Brief Definition
Pooling of interests is an accounting method used in mergers and acquisitions where the balance sheets of the combining companies are combined without any adjustments to the book values of their assets and liabilities. This method treats the merged companies as if they have always been a single entity.
Further Explanation
Pooling of interests is an accounting method used in mergers and acquisitions where the balance sheets of the combining companies are combined without any adjustments to the book values of their assets and liabilities. This method treats the merged companies as if they have always been a single entity. It contrasts with the purchase method, where assets and liabilities are adjusted to their fair values.
Example:
Company A merges with Company B using the pooling of interests method. If Company A’s and Company B’s assets were both recorded at $5 million, the combined company’s assets would also be reported at $10 million without any fair value adjustments.