Crypto currency treatment

investment company, do we think this is right?

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I have a client who previously traded through a small ltd company.  The trade ceased in the prior financial year and after some delay one third of the cash remains. One third has been put into Cyrpto currencies in the current year.   One third has been put into a non-listed private company overseas which has yet to pay a dividend. 

The only income source is gains/losses associated with Cyrpto. The holding seem fairly passive and do not amount to a trade. Therefore I presumed this is overall a close investment holding company.

 FRS105 rules for small companies will not then apply and we are on FRS102 which I dont do many of hence the head scratching. 

Cyrpto Assets

Under FRS102, the assests appear to be treated under the intangibles regime per Cyrpto41150, although one of the exclusions is "financial assets".  So I guess that is the first question.  Q1 does the peanut gallary agree the Intangibles regime would apply?  And if not, Q1(b) what should I look for to push it towards the CGT regime?

If Intangible, I think all we do is treat the investment as a black box and revalue to current value at the year end, and hallelujah no complex maths. Q2 Do we agree, or am I being thick again?  

Unlisted Investment

Q3, rusty, but  unlisted investments are in my mind historical cost with an impairment review even for an investment company.  Do we agree?

Hopefully that makes sense. 

Replies (4)

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By David Ex
01st Mar 2022 17:59

This is the tax. No idea about the accounting.
https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual/crypto40050

https://www.lexology.com/library/detail.aspx?g=2f901283-5500-4c41-9516-b...

I can't believe that any amount of "complex maths" would provide any insight whatsoever on valuation of crypto currencies!!

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John Toon
By John Toon
02nd Mar 2022 09:05

The crptocurrency is an intangible - either a fixed asset or investment, depending on the client's intention. Likely fixed asset given your comments above.

In terms of treatment you have a choice - cost, less impairment/amortisation or FV. If you take the FV option the accounting can get messy. Any decrease in value would be accounted for in P&L, with any subsequent reversal going to P&L but only to the point it returns the value to original cost. Any increase in value above cost goes to OCI and a seperate reval reserve. Equally any subsequent fall in value reverses in OCI but again only to the point you get back to original cost, any further reduction in value goes to P&L.

It's easier to follow the numbers:
Cost £100
FV at year end £120 - £20 accounted for in OCI/reval reserve
FV at subsequent y/e £75 - £20 reversed through OCI/reval reserve and £25 accounted in P&L

Finally, to apply the FV model there must be an active market for the cryptocurrency. Most mainstream cryptocurrencies, Bitcoin, Litecoin etc have an active market but the obscure ones may not.

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By clark.hall
02nd Mar 2022 16:34

Since cryptocurrencies are not cash – they are not financial assets. They are therefore treated as Intangible Assets.

Initial measurement is at cost, subsequent can be at:
Cost (easiest to stick with)
or Fair value

On disposals you can calc cost using FIFO, LIFO or Weighted Average Price. I recommend the latter to keep the Accounting cost price c/f in line with the s104 Pool for tax calculations.

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By ireallyshouldknowthisbut
02nd Mar 2022 17:09

Hi thanks for the various help on this thread.

its one of those where I need to think it through quite carefully as it is all new.

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