In the CFAI FSA book (page: 33-35), there is an example about this topic. The long-term debt in the consolidated Balance Sheet is 18,000 under Pooling of Interests Method. It is 17,800 under Purchase Method. When we look at the post-acquisition income statement, we see lower interest expense under Pooling of Interest Method. How can this be? If the long term debt is higher, interest expense should be higher, too. Should it not be? I would appreciate your help!
What hits me is that the liabilities differ: Typically, the difference in pooling vs purchase is that under purchase method you may end up with higher combined assets. Haven’t seen the liabilities affected by that yet. Do they explain why that happens? (can’t check myself, haven’t got the CFAI books yet, just Schweser)
I found it out by myself after I asked the question… It is about amortization. (the book mentions it) Fair value of the Long term debt is lower here, so it means that it is like discounted bond. Interest expense= Coupon paid+discount So, interest expense is higher under the Purchase Method…