Chapter 3 — Initial Recognition and Measurement

3.2 Purchases and Acquisitions of Crypto Assets

3.2.1 Overview

When crypto assets are acquired or purchased, the initial recognition and measurement guidance will differ on the basis of how the asset is acquired. For example, the initial measurement and recognition guidance would differ when an entity acquires crypto assets in the following circumstances:

Purchasing of crypto assets for cash (see Section 3.2.2).
Receiving crypto assets in exchange for goods or services provided to customers under ASC 606 or noncustomers under ASC 610-20 (see Section 3.2.3).
Receiving crypto assets in an asset acquisition or as part of an acquired business under ASC 805 (see Section 3.2.4).

In addition to the above scenarios, other arrangements could result in different recognition and measurement. For example, an entity may:

Obtain a right to receive crypto assets in the future as a result of providing a good or service to another entity. The right to these crypto assets may be presented as a receivable and should be evaluated under ASC 815 to determine whether it includes a derivative. See Deloitte’s Roadmap Derivatives for more information.
Loan its crypto assets to another entity, resulting in a right to receive those crypto assets back in the future. See Section 8.2.3 for more information about crypto asset loan receivables.
Directly purchase crypto assets within a custodial wallet. In such cases, the entity will need to assess whether it controls the crypto asset held within a custodial wallet. If the entity does not control the crypto asset, it may be appropriate to record a receivable from the party that controls the crypto asset, as discussed in Section 3.1.

Connecting the Dots

Tax Considerations Related to Initial Recognition of Crypto Assets

For tax purposes, digital assets are generally regarded as a form of property under the U.S. Internal Revenue Code (IRC). The correct determination of basis depends on whether the assets in question were acquired by using (1) fiat currency or (2) other digital assets. If fiat currency was used, the basis of the acquired assets would be the purchase price plus any allocable transaction costs in accordance with IRC Section 1012 (as amended by the Final Treasury Regulations). If other digital assets were used, any transaction costs would be allocated to the disposition and not the acquisition (e.g., a disposition of ETH to acquire BTC).

3.2.2 Purchasing Crypto Assets for Cash

ASC 350-30

30-1 An intangible asset that is acquired either individually or with a group of other assets (but not those acquired in a business combination) shall be initially measured based on the guidance included in paragraphs 805-50-15-3 and 805-50-30-1 through 30-4.

In accordance with ASC 350-30-25-1 and ASC 350-30-30-1, an entity that purchases a crypto asset for cash records it at cost, net of any transaction costs or fees. In practice, transaction costs generally refer to the direct costs of acquiring assets and exclude indirect costs. See Section 3.1.1 for more information about accounting for transaction costs.

When a crypto asset is purchased in a market transaction, the cost of purchasing the crypto asset is presumed to be the asset’s fair value on the purchase date. If the purchase price does not represent fair value in a market transaction or an arm’s-length transaction, an entity should carefully consider whether there is an exchange of other rights or obligations associated with the purchase that may need to be accounted for separately.

3.2.3 Receiving Crypto Assets in Exchange for Goods or Services

An entity may receive crypto assets from another entity (or counterparty) as payment for goods or services performed. If the good or service is sold or provided to a “customer,” the entity would apply ASC 606. ASC 606-10-15-3 states that a “customer is a party that has contracted with an entity to obtain goods or services that are an output of the entity’s ordinary activities in exchange for consideration.”

Revenue recognized for the goods or services is measured on the basis of the fair value of the crypto assets to be received as of the contract inception date. If the crypto assets are received at a date later than contract inception, changes in the fair value of the crypto assets after contract inception do not affect the amount of revenue recognized. However, an entity should assess whether the contract is or contains a derivative that should be accounted for separately from the right to receive crypto assets (see Section 8.3.3).

Example 3-1

On September 30, 20X1, Company B and Company A enter into a contract in which B will sell 100 widgets to A in exchange for 10 BTC. On November 30, 20X1, A pays for the widgets by providing B with the 10 BTC.

The fair value of BTC on (1) September 30, 20X1, is 1 BTC = $32,000 and (2) November 30, 20X1, is 1 BTC = $35,000. The book value of the widgets sold to A is $200,000.

Provided that A meets the definition of a customer under ASC 606 and all criteria in ASC 606-10-25-1 are met on September 30, 20X1, B would recognize revenue under ASC 606 in an amount equal to the fair value of the crypto assets to be received (i.e., the noncash consideration) as of the contract inception date, September 30, 20X1.

For reasons consistent with those described in Question 24 of the AICPA Practice Aid, B concludes that the contract is not a derivative in its entirety but that the receivable from B contains an embedded derivative that should be bifurcated and accounted for separately from the right to receive the crypto assets under ASC 815.

While B does not receive the BTC until November 30, 20X1, any changes in the fair value of crypto assets after the contract inception date would not affect the transaction price under ASC 606. As a result, B records the following journal entries on September 30, 20X1, provided that no additional transaction costs were incurred:

From September 30, 20X1 to November 30, 20X2, the change in the fair value of the derivative asset results in a gain of $30,000.

On November 30, 20X1, B records the following journal entry:

Receipt of 10 BTC, which has a fair value of $35,000 on the contract inception date.

3.2.4 Receiving Crypto Assets as Part of an Asset Acquisition or as Part of an Acquired Business Under ASC 805

ASC 805-50

15-3 The guidance in the Acquisition of Assets Rather than a Business Subsections applies to a transaction or event in which assets acquired and liabilities assumed do not constitute a business.

30-1 Paragraph 805-50-25-1 discusses exchange transactions that trigger the initial recognition of assets acquired and liabilities assumed. Assets are recognized based on their cost to the acquiring entity, which generally includes the transaction costs of the asset acquisition, and no gain or loss is recognized unless the fair value of noncash assets given as consideration differs from the assets’ carrying amounts on the acquiring entity’s books. For transactions involving nonmonetary consideration within the scope of Topic 845, an acquirer must first determine if any of the conditions in paragraph 845-10-30-3 apply. If the consideration given is nonfinancial assets or in substance nonfinancial assets within the scope of Subtopic 610-20 on gains and losses from the derecognition of nonfinancial assets, the assets acquired shall be treated as noncash consideration and any gain or loss shall be recognized in accordance with Subtopic 610-20.

30-2 Asset acquisitions in which the consideration given is cash are measured by the amount of cash paid, which generally includes the transaction costs of the asset acquisition. However, if the consideration given is not in the form of cash (that is, in the form of noncash assets, liabilities incurred, or equity interests issued) and no other generally accepted accounting principles (GAAP) apply (for example, Topic 845 on nonmonetary transactions or Subtopic 610-20), measurement is based on either the cost which shall be measured based on the fair value of the consideration given or the fair value of the assets (or net assets) acquired, whichever is more clearly evident and, thus, more reliably measurable. For transactions involving nonmonetary consideration within the scope of Topic 845, an acquirer must first determine if any of the conditions in paragraph 845-10-30-3 apply. If the consideration given is nonfinancial assets or in substance nonfinancial assets within the scope of Subtopic 610-20, the assets acquired shall be treated as noncash consideration and any gain or loss shall be recognized in accordance with Subtopic 610-20.

30-3 Acquiring assets in groups requires not only ascertaining the cost of the asset (or net asset) group but also allocating that cost to the individual assets (or individual assets and liabilities) that make up the group. The cost of such a group is determined using the concepts described in the preceding two paragraphs. The cost of a group of assets acquired in an asset acquisition shall be allocated to the individual assets acquired or liabilities assumed based on their relative fair values and shall not give rise to goodwill. The allocated cost of an asset that the entity does not intend to use or intends to use in a way that is not its highest and best use, such as a brand name, shall be determined based on its relative fair value. See paragraph 805-50-55-1 for an illustration of the relative fair value method to assets acquired outside a business combination.

30-4 See paragraphs 740-10-25-49 through 25-55 for guidance on the accounting for acquired temporary differences in certain purchase transactions that are not accounted for as business combinations.

Crypto assets acquired in an asset acquisition are recognized and measured in the manner described in Section 3.2.2. In an asset acquisition, an entity does not recognize goodwill or a bargain purchase gain. Accordingly, the amount recorded for an acquired crypto asset may be adjusted to its relative fair value along with the amounts recorded for other acquired assets.

Crypto assets acquired through a business combination are recognized and measured at their fair value in a manner similar to any other assets acquired in a business combination under ASC 805.

See Deloitte’s Roadmap Business Combinations for more information about the accounting for asset acquisitions (in Appendix C) as well as for general guidance on the accounting for business combinations.

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This publication provides comprehensive guidance; however, it does not address all possible fact patterns, and the guidance is subject to change. Consult a Deloitte & Touche LLP professional regarding your specific issues and questions.