Publication Date


Document Type


First Advisor

Eiteman, Dean S.||Kieso, Donald E.

Degree Name

M.S. (Master of Science)

Legacy Department

Department of Accountancy




The doctrine of change is an inherent feature of accounting. Accounting must be sensitive to the economic and financial environment. Because accounting principles are flexible to meet the changing influences of the economy, several acceptable alternative practices are available at one time to record a given transaction. Thus, as new practices evolve, the concept of "generally accepted accounting principles” lacks uniformity and appears indefinite. While the current trend in some areas is toward crystallizing accounting principles, business combination practices are undergoing further change. Until recently, all combinations were accounted for using the purchase or the pooling of interests treatment. During the last five years, however, a gradual increase in the number of combinations effected through the dual exchange consideration of cash and stock introduced a new problem--how to account for this type of combination. Although no definite treatment has been established, some well defined accounting practices have emerged. The partial pooling treatment has evolved and has become the prevailing treatment for these unique combinations. This paper attempts to study the nature of and the accounting practices for partial poolings. Data for the paper came primarily from library research. All the data for the empirical research portion of the paper came from analyzing the New York Stock Exchange Listing Applications for the years 1963-1967. The major objectives of the empirical study were: (1) to find all those combinations effected by the dual consideration and completed within one year, and (2) to determine what accounting treatments were used to record these combinations. Based on the results of this study, the following significant conclusions appear warranted: 1. In those business combinations effected by both cash and stock consideration, no one accounting treatment may be considered the accounting treatment. Three accounting treatments--purchase, pooling of interests, and partial pooling--are all currently considered "acceptable, depending primarily upon the cash-stock relationship in the exchange transaction. 2. The number of combinations effected through the dual exchange consideration (cash and stock) are increasing. 3. To qualify as a partial pooling a business combination must meet two basic requirements: a. The combination must be effected through both non-equity and equity consideration; and b. Both the purchase and pooling of interests accounting treatments must be used to record the combination. 4. Partial poolings can be divided into two classifications: a. Type I partial poolings, and b. Type II partial poolings. This classification is based on (1) the number of steps to complete the combination, and (2) the computation of the partial pooling ratio (purchase portion to pooling portion) 5. Whenever the cash portion of the total consideration in the exchange falls within a range of 25-75%, the partial pooling treatment is acceptable (for both Type I and Type II). This is identified as the "25-75% rule," referring to the lower and upper limits of the non-equity (cash) portion of the total consideration for a combination. 6. The "25-75% rule" also applies to the partial pooling ratio. The ratio should fall between a "low" of 25-75% (25% purchase--75% pooling) and a "high” of 75-25% (75% purchase--25% pooling). 7. The partial pooling accounting treatment is here to stay and may soon be given the same official recognition currently given to the purchase and pooling of interests treatments. It appears that the treatment has gained sufficient support in practice to warrant formal recognition by the American Institute of Certified Public Accountants.


Includes bibliographical references.


vii, 109 pages




Northern Illinois University

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