The inclusion of cryptocurrency in corporate accounting for small businesses is significant and real in the current scenario.
“An identifiable non-monetary asset without physical substance. Such an asset is identifiable when:
- It is separable, i.e., capable of being separated or divided from the entity and sold, transferred, licensed, rented or exchanged, either individually or together with a related contract, asset or liability;
- it arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or other rights and obligations”
– Definition of an intangible asset under FRS 102
Cryptocurrencies are separately identifiable from the entity, and they do not have any physical substance; therefore, this definition fits perfectly.
There are two possible policy choices provided by FRS 102 on accounting for cryptocurrencies as intangible assets:
Revaluation Model
If Cryptocurrencies record under the revaluation model, they should be carried at fair value. All Changes in the fair value shall be recognised in the revaluation reserve.
Cost Model
Cryptocurrencies should present historical costs under the accounting cost model.
Both these models are subject to impairment and amortisation review. The small business accounting services need a generalised focus on these models.
The revaluation model can be used only in an active market, not standing some kinds of cryptocurrencies. In such cases, the cost model would be more justifiable.
The International Financial Reporting Standards (IFRS) concluded a notice document that Cryptocurrencies meet the definition of an intangible asset on the following grounds:
- It stands capable of separation from the holder and transferred or sold individually
- It does not facilitate the rights of receiving a fixed number of currencies by the holder.
As per the committee definition, Intangible assets are defined as non-monetary assets without physical substance. Another conclusion says that Cryptocurrency does not give the holder contractual rights of exchange as it is not any equity.
Crypto, for practical purposes, is not a medium of exchange; therefore, it cannot be termed as cash.
As per the committee, Crypto can be treated as inventory in some cases if an entity “hold cryptocurrencies for sale in the ordinary course of business.”
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