ACCOUNTING

TREATMENT
AN ASSET THAT IS
COMPLETELY DEPRECIATED
AND CONTINUES TO BE
USED IN THE BUSINESS
CONCERN WILL BE
REPORTED ON THE
BALANCE SHEET (B/S) AT ITS
COST ALONG WITH ITS
ACCRUED DEPRECIATION .

IT IS COMBINATION OF
TREATS, PURCHASE OR
AS A POOLING OF
INTEREST.
 A method of
accounting
treatment
PURCHASE for a merger
based
on the market
price
paid for the
A method of
acquired
accounting
company.
POOLING OF treatment

INTERESTS for a merger

based
on the net book
value of the
acquired
company’s
assets.
TO ILLUSTRATE THE PURCHASE ACCOUNTING METHOD, LET US TAKE A
LOOK AT A TYPICAL MERGER. ABC COMPANY ACQUIRED XYZ COMPANY
IN AN EXCHANGE FOR ABC COMMON STOCK VALUED AT $2 MILLION.
XYZ COMPANY HAD DEBT OF $1 MILLION AND SHAREHOLDERS’ EQUITY
OF $1.2 MILLION PRIOR TO THE MERGER, THE NET BOOK VALUE OF ITS
ASSETS BEING $2.2 MILLION. ON THE OTHER HAND, ABC COMPANY,
THE ACQUIRER, HAS SHAREHOLDERS’ EQUITY OF $10 MILLION, DEBT
OF $5 MILLION, AND ASSETS HAVING A NET BOOK VALUE OF $15
MILLION PRIOR TO THE MERGER.THE EFFECTS OF THE MERGER (IN
THOUSANDS) UNDER THE PURCHASE METHOD OF ACCOUNTING ARE