The company's authority for so doing is derived from the SEC's SAB 51, issued in 1983. In that instance, the SEC staff tackled the question of how a parent company might account for gains arising from a subsidiaries' sale of stock. The SEC had previously insisted that such appreciation be deemed part of capital and not an item to be passed through the income statement. Aggregate consideration consisted of 8.6 million shares of the company's stock. And, thanks to those same accounting rules, its reported earnings doubled.
Ownership interests continue and the former bases of accounting are retained.
Income of the combined corporation includes income of the constituents for the entire fiscal period in which the combination occurs. The reported income of constituents for prior periods is combined and restated as income of the combined corporations. What that means in practice is that, because its acquisitions were accounted for as poolings, the company's revised balance sheets and income statements reflect the pooled companies as though they were part and parcel of Allwaste at all times during their respective lives. In this instance, the first is the one that was certified by Allwaste's auditors and appeared in the 10K it filed for the year ended August 1988. According to the accountants' book of rules on poolings, the second balance sheet was made to reflect the assets, liabilities and shareholders' equity, as of the fiscal 1988 year-end, of the nine companies pooled during the subsequent year.