CCA Cryptocurrency Taxation & Accounting 2 — Questions and Answers
Question 1: Under US GAAP, how was cryptocurrency typically classified on the balance sheet before FASB ASU 2023-08?
- As cash and cash equivalents
- As an indefinite-lived intangible asset (Correct answer)
- As a financial instrument at fair value
- As inventory
Correct answer: As an indefinite-lived intangible asset
Under existing US GAAP before ASU 2023-08, most cryptocurrencies were classified as indefinite-lived intangible assets subject to impairment testing.
Question 2: What does FASB ASU 2023-08 require regarding the measurement of certain qualifying crypto assets?
- Historical cost accounting only
- Fair value measurement with changes recognized in net income (Correct answer)
- Lower of cost or market value
- Equity method accounting
Correct answer: Fair value measurement with changes recognized in net income
FASB ASU 2023-08 requires entities to measure qualifying crypto assets at fair value each reporting period with changes recognized in net income.
Question 3: What is the FIFO method as applied to cryptocurrency cost basis accounting?
- The oldest acquired coins are considered sold first (Correct answer)
- The newest acquired coins are considered sold first
- All coins are averaged and sold at a blended rate
- Each sale is matched to the most profitable lot
Correct answer: The oldest acquired coins are considered sold first
FIFO (First In, First Out) assumes the first cryptocurrency units purchased are the first sold, which can result in higher taxable gains during bull markets.
Question 4: Under IFRS, which standard may apply if a company holds cryptocurrency as inventory for sale in the ordinary course of business?
- IFRS 9 — Financial Instruments
- IAS 2 — Inventories (Correct answer)
- IAS 38 — Intangible Assets
- IFRS 13 — Fair Value Measurement
Correct answer: IAS 2 — Inventories
Under IFRS, if cryptocurrency is held for sale in the ordinary course of business (e.g., by a broker-trader), IAS 2 may apply, allowing measurement at fair value less costs to sell.
Question 5: What was the key limitation of the indefinite-lived intangible asset treatment for cryptocurrency under old US GAAP?
- Impairment losses could be reversed if value recovered
- Impairment losses were permanent and could not be reversed (Correct answer)
- Assets had to be marked to market quarterly
- Gains were recognized before realization
Correct answer: Impairment losses were permanent and could not be reversed
Under the old indefinite-lived intangible asset treatment, impairment losses on cryptocurrency were permanent — even if fair value subsequently recovered, the write-down could not be reversed.
Question 6: What is the primary valuation challenge when accounting for cryptocurrency on financial statements?
- Cryptocurrencies have a fixed value set by central banks
- Price volatility and the lack of a single standardized pricing source (Correct answer)
- All cryptocurrencies trade at par value on regulated exchanges
- Valuation is simple because prices are always publicly available
Correct answer: Price volatility and the lack of a single standardized pricing source
The primary valuation challenge is significant price volatility combined with the absence of a single standardized pricing source, requiring entities to establish clear, consistent pricing policies.
Question 7: For a company whose core business is cryptocurrency trading, how should gains from crypto transactions be presented on the income statement?
- As other comprehensive income
- As operating revenue (Correct answer)
- As an extraordinary item
- Below the line as discontinued operations
Correct answer: As operating revenue
For entities whose primary business involves cryptocurrency trading, gains and losses are presented as operating revenue since they arise from the company's principal activities.
CCA Cryptocurrency Taxation & Accounting 2
Under US GAAP, how was cryptocurrency typically classified on the balance sheet before FASB ASU 2023-08?