purchase vs pooling

Vince Company acquired 100% of the 2000000 shares of young company on July 1, 2004 for 100000 shares of its Vinces common stock. The fair mkt value of net assets of Young Company was 1000000 greater than book value of the net assets. the fair value of Young company was 2$ a share. the fair value of the Vince Company stock used in acquisition was 5000000. When using pooling method will the 5000000 be added to Paid in Capital or not. the answer said it would and i was confused. Please help/

When using the pooling method you would just add the book value of equity and paid in capital for the two companies at acquisition time on the consolidated B/S. Nothing else anywhere.

Just thinking out loud here, but under pooling, don’t you just merge all of the A&L B/S accounts? So, if you pay Young the $5m FMV, the amount would go on its B/S as PIC, which would then be merged back onto Vince’s B/S. Effectively, it’s an allocation. Don’t take my word for it though. “Pooling v. Purchase” is on my short list of things to review this week.


I don’t think its the same – in Purchase its an all equity financing which increases the Assets and Equity by the FV of the target company in the consolidated B/S and the I/S is only of the acquirer at the acquisition date. In pooling, you add everything together (share for share purchase) and combine at book value and also add I/S together.