The Way In Which Pooling Of Interest Method Will Be Practiced And Developed In China

After FASB announces the statement No.141 which addresses all business combinations in the scope of the statement are to be accounted for using one method, the purchase method, many analysts argued that we should follow the method used in America to abrogate the pooling-of-interests method. Especially since 1998, all of the accounting methods for business acquisition through exchange of stock are based on pooling method which causes much more arguments. Due to these reasons, I will research for the way in which pooling method will be practiced and developed in China applied by many acquisition case studies. There are three types of business combinations in my case study: The first one is the acquisitions of non listed entities by 12 listed companies from Oct. 1998 to Dec 2002. Comparing the acquisition time and main business operations in those organizations with each other, I found that acquisitions in these 12 companies were accomplished by Chinese government. In March 1998, according to the country sends 1998 [10] "the State Council general office retransmits card supervised can about cleaning up reorganization field outside illegal stock transaction plan notice", State Council general office required that all of the local stock transactions field should be closed before June 1999 and postponed the negotiable securities transaction in license enterprises in the property right exchange [center]. At the same time, it also encouraged listed companies to incorporate others operating in similar industries, being in good financial position or great future expectation which lead to a lot of acquisitions among listed companies through share exchange. The reason of exchanging shares each other in company acquisitions is that the government is for the sake of stabilizing the negotiability of shares in license companies and considers benefits of shareholders in those companies as well. Therefore, the introduced pooling method is not only based on enterprises point of view but also resulted from government and investors point of view. The second one is the acquisition of listed entities by non-listed entities, eg. TCL group merges TCL communication. On 30 Sep 2003, TCL group announces that TCL group will merge TCL communication by exchanging shares between them. This is the first ever landmark event in our country. The main results of this acquisition are that TCL realizes to be a listed company in stock exchange market and shows excellent financial position and operating performance. Moreover, this method enables TCL group to avoid paying huge amount of cash which can cause financial crisis in it and the accounting approach is pooling method. In order to analysis the reason of pooling method used by TCL group and consequent effect by using different accounting methods in a higher level, I compared different results in Balance Sheet, Profit and Loss Account using pooling method and purchase method. After that, compared main accounting rations with and without IPO effect using both different accounting methods. Through above measures, we can see that different accounting approach chosen has massive different influence in TCL group. If TCL group adopts purchase method, it will be negative influence in its accounts. According to the acquisition purpose and impact of the acquisition upon capital market, TCL group merges TCL communication should be encouraged by society rather than it can not achieve this acquisition forced by using purchasing method. The third one is the acquisition of listed entities by listed entities, eg.