Question

If Sun Company acquired Star, Inc. many years ago in a pooling of interests transaction, the...

If Sun Company acquired Star, Inc. many years ago in a pooling of interests transaction, the entry would have used which one of the following to account for the pooling?

Multiple Choice

  • nuture value of Star’s assets

  • fair value of Star’s assets

  • book value of Star’s assets

  • net present value of Star’s assets

Business   Accounting   
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Answer #1

Answer:

Under the pooling of interest method following conditions are needed to be satisfied as mentioned below:

  • all assets and liabilities of the vendor company should be taken over by purchasing company.
  • At least 90% of the equity holders are issued equity shares for the discharge of their liability.
  • After the amalgamation business of the vendor must be carried by the purchasing company.
  • Consideration must be discharged in equity shares except for fraction shares which can be paid in cash.

The most important thing is no adjustment should be made in the book value of assets and liabilities except to ensure the uniform accounting policies.

Therefore, Option (C) i.e. book value of Star's assets is the correct answer.

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