Detailed note on "Accounting of cryptocurreny"

Interpretation of Cryptocurrency - Bitcoin, Ethereum, Ripple, Dogecoin, polygon etc

As of now, no accounting treatment is specified in IND-AS for cryptocurrencies. However, IFRS Interpretation Committee (IC), published an agenda decision on how an IFRS reporter should apply existing IFRS standards to its holdings of cryptocurrencies, a subset of crypto assets.

The Committee noted that a range of crypto-assets exist. For the purpose of its discussion, the IFRS IC considered a subset of crypto-assets with all of the following characteristics that the agenda decision refers to as a ‘cryptocurrency’:

A digital or virtual currency recorded on a distributed ledger that uses cryptography for security Not issued by a jurisdictional authority or other party Does not give rise to a contract between the holder and another party.

Accounting Treatment of Cryptocurrencies

The Committee observed that a holding of crypto meets the definition of an intangible asset under IAS 38 Intangible Assets as it is capable of being separated from the holder and sold or transferred individually, and is not a monetary asset, i.e., does not give the holder a right to receive a fixed or determinable number of units of currency. The IFRS IC concluded that holdings of crypto should be accounted for under IAS 38 unless they are held for sale in the ordinary course of business, in which case IAS 2 Inventories would apply. A commodity broker trader of crypto would be able to measure its cryptocurrency inventories at fair value less costs to sell.

References

Inventory:

Inventories within the scope of IAS 2 include crypto assets since that standard defines inventories as assets:

Held for sale in the ordinary course of business In the process of production for such sale In the form of materials or supplies to be consumed in the production process or in the rendering of services

Holdings of cryptocurrencies:

The IFRS IC observed that an entity may hold crypto for sale in the ordinary course of business. In that circumstance, a holding of cryptocurrency is inventory for the entity and, accordingly, within the scope of IAS 2.

Intangible Assets

IAS 38 defines an intangible asset as ‘an identifiable nonmonetary asset without physical substance’. An asset is identifiable if it is separable or arises from contractual or other legal rights. An asset is separable if it ‘is capable of being separated or divided from the entity and sold, transferred, licensed, rented or exchanged, either individually or together with a related contract, identifiable asset or liability’

Financial asset:

The IFRS IC considered the definition of a financial asset in accordance with IAS 32 and concluded that a holding of cryptocurrency is not a financial asset. This is because a crypto is not cash nor is it an equity instrument of another entity. It does not give rise to a contractual right for the holder and it is not a contract that will or may be settled in the holder’s own equity instruments.

Special thank to author:
CA Yash
Chartered Accountant Senior Executive ( Finance)
Wipro Enterprises Global Finance Leader (GFL)