Balance sheet Bitcoin is a source of Tesla and other accounting problems


A strange Twitter war with Elon Musk’s Bitcoin is expected to hit Tesla From a company

Results for the quarter.

Investors have been widely accused of posting the most punished digital currency slides this year after Tesla announced on Twitter that it would no longer accept Bitcoin as payment for electric vehicles. He added fuel to the fire earlier this month and tweeted a goodbye meme with “#bitcoin” and a heartbroken emoji. Bitcoin has fallen 30% since the first tweet on May 12th.

At the end of the first quarter, Tesla held around $ 1.3 billion in Bitcoin in the Treasury Department and announced in February that it would buy Bitcoin to “diversify and maximize cash revenues.”

MicroStrategy software developer Co., Ltd.

Several other companies, including payment app provider Square Co., Ltd.

We are making similar investments. Some people are promoting Bitcoin as a valuable business or a more modern version of gold.

However, companies that hold Bitcoin in treasury are exposed to accounting risks. Bitcoin and other digital assets are considered “intangible assets for an indefinite period” rather than currencies, so any depreciation below the amount paid by a company is even temporary. You can have the company write off the value and calculate the depreciation fee.

These assets should be tested for impairment at least annually or when the price drops below the company’s book value. Due to Bitcoin’s volatility, quarterly revaluations are routine. When the company assumes responsibility, the fair value of the asset is redefined. Conversely, if prices rise, the company will not be able to make a profit. This is only possible when selling an asset.

Tesla, which did not respond to requests for comment, is expected to generate earnings of 96 cents per share in the second quarter, according to the analysts surveyed by FactSet.

Jennifer Stevens, an accounting professor at Ohio University, said the volatility of Bitcoin combined with this accounting process makes it difficult for executives to manage their cryptocurrency holdings as cash, reducing their usefulness as currency reserves. It is said to be rented out.

“The bookkeeping is a bit inconsistent with its underlying purpose,” she said.

Few other companies are eager to dive into Bitcoin. A survey by the research firm Gartner in February found that only 5% of the finance directors surveyed would consider Bitcoin as a company value this year. Of the finance officials surveyed, 84% said they had no plans to keep it.

Bitcoin’s value has fallen since Elon Musk announced last month that Tesla would no longer accept cryptocurrencies as payment for electric vehicles.

michele tantussi / reuters

Tesla initially announced a $ 1.5 billion investment in Bitcoin on Feb. 8, but did not disclose the number of Bitcoins or the average price it had paid. However, the change in investment policy took place in January, with Bitcoin prices averaging around $ 35,400 from January 1 to February 8, according to CoinDesk data. This means that after a slight adjustment to its position in the first quarter, Tesla may have around 37,000 bitcoins.

Bitcoin was slightly above $ 37,000 on Friday afternoon and dropped to $ 30,202 last month.

Tesla is likely to hurt bitcoin holdings this quarter, said Dan Ives, an analyst at Wedbush Securities. He added that the company is likely to buy in January and at least some of those holdings are currently at a loss.

“When bitcoin is less than $ 30,000 or less than $ 30,000 [at the end of the second quarter]”Depreciation has to be big,” he said. He said Tesla’s sale of some of its holdings could be as big as the $ 101 million gain it made in the first quarter.

“It went from a tailwind to a real headwind,” he said.

Tesla’s recent results are backed by temporary gains. In addition to profit from Bitcoin sales in the first quarter, the company made $ 518 million in profit on the sale of regulated loans to other automakers to comply with emissions regulations. As a result, the company was in the black during this period. Tesla posted net income of $ 438 million, or 93 cents per share.

Tesla wasn’t the first company to take great responsibility for holding Bitcoin.

MicroStrategy, which sells enterprise software and holds around 92,000 bitcoins valued at around $ 3 billion, has already posted a quarterly loss in both the third quarter of last year and the first quarter of this year as a result of this accounting. I am.

Last week, she estimated the Bitcoin investment would cost at least $ 285 million this quarter, which would add to the quarterly losses.

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Currently, MicroStrategy only accepts accounting practices, CEO Michael Saylor said in an interview. He said he sees bitcoin as a better value than the US dollar and that buying and holding bitcoin is just as much a business priority as selling software.

“This looks dangerous to those who don’t understand Bitcoin, but it’s the least dangerous way to start a business,” he said.

The company’s bitcoin strategy has made Sailor a hero in the crypto world, but MicroStrategy’s stock has become as volatile as bitcoin. Shares were trading at $ 135 last August when the company announced a new Bitcoin strategy. They rose to a record $ 1,273 through September but have fallen since then, closing at $ 516.44 on Friday.

It’s hard to tell if Tesla’s share price will be affected by Bitcoin strategy, as it’s a much smaller slice of the company’s holdings, but it has fallen since it was announced in February. The closing price on Friday was $ 609.89, 29% less than on February 8th.

Bitcoin, Dogecoin, Ethereum: cryptocurrency market

Write to Paul Vigna ([email protected])

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Balance sheet Bitcoin is a source of Tesla and other accounting problems


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