is the case then there may be an initial drag on the combined companies cash flows, but over time the cash flows would be greater than the companies individual cash flows had the merger not occurred.

Comments and Thoughts are appreciated in not less than 200 words?

Reference no: EM131814038

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