Which of the following most accurately describes the position taken by current generally accepted accounting principles?
A) Both pooling of interests and the purchase method are still permitted under certain circumstances.
B) The valuation basis to be applied is the acquisition method under which the fair value of consideration transferred includes any contingent consideration,but excludes direct combination costs..
C) The valuation basis to be applied is the cost method under which the valuation basis is the fair value of the assets and liabilities acquired including direct combination costs,but excluding contingent consideration.
D) The purchase method requires a business acquisition transaction to be structured to meet twelve very specific criteria required by generally accepted accounting principles.

Question

Quizplus · Accepted Answer

The current generally accepted accounting principles require the use of the acquisition method for business combinations, which values the consideration transferred at fair value and includes any contingent consideration, but excludes direct combination costs. The cost method is used for asset acquisitions, which values the acquired assets and liabilities at fair value and includes direct combination costs, but excludes contingent consideration. The pooling of interests method is no longer allowed under current GAAP. There are no specific criteria required by GAAP for a business acquisition to use the purchase method.

Which of the Following Most Accurately Describes the Position Taken