Accounting issues: should the merger be treated as purchase or pooling?

Under accounting rules, a merger or consolidation can be treated as either a purchase or pooling. A purchase causes an adjustment in the selling hospital's asset basis to fair market value with goodwill often resulting. Such an adjustment is usually favorable for a taxable acquisition but not a tax-free reorganization. A pooling, on the other hand, results in the assets of the two organizations being merged together with no adjustment in asset values or increase in goodwill. The requirements for pooling are strict but the result is the carryover of assets at historical cost, usually favorable for reporting EPS.