Purchase and Pooling FSA-11 steps thinks, tested, remember

Chuckrox8

This is pain in the rear to remember. Anyone thinks this is going to be tested - BS adjustments etc?

OmarAdnan

Yup, schweser notes (from 16 week online class-video/pdf) lists these and I cant remember them to save my life.

Daniel1985

its not even in the schweser notes. go for it if it helps you sleep at night.

CFA4Techie

Purchase Method:
- Assets purchased are written up to market level, resulting in higher asset value and depreciation going forward = lower profit margin than combination of two companies
Pooling of Interests Method:
- Companies treated as always being one company. Everything is restated. Asset value no different from combined historical asset values = same depreciation as combined companies = profit margin is simply weighted average of two companies pre-merger
That’s what I know. Anyone else have anything more?

SeanWest

Pooling is very simple, as stated above, everything is just added together and it’s as though the two firms were always one.
Purchase method - here some keys:
On the balance sheet:
Assets are almost always increased as everything is written up to fair value, depreciation is also increased as a result as it is this new, higher value of assets that is depreciated. Ratios with assets in the denominator will almost certainly decrease relative to pooling method.
Liabilities will increase if debt is used to finance the purchase. Liabilities will also be affected by the discount/premium created by recognizing newly acquired liabilities at fair value.
Equity - Acquired firm’s equity is eliminated, so retained earnings will be lower than under pooling method.
If new stock is issued to finance, then shareholders equity will increase by market value of equity.
Revenue and expenses of acquired firm are included from date of acquisition.