Biography of Pooling of Interest Method in Accounting for Amalgamations


  • Wipro Limited, Bangalore, India


'Pooling of interest method' of accounting for amalgamations is a unique concept among accounting practices. Its uniqueness is in ignoring the historical cost concept, a fundamental concept for recording transactions in accounting. In this practice the evidence of cost provided by the transaction of amalgamation is ignored in accounting for the amalgamation. Defined in Indian Accounting Standard 14 para 10 as "Under pooling of interest method, the assets, liabilities and reserves of the transferrer company are recorded by the transferee company at their existing carrying amounts."

This article attempts to find the logic that could have given birth to the 'pooling of interest method' in accounting for Amalgamations. In tracing the logic, the following five steps are taken. To start with, identify the first transaction of business combinations. Second, examine how these early business combinations could have been accounted for. Third, analyze how 'pooling of interest method' accounting for business combinations evolved in United States. Fourth, trace how 'pooling of interest method' of accounting reached India. Finally conclude by the evaluating the reasons for the demise of 'pooling of interest method' in accounting for amalgamations and examine in what form could 'pooling of interest method' survive going forward.


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