Legal Definitions - pooling of interests

Definition: Pooling of interests is a method of accounting used in mergers, where the acquiring company records the assets of the acquired company on their books at their original cost. This method does not create a goodwill account.

Example: Company A acquires Company B for $10 million. Under the pooling of interests method, Company A records the assets of Company B on their books at their original cost, without creating a goodwill account. This means that the value of the assets on Company A's books will be the same as the value of the assets on Company B's books before the acquisition.

Explanation: The pooling of interests method is used to simplify the accounting process in mergers. It assumes that the two companies are combining as equals, and therefore, the assets of the acquired company are recorded at their original cost. This method does not create a goodwill account, which is the difference between the purchase price and the fair market value of the acquired company's assets. This method is no longer allowed under current accounting standards.