New accounting rules and acquisition planning: Negative effect of changes can be minimized

Abstract

Two major changes have been made by the Accounting Principles Board for business combinations: one restricts those combinations that can be accounted for as a “pooling of interests,” and the other requires amortization of the excess of the acquired company's purchase price over its adjusted book value. The APB Opinion will affect all future acquisitions and mergers. The author describes four trends that are likely to develop and discusses how the executive can minimize the negative impact of the changes. He suggests that an acquisition try to qualify for pooling accounting (all but two of the six criteria can be met by simply arranging the terms of exchange). If it cannot qualify, four steps can be taken to offset the effect of the new purchase rules.