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Unformatted text preview: The added price that the acquiring firm pays never makes its way to the profit and loss statements. With a purchase, the goodwill is explicitly recognized and amortized against income over time. 2. What two problems were identified with the pooling of interest method? First, the transaction is not transparent to the shareholders. Analysts cannot accurately assess the return on investment since they are not sure what level of merger premium was paid. Secondly, the treatment goes against a key provision of Generally Accepted Accounting Principles. When an asset is purchased, it is normally recorded at its cost and not some book value. With a pooling, the purchase price or market price is not reflected in the transaction....
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This note was uploaded on 09/13/2011 for the course FIN 6301 taught by Professor El-asmawanti during the Fall '09 term at University of Texas at Dallas, Richardson.
- Fall '09