***Poiler alert***Poiler alert*** Two quick questions I wanted to ask anyone else who has completed the Book 6, 2 am practice test. 1. First question of the damn test… “Petrovich’s first statement is correct. Pooling is no longer permitted under either U.S. GAAP or IFRS…” I thought the CFAI text outlined that IAS always had some bias against pooling because it felt most mergers had an acquirer or something like that. But if the acquirer cannot be identified, which is rare, then pooling or uniting of interests is OK. So Petrovich is incorrect pooling is permitted by IFRS. Right? 2. Question 14, 2-stage DDM… The previous question asked to calc the required return and I didn’t see anything to imply using any other r so I used 7.2% for the calc and couldn’t come within ten bucks of an answer provided. From the explanation: “The appropriate discount rate is the cost of equity of 7.2% from Question 13. Note that for the third cash flow, we add the third dividend ($2.63) to the present value of the constantly growing perpetuity that begins in the fourth year = $2.74 / (0.08 – 0.04) = $68.50.” Where the #@
for question 2, in the errata on schweser.com, it mentioned that this was left out as the long term cost of equity or something like that… i read it the other day and wrote it into the question by hand before taking the test.
Thx. I am taking that point back then. +1. I guess I should take the time to look at that stuff. I deserve the headache I gave myself for being lazy. Anyone got any thoughts on the pooling q?
dont remember what CFAI says about that but schweser says in their notes very specifically that IAS does not allow pooling anymore…
It was bothering me so I had to look it up… CFAI Book 2 Reading 22 pg 66: “The international standard specifies that unless the acquirer cannot be identified, which should be extremely rare, the combination is accounted for as a purchase. Purchase versus Pooling Because pooling is still used in the United States for acquisitions made prior to June 2001 and is occasionally used internationally, the analyst needs to understand the impact on the combined entity of purchase versus pooling treatment.”
slouis, so should we read the question in light of the situation here -where acquiree is known clearly?.whats th consensus. IFRS allows pooling(even if it is extremely rare) or doesnt ? thanks.
The question on the practice test was general. By that I mean it didn’t say anything specific like: Since co A acquired co B… Petrovich’s statement (that pooling is not permitted by US GAAP or IAS) is A.) correct. Instead it was: Petrovich’s statement (that pooling is no longer permitted by US GAAP or IAS) is A.) correct B.) incorrect. IMO that is incorrect. The CFAI indicates that under IAS pooling is still permitted when there is no acquirer and certain conditions are met. That those conditions are rarely met do not make it no longer permitted. **Edit: well at least I thought it was general. I don’t have book 6 with me. You make a good point. I will have to confirm. If they were asking if in this situation where co A acquired co B… pooling is no longer permitted then well there you go. good question.
slouis, your doubt is valid. i just checked the question again . it is in general -petrovich was researching the 2 standards. in anycase, we can put it into the badly- framed- schweser category
for question 14, why “The appropriate discount rate is the cost of equity of 7.2% from Question 13” shouldn’t we use the 8% as provided to discount the cashflow as well?