Cryptocurrency (Financial Instruments) Flashcards
What is cryptocurrency?
Intangible digital token that is recorded using a distributed ledger infrastructure, aka blockchain.
Who owns these tokens?
Tokens are owned by an entity that owns the key that lets it create a new entry in the ledger. Access to the ledger allows the re-assignment of the ownership of the token.
These tokens are not stored on an entity’s IT system as the entity only stores the keys to the Blockchain (as opposed to the token itself).
They represent specific amounts of digital resources that the entity has the right to control, and whose control can be reassigned to third parties.
Does bitcoin meet definitions of cash?
No bitcoin doesnt meet the definition:
-As not sufficiently widely used as a medium of exchange and not ‘legal tender.’
-Bitcoin is volatile.
Does bitcoin meet the definition of an Asset and how do we account for them?
Yes, Bitcoin meets the definition of an intangible asset
however, accounting treatment depends:
If entities holding bitcoin/crypto –> Intangible asset IAS 38 ‘identifiable non-monetary asset without physical substance.
Does bitcoin meet the definition of an financial asset?
No, it does not.
Issuers of cryptocurrency digital tokens
ICO what is it?
Initial coin offerings, e.g. a software app developer might issue a crypto digital token to investors (called subscribers) to raise funds for a project in exchange for cash or cryptocurrency such as bitcoin.
Issuers of cryptocurrency digital tokens
If subscriber pays ICO consideration in cash, how is it accounted for in the issuer’s account?
Dr Cash
Issuers of cryptocurrency digital tokens
If subscriber pays ICO consideration in crypto, how is it accounted for in issuers account?
Dr Intangible asset (as crypto does not meet the definition of cash)
Dr Inventories if the issuer is a crypto trader
Credit side of the ICO transaction for ICO issuers:
ICO contract contains a contractual obligation for the issuer to deliver cash or another financial asset to the holder of the token.
How do we treat this accounting wise?
CR Financial Liability
IAS 32 applies
ICO contract entitles holder of the token to a share of residual net assets
CR Equity
IAS 32 applies
ICO contract entitles the holder of the token to rights to future goods/services.
CR Deferred revenue (Liability)
In substance, the subscriber has prepaid for goods/services of the issuer
IFRS 15 applies.
