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21 APR 2021
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9:55 AM

Bitcoin in Your Balance Sheet: Accounting for Cryptocurrencies

What is Bitcoin and what does it do?

  1. Bitcoin is a form of digital token based on blockchain technology with no physical form; and
  2. Mainly used as a medium of exchange for goods and services, for capital appreciation purpose or both.

How to produce Bitcoin?

  1. The process of extracting Bitcoin is known as ‘mining’.
  2. ‘Miners’ use high-powered computers to solve a complicated cryptographic puzzle to acquire Bitcoin.
  3. ‘Miners’ needs to acquire a digital wallet to store the Bitcoin and start transacting with it.

According to MFRS 102 Inventories, if the purpose of holding cryptocurrencies is for sale in the ordinary course of business, it should be treated as inventories. For example, an entity acts as a commodity broker-trader who actively trade in it with the purpose of generating profit from the fluctuations in price. Such entity should treat any cryptocurrencies held as inventories.

Inventories should be measured at the lower of cost and net realisable value. However, in this case, the more appropriate valuation should be fair value less costs to sell. However, if the purpose of holding cryptocurrencies is for investment purpose (capital appreciation) over a long period of time, MFRS 102 would not apply.

Moreover, Bitcoin can be categorised as intangible asset according to MFRS 138 Intangible asset because: –

  1. It can be separated from the holder and sold or transferred individually without a physical substance.
  2. It does not have right to receive a fixed or determinable number of units of currency.
  3. It is a resource controlled by the entity from which future economic benefits are expected to flow to the entity; and
  4. It can be sold, exchanged, or transferred individually.

Bitcoin is an intangible asset with indefinite useful life which is not amortised but impairment test be performed annually under revaluation model when there is an active market for the asset. In conclusion, Bitcoin may be categorised under inventory or intangible asset depending on the purpose of holding it and the entity’s business nature.