Using the PURCHASING METHOD, if ABC were to acquire XYZ for a price greater than XYZ’s book value, then the book value would get attributed to the depreciable assets of the new ABC-XYZ entity. This increases depreciation, and this is one of the reasons why the earnings using PURCHASE IS LESS THAN POOLING. In the pooling method, suppose that ABC were to acquire XYZ for a value greater than XYZ’s book value. How is this accounted for? Another words, what happens to the excess of the purchasing amount - bookValueXYZ? The book’s examples seems to indicate that nothing happens.
In the pooling method, you would record everything at book value and not market value. So it doesn’t matter even if ABC paid more than the book value. That’s the reason the ratios are better for the pooling method.
Just think of POOLING method as a MERGER and PURCHASE method as a ACQUISITION So the books seems correct by doing nothing to the excess purchasing amount. Could you give us the page no of where you are referring too? So when ABC merges with XYZ, a new hypothetical company ABCXYZ gets formed with the line-items as follows BV(ABCXYZ) = BV(ABC) + BV(XYZ)
Sorry, wrong thread (Deleted the ans)
obviously if you are recording everything at BV, then how does the premium matter? That’s the precise reason why it doesn’t show up. Btw, Dinesh, your explanation of equating pooling with merger and purchase as acquisition is not really correct…
ruhi22 Wrote: ------------------------------------------------------- > Btw, Dinesh, your explanation of equating pooling > with merger and purchase as acquisition is not > really correct… Oh… is it. I am going to start FSA from scratch. What do you suggest - Schweser or CFAI , which one explains FSA well than the other? My initial plan is to read FSA from Schweser and do CFAI questions once the reading is done. Will this be sufficient?
dinesh.sundrani Wrote: ------------------------------------------------------- > ruhi22 Wrote: > -------------------------------------------------- > ----- > > > Btw, Dinesh, your explanation of equating > pooling > > with merger and purchase as acquisition is not > > really correct… > > Oh… is it. I am going to start FSA from scratch. > What do you suggest - Schweser or CFAI , which one > explains FSA well than the other? > > My initial plan is to read FSA from Schweser and > do CFAI questions once the reading is done. Will > this be sufficient? I haven’t really used Schweser this time (Except for the Qbank); so I’m not sure how it is. I did go through a couple of readings from Schweser, but found them to be too concise. I think it’s a very personal choice. You could read FSA from Schweser and see if you are comfortable answering all the questions and take it from there.