The Case for Poolings.

Abstract The tendency for one company to merge or combine with another is a common characteristic of American industry. The primary accounting development during the most recent merger movement has been the "pooling of interests" theory. It is the purpose of this article to explain the basis for the pooling theory and to support pooling as a useful, rational accounting practice when applied in the appropriate circumstances. In the foregoing discussion the view is taken that a business combination consummated on the basis of an exchange of shares does not create a new basis of accountability because the businesses are not affected in a substantive way. Because an accounting entity is largely defined by identification of its owners, who in this case have continued in business much as before, the constituent entities are deemed to have merged and become one without change except as to form and legal requirement. The so-called criteria other than exchange of shares which were originally expressed as necessities to a pooling have been tested and tried and in many cases have been found wanting because they represented unrealistic restrictions on reasonable and necessary activities of a business enterprise.