What are the differences b/w Purchase Method and Pooling of Interests Method in Accounting of Amalgamation(AS 14)?

Question

Accepted Answer

The Purchase Method and Pooling of Interests Method are two different accounting methods used for amalgamations.

Purchase Method involves recording the amalgamation as an acquisition, with the acquiring company recognizing the fair value of the assets and liabilities of the acquired company.
Pooling of Interests Method involves combining the financial statements of the merging companies as if they had always been a single entity.
Under Purchase Method, goodwill is recognized as the excess of the purchase consideration over the fair value of the net assets acquired.
Under Pooling of Interests Method, no goodwill is recognized.
Purchase Method is used when the amalgamation does not meet the criteria for Pooling of Interests Method.
Example: Company A acquires Company B for $1 million. The fair value of Company B's net assets is $800,000. Under Purchase Method, Company A records goodwill of $200,000.
Example: Company X and Company Y merge using Pooling of Interests Method. Their financial statements are combined as if they had always been a single entity.

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