Final answer:
In the case of a merger of two Non-Profit entities, the accounting method is similar to pooling of interests, where assets and liabilities are combined at their historical costs without recognizing any goodwill. The financial statements post-merger should accurately reflect the resources and obligations of the new entity from the merger date, with detailed disclosures about the merger's nature and impact.
Step-by-step explanation:
When two Non-Profit (NFP) entities merge, the accounting method used to account for the merger is based on the guidance provided by the Financial Accounting Standards Board (FASB). The typical method followed is akin to the pooling of interests method, where the assets and liabilities of the merging organizations are combined at historical cost, and no goodwill is recognized. This approach reflects the economic reality that a new reporting entity is created, and it's more about combining assets and operations rather than one entity acquiring another.
The accounting for the merger would involve ensuring that the merged financial statements reflect the collective resources and obligations of the combined entities from the date of the merger. It requires a careful review of both entities' books to align policies and ensure consistency in reporting. Additionally, disclosures should be made to provide information about the nature of the merger, the reasons behind it, and the effect on the financial statements.
While the merger of for-profit entities might factor in goodwill and other considerations, mergers in the non-profit sector focus on continuity of services and mission rather than financial gain.