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Basic Question 1 of 20

Which of the following statements is (are) true with respect to pronouncements related to business combinations?

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.

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
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I used your notes and passed ... highly recommended!
Lauren

Lauren

Learning Outcome Statements

describe the classification, measurement, and disclosure under International Financial Reporting Standards (IFRS) for 1) investments in financial assets, 2) investments in associates, 3) joint ventures, 4) business combinations, and 5) special purpose and variable interest entities;

distinguish between IFRS and US GAAP in their classification, measurement, and disclosure of investments in financial assets, investments in associates, joint ventures, business combinations, and special purpose and variable interest entities;

analyze how different methods used to account for intercorporate investments affect financial statements and ratios.

CFA® 2024 Level II Curriculum, Volume 2, Module 11.