- CFA Exams
- CFA Level I Exam
- Topic 3. Financial Statement Analysis
- Learning Module 10. Intercorporate Investments
- Subject 5. Business Combinations
CFA Practice Question
Which of the following statements is (are) true with respect to pronouncements related to business combinations?
II. Under the new rules, impairment of goodwill is not accounted for because it does not affect the actual profit of the company.
III. Under GAAP, the use of the pooling method is prohibited for business combinations after June 30, 2001.
IV. Any goodwill acquired in previous acquisitions should continue to be amortized after 2001 for the continuity of the accounting practice.
I. Incomparability of financial statements under the old rules permitting two distinct methods of accounting for business combinations (acquisition and pooling) was corrected by making amortization of goodwill optional.
II. Under the new rules, impairment of goodwill is not accounted for because it does not affect the actual profit of the company.
III. Under GAAP, the use of the pooling method is prohibited for business combinations after June 30, 2001.
IV. Any goodwill acquired in previous acquisitions should continue to be amortized after 2001 for the continuity of the accounting practice.
Correct Answer: III only
User Contributed Comments 4
| User | Comment |
|---|---|
| danlan2 | I is incorrect: goodwill is not amortized II: impairment of goodwill affects the actual profit IV: goodwill is not amortized |
| noonah | I: amortization of goodwill is not allowed under US GAAP after 2001. II: Impairment of goodwill is accounted for, and it does affect actual profit III: True under US GAAP. Under IAS, only in extreme circumstances IV: Goodwill no longer amortized but tested annually for impairment |
| quanttrader | for GAAP no pooling after 06/30/'01 |
| davidt876 | and for IFRS no pooling after 2004 |