Wiley GAAP 2013: Interpretation and Application of Generally Accepted Accounting Principles

CHAPTER 16

INVESTMENTS—OTHER

Perspective and Issues

Definitions of Terms

Concepts, Rules, and Examples

Investments in Life Settlement Contracts

The investment method

The fair value method

Presentation in the statement of financial position

Income statement presentation

Cash flow statement presentation

Disclosure of accounting policy

Disclosures when using the investment method

Disclosures when using the fair value method

Beneficial Interests in Securitized Financial Assets

Impairment and interest income on purchased and retained beneficial interests in securitized financial assets

PERSPECTIVE AND ISSUES

Accounting Standards Codification (ASC) 325-30, Investments–Other–Investments in Insurance Contracts, provides guidance for investments in insurance contracts. A life settlement contract is an agreement executed between a third-party investor and the owner of a life insurance policy where (1) the investor does not have an insurable interest in the life of the insured, (2) the investor pays an amount in excess of this policy’s cash surrender value to the policy owner, and (3) upon the death of the insured, the face value of the policy is paid to the investor. These investments may be facilitated by a broker or transacted directly between the investor and the policy owner.

ASC 325-40, Beneficial Interests in Securitized Financial Assets, provides guidance on another type of investment. When a reporting entity sells a portion of an asset that it owns, the portion retained becomes an ...