Chapter 3 — Initial Recognition and Measurement

3.1 Introduction

ASC 350-30

25-1 An intangible asset that is acquired either individually or with a group of other assets shall be recognized.

25-4 Intangible assets that are acquired individually or with a group of assets in a transaction other than a business combination, an acquisition by a not-for-profit entity, or a joint venture upon formation may meet asset recognition criteria in FASB Concepts Statement No. 5, Recognition and Measurement in Financial Statements of Business Enterprises, even though they do not meet either the contractual-legal criterion or the separability criterion (for example, specially-trained employees or a unique manufacturing process related to an acquired manufacturing plant). Such transactions commonly are bargained exchange transactions that are conducted at arm’s length, which provides reliable evidence about the existence and fair value of those assets. Thus, those assets shall be recognized as intangible assets.

Pending Content (Transition Guidance: ASC 105-10-65-9)

25-4 Intangible assets that are acquired individually or with a group of assets in a transaction other than a business combination, an acquisition by a not-for-profit entity, or a joint venture upon formation may qualify for recognition even though they do not meet either the contractual-legal criterion or the separability criterion for being an identifiable asset (for example, specially-trained employees or a unique manufacturing process related to an acquired manufacturing plant). Such transactions commonly are bargained exchange transactions that are conducted at arm’s length, which provides reliable evidence about the existence and fair value of those assets. Thus, those assets shall be recognized as intangible assets.

Entities can purchase crypto assets by using fiat currency or other crypto assets. Regardless of whether an entity has adopted ASU 2023-08, the initial measurement of a crypto asset that meets the definition of an intangible asset is the same. In accordance with ASC 350-30-30-1 (which refers to ASC 805-50-15-13 and ASC 805-50-30-1 through 30-4), an entity that purchases a crypto asset that is classified as an intangible asset will recognize it at its cost, net of any transaction costs or fees. When a crypto asset is purchased in a market transaction, the asset’s cost will generally equal its fair value.

An entity that receives a crypto asset from a counterparty in exchange for a good or service must evaluate whether the counterparty is a customer. For more information about this evaluation, see Section 3.2.3.

If the entity and the counterparty are in the same line of business and they complete an exchange of one crypto asset for another, the transaction may be deemed a nonmonetary transaction within the scope of ASC 845.

Connecting the Dots

Crypto Assets Held on Exchanges or With Third-Party Wallet Hosting Services

As with any other asset, it should be fairly straightforward to recognize a crypto asset, particularly when the entity holds the asset in a crypto wallet that it holds itself (i.e., self-custody). However, the recognition of a crypto asset is less clear if the entity uses an exchange or third-party wallet hosting service that acts as a custodian by storing the private keys to the entity’s crypto assets on behalf of the entity.

To determine the nature and classification of the crypto asset in this situation, the entity will need to assess whether it owns the asset or has a right to obtain it from the custodian. Question 10 of the AICPA Practice Aid addresses this assessment and indicates that recognition and classification depend on which entity has control over the asset. Specifically, the AICPA Practice Aid notes that whether the depositor or the custodian has control over a digital asset will depend on an evaluation of “the specific facts and circumstances of the agreement” between these two parties as well as the “applicable laws and regulations.” In performing this evaluation, an entity may need to conduct a legal analysis to determine who retains control of the asset. The AICPA’s response to Question 10 also includes a list of factors to consider in the determination of which party has control of the crypto asset and should therefore recognize the asset. Each arrangement should be assessed individually since no single factor is considered determinative in the assessment of who controls a crypto asset held in a custodian’s wallet.

With respect to the entities that provide third-party wallet hosting services or the custodians, see Appendix C for further discussion of SAB 121 and Question 10 of the AICPA Practice Aid and how they would affect depositor and custodian relationships associated with crypto assets. In addition, note that the SEC published SAB 122 on January 23, 2025, to rescind SAB 121. See Chapter 9 for considerations related to SAB 122.

3.1.1 Accounting for Transaction Costs

In the absence of industry-specific guidance (e.g., the guidance for investment companies in ASC 946), an entity would typically apply ASC 350-30-30-1, which generally requires the capitalization of transaction costs in accordance with ASC 805-50-30-1 through 30-4 unless the crypto asset is acquired as part of a business combination. If capitalized, transaction costs incurred to acquire crypto assets are likely to be presented as a cash outflow from investing activities (if the costs are settled in cash).

Connecting the Dots

Naturally, the accounting for transaction costs for tax purposes may vary from the financial accounting treatment described above. As noted previously, transaction costs for tax purposes must be capitalized and the appropriate treatment depends on the nature of the transaction. When digital assets are acquired with fiat currency, the transaction costs would be capitalized into the basis of the digital assets received. If, on the other hand, the transaction reflects an exchange of one form of digital asset for another, all transaction costs are allocated to the disposed-of assets regardless of which side of the transaction they arose from. Accordingly, there could be differences between (1) the digital asset’s book and tax bases and (2) the amount of proceeds received in the case of an exchange.

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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.