If a crypto asset is determined to be an intangible asset, ASC 350
, Intangibles – Goodwill and other,
requires reporting entities to determine whether the asset has a finite or indefinite life. The useful life of an intangible asset should be considered indefinite if no legal, regulatory, contractual, competitive, economic, or other factors limit its useful life to the reporting entity. Given the nature of many crypto assets, they will usually have an indefinite useful life.
Indefinite-lived intangible assets are not amortized. Instead, they are tested for impairment annually or upon a triggering event that indicates it is more likely than not that the asset is impaired. ASC 350-30-35-18B
provides factors to consider in assessing whether it is more likely than not that an indefinite-lived intangible is impaired.
2.2.1 Testing for impairment
An indefinite-lived intangible asset is impaired when its carrying amount is greater than its fair value.
Reporting entities will need to have processes in place to monitor for events (e.g., trades that occur below the reporting entity’s cost) that indicate that the fair value of the crypto assets may be below their carrying value. The impairment test under ASC 350
is a one-step test that compares the fair value of the intangible asset with its carrying value. If the fair value is less than the carrying value, an impairment is recorded. Once the intangible asset is impaired, the impairment loss is not reversed if the fair value subsequently increases.
The quantitative impairment test for an indefinite-lived intangible asset shall consist of a comparison of the fair value of the asset with its carrying amount. If the carrying amount of an intangible asset exceeds its fair value, an entity shall recognize an impairment loss in an amount equal to that excess. After an impairment loss is recognized, the adjusted carrying amount of the intangible asset shall be its new accounting basis.
Subsequent reversal of a previously recognized impairment loss is prohibited.
Example CA 2-2 illustrates the accounting for a crypto asset that was impaired and subsequently increased in value.
EXAMPLE CA 2-2
Fair value recovery before end of reporting period
On October 1, 20X1, Reporting Entity acquired one unit of crypto asset for $20,000. On November 15, 20X1, it was observed that the price of the crypto asset had declined to $18,000/unit. Reporting Entity deemed this a triggering event for impairment and wrote down its crypto asset to a new carrying value of $18,000 and recorded an impairment loss for the decline in value. On December 31, 20X1, Reporting Entity’s year end, the price of the crypto asset increased to $19,000/unit.
Can Reporting Entity write up the carrying value of its crypto asset to the new fair value of $19,000?
No. Recognizing a recovery after an impairment has been taken is not permitted. Accordingly, Reporting Entity should reflect a carrying value of $18,000 for its crypto asset at year-end and report the full impairment loss of $2,000 in earnings for the period.
2.2.2 Determining the unit of account
Reporting entities may acquire crypto assets in various separate transactions. Each individual acquisition of crypto asset held by a reporting entity represents a unit of account for impairment testing purposes. Accordingly, reporting entities should maintain the carrying values of each acquisition in order to perform impairment testing. Reporting entities should not combine purchases of crypto assets across multiple acquisition dates with different cost bases.
Example CA 2-3 addresses how to determine the unit of account when testing crypto assets for impairment.
EXAMPLE CA 2-3
Determining unit of accounting for impairment testing
During the year, Reporting Entity completed the following transactions to purchase the same type of crypto asset:
January 10, 20X1
April 20, 20X1
October 15, 20X1
On November 1, 20X1, Reporting Entity tests its crypto assets for impairment and determines the current trading price of the crypto asset is $23,000/unit.
Does Reporting Entity need to record an impairment loss as of November 1, 20X1?
Yes. Reporting Entity should record an impairment for crypto assets with a value higher than $23,000/unit. Accordingly, the two units acquired on October 15, 20X1 are impaired as the carrying value per unit is $26,000 compared to the fair value of $23,000. Reporting Entity should record an impairment loss equal to $6,000 and write down the carrying value of the two crypto assets acquired on October 15, 20X1 to $23,000 each.
It would be incorrect to compare the $21,214 average carrying value for all 14 units to the $23,000 fair value and conclude that an impairment did not occur.