Page 43 - DCOM205_ACCOUNTING_FOR_COMPANIES_II

Accounting for Companies – II

notes (h) Fair value is the amount for which an asset could be exchanged between a
knowledgeable, willing buyer and a knowledgeable, willing seller in an arm’s length
transaction.
(i) Pooling of interest is a method of accounting for amalgamation, the object of which is
to account for the amalgamation as if the separate businesses of the amalgamating
companies were intended to be continued by the transferee company. Accordingly,
only minimal changes are made in aggregating the individual financial statements of
the amalgamating companies.

Did u know? An amalgamation is classified as an amalgamation in the nature of merger
when all the conditions listed in paragraph 3(e) are satisfied.

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Caselet Hockey clubs

he Brighton and Seacliff Hockey Clubs were located close together, with each having
advantages the other didn’t (one had strong membership and Premier League status,
Tthe other facilities with a new artificial playing surface). Financial viability would
have been an issue for both clubs if they continued to operate separately.
Meetings between clubs, in addition to separate meetings of each club’s members, occurred
during 1994 resulting in various constitution drafts and planning proposals. The final
constitution included provision for an inaugural committee with equal membership
from each parent club and the future management structure. This was followed by a final
combined “vote” meeting, allowing amalgamation to occur in 1995.
Both club management committees, along with strong support from Council and the
state peak body drove the process to create one strong club with long-term viability. Club
uniforms were an issue, along with change of traditional colours, new fee structures,
differences over the new club’s name, cultural differences – one club being elite player
oriented, the other more socially oriented, and there was some loss of members from both
sides.
However, since amalgamation there has been growth in membership (exceeding that of the
two parent bodies) and a stronger volunteer base to ensure long-term viability of the club.

methods of accounting for amalgamations

7. There are two main methods of accounting for amalgamations:
(a) the pooling of interests method; and
(b) The purchase method.
8. The use of the pooling of interests method is confined to circumstances, which meet the
criteria, referred to in paragraph 3 (e) for an amalgamation in the nature of merger.
9. The object of the purchase method is to account for the amalgamation by applying the
same principles as are applied in the normal purchase of assets. This method is used in
accounting for amalgamations in the nature of purchase.
The Pooling of Interest Method
10. Under the pooling of interests method, the assets, liabilities and reserves of the transferor
company are recorded by the transferee company at their existing carrying amounts (after
making the adjustments required in paragraph 11).

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