CFA Practice Question

There are 334 practice questions for this study session.

CFA Practice Question

Which of the following statements is (are) true with respect to the effects of the various business combination accounting methods will have on the balance sheet?

I. If the acquiring company pays more than the fair market value of the acquired company, then the book value of the merged firm will be higher under the pooling method than it would be under the acquisition method.
II. U.S. GAAP allows the amortization of goodwill if the acquisition method is being used.
III. Only the pooling method requires that combined firm restate its pre-merger years' financial statements on a consolidated basis.
A. I and III
B. III only
C. II and III
Explanation: I is incorrect because if the acquiring company pays more than the fair market value of the acquired company, then the book value of the merged firm will be lower under the pooling method than it would be under the acquisition method.

II is incorrect because U.S. GAAP does not allow for the amortization of goodwill at all.

User Contributed Comments 2

User Comment
shajidubai even though it is nice to know about various methods of accounting, why we are studying those methods which are no more used ?
janis36 Agree to shajidubai.
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