Introduction
Non-Fungible Tokens (NFTs) have gained significant traction in recent years, becoming a popular digital asset among investors and creators. However, accounting for NFTs under Canadian standards can be complex due to their unique nature.
This article outlines the key considerations for recording NFTs in financial statements according to Canadian guidelines.
Classification of NFTs
NFTs can be classified either as intangible assets or as inventory, depending on the business context:
1. Intangible Assets: If NFTs are held for long-term investment or personal use, they are classified as intangible assets. According to IFRS (International Financial Reporting Standards), they should be recorded at cost and tested for impairment annually.
2. Inventory: If NFTs are bought or created for sale as part of regular business activities, they are treated as inventory. Under IAS 2 (Inventories), these NFTs should be measured at the lower of cost or net realizable value.
Valuation and Impairment
NFTs classified as intangible assets should be tested for impairment at least annually, with any decrease in value recorded as an impairment loss.
For NFTs classified as inventory, their valuation should be based on the lower of their cost or their net realizable value.
Revenue Recognition for NFT Sales
For NFT sales, revenue should be recognized when control of the NFT passes to the buyer. This generally happens when the transaction is completed and the NFT is transferred to the buyer's wallet.
Conclusion
Proper classification, valuation, and revenue recognition are essential when accounting for NFTs under Canadian standards. Whether classified as intangible assets or inventory, understanding the relevant guidelines is crucial for accurate financial reporting.
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