Company-Owned Life Insurance in Business Combinations and Goodwill Impairment Testing

Abstract

This paper examines the alternative methods of accounting for investments in company-owned life insurance (COLI) in business combinations and the valuation of COLI for goodwill impairment testing. There are at least two methods to account for COLI policies acquired in business combinations under existing GAAP. One alternative is to recognize an acquired COLI asset at fair value, followed by immediate write down to CSV. The other alternative is to recognize an acquired COLI asset at CSV and an additional intangible asset for the difference between fair value and CSV at acquisition. The FASB staff unofficially favors the first method. However, the second method is more consistent with purchase accounting. Both methods are acceptable in applying the purchase price allocation method for goodwill impairment testing.