The Financial Accounting Standards Board (FASB)

The earned bare of the acquired conjunction is added to the detonator surplus of the acquiring company.

In the pooling of interests method of accounting for a business combination, the assets and liabilities of each company are combined. both difference between the merger terms and the book grade of the net worth of the combined companies is accounted for in the capital surplus account of the combined companies. The earned surplus of the acquired company is added to the capital surplus of the acquiring company ("FASB Considers Changing ?Pooling' Rule on Mergers," 1996).

The Internal Revenue Service established rules that determined whether the bargain for method or the pooling of interests method was physical exercised. If a merger aim met the following basic conditions, the use of the pooling of interests method was required (Pallarito, 1997):

1. The prototypal condition was that an acquiring cockeyed issued only common rectitude stock with rights identical to the majority of take common virtue stock outstanding, and in exchange for substantially all the voting common equity stock of the acquired firm. The definition of "substantially" was at least 90 percent.

2. The second condition was that both the acquiring and the acquired firms must have been independent or autonomous for at least two years before the pool

All mergers that did not meet the pooling of interests conditions were required to use the purchase method. In the purchase method, the acquiring firm treats the acquired firm as an investment. If the acquiring firm paid a subvention above the fair market value of the acquired firm's assets, this premium was save as goodwill on the acquiring firm's balance sheet. As goodwill, this purchase premium was amortized for accounting purposes over a end not to exceed 40 years. Reported post-merger earnings were trim down by the amount of this amortization. Further, this amortization of goodwill was not allowable from federal income tax liabilities.

Changes in Accounting Practices Stemming from the Implementation of SFAS 141 and SFAS 142

SFAS 141 excessively delineates specific criteria for the determination of which intangible assets must be accounted for independently from goodwill. SFAS 141 includes an extensive list of intangible assets that may qualify for separation. almost examples of such intangible assets are commercemarks, Internet domain names, and trade secrets ( pecuniary Accounting Standards placard, 2001a)

Future values assigned to relevant assets

FASB considers changing "pooling" rule on mergers. (1996, 23 August). Wall Street Journal, (Western), A3.

financial Accounting Standards Board. (2001b, June). Goodwill and Other Intangible Assets. Statement of Financial Accounting Standards No. 142. Norwalk, Connecticut: Financial Accounting Standards Board of the Financial Accounting Foundation.

The impairment test required by SFAS 142 is a two-step process. The two steps are as follows (Financial Accounting Standards Board, 2001b):

ing of interests. The definition of "independent" was no more than 10 percent ownership of the other firm's common equity stock. Further, the achievement of the combination had to occur in a single action or in accordance with a s
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