Digital Assets Accounting: The Challenge of Tracking Impairment by Lot

Businesses must track intraday price movements across their entire portfolio so they can identify price dips the instant they drop below the current book value.

By: Jordan Hansen

Subject Matter Expert Manager

Published on:

As global interest in cryptocurrency investment continues to expand, it’s becoming more difficult for enterprises to deal with the fundamental accounting challenges for crypto and other digital assets. 

One of the core challenges? A business must recognize impairment events any time the price of an asset dips below the acquisition price of a lot.

In our article, we provide a quick overview of the non-authoritative guidance for digital assets accounting provided by the American Institute of Certified Public Accountants (AICPA), discuss how impairment of digital assets is recorded on the balance sheet, and provide example scenarios that highlight the difficulties companies are facing. 

Are digital assets intangible? 

There’s no guidance under US generally accepted accounting principles (GAAP) specifically tailored for digital assets financial reporting. Currently, due to the lack of targeted guidance, companies following US GAAP must account for digital assets as intangible assets with an indefinite life. 

Digital assets are reported on the balance sheet at acquisition cost, less any impairment due to price dips, and can’t be written back up again, even if the market price rebounds. The asset must remain on the balance sheet at its impaired book value until it's sold or otherwise disposed of, at which point a realized gain or loss is recognized.

How should the impairment of digital assets be recorded on the balance sheet and income statement? 

In the most recent publication of the AICPA’s Digital Assets Practice Aid—which provides non-authoritative guidance on how to account for digital assets under US GAAP—two key questions related to impairment of digital assets are addressed. 

The questions and responses are paraphrased below:

  • Question 6: If the price of a digital asset declines below the carrying value in the middle of a reporting period, should impairment be recorded if the price is recovered by the end of the same period?

    Response: Yes. Impairment is required whenever events or changes in circumstances indicate it is more likely than not that impairment has occurred. If the fair value of the asset is less than carrying value, an impairment loss is recorded at that time. This provision applies even if the fair value of the asset recovers above the original carrying value within the same accounting period.

  • Question 7: What is the unit of account for assessing impairment? 

    Response: Because entities have the ability to dispose of each unit or divisible fraction of a unit, the individual unit or divisible fraction of a unit represents the unit of account. Each of these units is commonly referred to as a lot.

What must a company understand about impairment if it holds digital assets on its books? 

There are three key components that businesses holding digital assets must understand when it comes to impairment: 

  1. Businesses must identify impairment events in any instance where the price of an asset dips below its initial purchase price or impaired book value.

  2. Businesses must book impairment for each individual unit or fraction of a unit.

  3. Once you’ve identified an impairment event and written down the value of the unit(s) on your balance sheet, you can’t write the impaired unit(s) back up, even if the price rebounds before the end of the period.

What is an impairment event?

Digital asset impairment events are defined by any price movement that occurs during the reporting period where the market price drops below the initial purchase price or impaired book value of a particular asset.

 For example, if your business buys $1 million worth of bitcoin (BTC), you’d record a $1 million asset on your balance sheet at the time of initial acquisition. If the price/value of your BTC drops to $900,000 anytime during the reporting period post-acquisition, you must recognize a $100,000 loss to reduce the book value of BTC to $900,000.

Why is tracking digital assets impairment a complex task? 

The example above makes tracking impairment events seem fairly simple on the surface, but in reality, companies are required to track any price movement throughout the day for any asset purchased at any time, and this adds a significant layer of complexity. 

Businesses must track intraday price movements across their entire portfolio so they can identify price dips the instant they drop below the current book value. 

Most businesses will have thousands, or potentially millions, of transactions spanning many digital assets, each with their own unique purchase price. Each of these transactions, or lots, must be separately tracked for impairment; businesses must be able to track minute-by-minute price fluctuations at the individual-lot level for every asset to accurately capture each impairment event that occurs during the reporting period—we discuss in more detail below.

What is unit-level impairment? 

Each time you acquire a new unit, multiple units, or a fraction of a unit of cryptocurrency, those new units acquired are defined as unit lots. A lot doesn’t have to equal one whole unit. A lot is simply a batch of units, or divisible fractions of units, with the same acquisition date and the same acquisition price. 

The carrying value of asset lots shouldn’t be lumped, averaged, or merged with any subsequent or previously acquired lots. 

For example, if you buy three BTC for $30,000 each, and subsequently buy four BTC for $35,000 each, you now have two BTC lots—one lot containing three BTC that were acquired at $30,000 each, and another lot containing four BTC that were acquired at $35,000 each. 

If the price of BTC dropped to $32,000, you’d impair the four BTC in the second lot down to $32,000 each. In contrast, the first lot isn’t impaired and its book value remains at $30,000.

Scenarios of unit-level impairment

Using the exhibit below, we’ll walk through some more examples of unit-level impairment events.

Let’s assume we’re reporting for the month of January and all six of the BTC lots are purchased at different dates and times.

Each scenario illustrates different impairment events that could occur during the reporting period along with the related impairment required to be booked for each lot.

Scenario 1: The price of Bitcoin falls to $31,000 on January 1 at 10:01 PM.

  • Lot 3 book value is written down to $223,200—7.2 BTC x $31,000—and an impairment loss is recognized for $7,200. 

  • Lots 1 and 2 have no impairment as the price didn’t dip below their respective book values. 

  • Lots 4 through 6 aren’t impacted as they were purchased after the price movement.

Scenario 2: The price of Bitcoin falls to $28,000 on January 2 at 3:15 AM, and then immediately goes back up to $29,000 by 3:30 AM.

  • Lots 1 through 4 are written down to their respective quantities multiplied by $28,000: 

    • Lot 1—$14,000 

    • Lot 2—$112,000 

    • Lot 3—$201,600 

    • Lot 4—$28,000 

  • Even though lots 4 and 5 were purchased just 30 minutes apart from each other, their respective book values are now based on prices of $28,000 and $29,000 respectively because one of those lots was purchased right before a price dip. 

  • Note that lots 5 and 6 aren’t impacted as they were purchased after the price movement.

Scenario 3: A market pull-back drives the price of BTC down to $20,000 on January 31 at 3:00 PM, but pops back up to $35,000 by 11:59 PM right before the end of the reporting period.

Since all lots were purchased prior to the January 31 price dip, all lots must be written down to their respective quantities multiplied by $20,000: 

  • Lot 1—$10,000 

  • Lot 2—$80,000 

  • Lot 3—$144,000 

  • Lot 4—$20,000 

  • Lot 5—$340,000 

  • Lot 6—$114,000 

Unfortunately, despite this price event being unusual, all lots must be written down and can’t be written back up, even though the price of BTC nearly doubled within a matter of hours after the big price drop. All six of these lots would remain on the balance sheet at their respective quantities multiplied by $20,000 until they’re sold.


These three scenarios highlight the challenge companies face when tracking impairment for a robust portfolio of volatile cryptocurrencies and digital assets. 

Companies holding these assets are required to track daily price movements across hundreds, thousands, or potentially millions of lots. 

While it may not seem like it, the examples above still only provide a very simple illustration of impairment tracking; the reality is the transactional data companies are dealing with is never straight-forward, round numbers across a handful of transactions. 

The transaction data usually looks like the example below:

Tracking impairment for this level of data granularity across thousands or millions of transactions simply can’t be done without robust software designed specifically for tracking digital asset lots and related price movements.

Is a company required to track book-to-tax differences? 

An additional layer of complexity is the need to distinguish between GAAP treatment and tax treatment. 

GAAP reporting requires impairment to be booked at the lot level, but impairment isn’t required for tax purposes at all. Rather, the lots remain on the tax books at cost—initial purchase price—until the lots are sold or disposed of, at which point a realized gain or loss will be recognized. 

Any unrealized tax gain or loss occurring during the period due to price fluctuations should remain unrealized until the assets are sold or disposed of. As a result, companies are required to track book-to-tax differences throughout the reporting period; the GAAP books will reflect impairment adjustments to the book value of the lots, while the tax books will simply hold all lots at their original cost basis regardless of price fluctuations.

How TaxBit can help

Due to the complexity, volume, and rapid growth of crypto transactions, you’ll want to seek out and leverage technology to help you.

Taxbit employs a team of world-class software engineers and CPAs who design and develop technology tools that are specifically tailored to help companies navigate the complexities of digital asset tax reporting and accounting. 

Taxbit’s Corporate Accounting Suite contains an impairment workflow to help businesses operationalize these complexities and streamline GAAP and tax reporting requirements. It combines the expertise of a specialized accounting firm and the efficiency of cutting-edge technology to automate your crypto reporting needs.

Our impairment workflow arms clients with detailed information and summarized reporting at the lot-level that enables smooth impairment tracking and booking. These tools also provide auditors and stakeholders a control framework and peace of mind because your digital assets program is built on a controlled and scalable solution.     

Contact us today to schedule a custom demonstration tailored for your business.

For additional resources on digital assets accounting, please see our articles: 

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