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The purchase method is an accounting approach used in business combinations where the acquiring company records the assets and liabilities of the acquired company at their fair market value. This method impacts financial statements by affecting the valuation of goodwill and other intangible assets, influencing future earnings and amortization expenses.
Business combinations involve the merger or acquisition of companies to achieve strategic objectives like growth, diversification, or competitive advantage. These transactions are governed by complex accounting and legal frameworks to ensure fair valuation and reporting of the combined entities' financial positions.
Pooling of interests is an accounting method used in mergers and acquisitions where the balance sheets of the combining companies are added together without any adjustments to fair market value, reflecting the merger as a unification rather than a purchase. This method is no longer allowed under U.S. GAAP but may still be used in certain international jurisdictions, emphasizing continuity of ownership and historical cost accounting.
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