$\backslash \backslash$ In February $2021,$ Tesla announced it had invested nearly $3$ percent of its assets in Bitcoin. Despite the growing popularity of Bitcoin and other cryptocurrencies over the past decade, it took the Financial Accounting Standards Board until $2023$ to finalize rules on how to account for them. By completing this assignment, you will learn current practice for reporting these digital assets in companies$$ balance sheets. What is Bitcoin? First created in $2009,$ Bitcoin is a type of virtual money that is stored in computer files. Like traditional money, you can send it to others and use it to pay for things like hotels on Expedia, Xbox games from Microsoft, and furniture on Overstock$\mathrm{.}1$Footnote $1$ However, unlike traditional currency, it is not controlled by or considered legal tender of a specific country$$s government. This simplifies transactions between buyers and sellers from different countries because there are no foreign currencies to exchange. However, the downside is cryptocurrency is not insured by the FDIC or other government agencies. Also, it means no one is obligated to accept it when settling debts. So$,$ does that mean Bitcoin and other cryptocurrencies are cash equivalents? A graph titled US Dollar Prices for Canadian dollars, Gold and Bitcoin plots dollar amounts versus dates.A graph titled US Dollar Prices for Canadian dollars, Gold and Bitcoin plots dollar amounts versus dates. The price starts at $$10,000$ in $2018-01-01,$ peaks at $$60,000$ in $2022-01-01$ and falls to $$20,000$ in $2023-01-01.$ You might think any asset with the word coin or currency in its name implies it is equivalent to cash. But, according to current US GAAP, you$$d be wrong. Bitcoin and other cryptocurrencies are not considered cash equivalents because they do not meet the definition of being $$readily convertible into known amounts of cash$$ with $$insignificant risk of changes in value.$$ Bitcoin prices have varied wildly, making it difficult to know how much it is likely to be worth on any given day. The accompanying chart shows that Bitcoin$$s price has swung over the past five years from a low of $$3,445$ per coin to a high of $$60,968.$ In comparison, changes in the prices of gold and the Canadian dollar appear quite modest. Over the same five$-$year period, the low and high prices have been $$1,196$$$1,986$ for an ounce of gold and $$0\mathrm{.}71$$$0\mathrm{.}83$ for a Canadian dollar. However, even gold is not considered cash$-$equivalent because there$$s too much uncertainty about its day$-$to$-$day value. Much steadier prices, such as those shown for the Canadian dollar, are needed to be considered a cash equivalent. If Bitcoin and other cryptocurrencies are not cash or cash equivalents, what are they? That$$s an excellent question. What are they, then? In December $2019,$ the American Institute of Certified Public Accountants $($AICPA$)$ issued a report on the possible methods for reporting digital assets such as Bitcoin and other cryptocurrencies. The report confirmed that these assets did not meet the definitions of cash or cash equivalents. It went on to say that these assets should not be considered financial instruments or financial assets because they did not establish a contractual right to receive cash or another financial instrument. Further, although these assets might be held for sale in the ordinary course of business, they did not meet the definition for inventory because they were not tangible$.$ Based on this analysis, the AICPA group concluded the only appropriate classification remaining for Bitcoin and other cryptocurrencies was as an intangible asset with an indefinite life. If Bitcoin and other cryptocurrencies are intangible assets, how do we account for them? An intangible asset is initially recorded at cost$.$ If it has an indefinite life, it is not amortized, but it is evaluated for possible impairment. At any later time, if the asset$$s market value falls below the amount the asset is being carried at in the accounting records, the asset is written down to that lower market value. The amount of the write$-$down is reported on the income statement as an impairment loss. Any later recovery of value is not recorded until the asset is sold. This $$cost and impairment$$ approach works well for traditional intangible assets, such as trademarks, but it didn$$t work as well for cryptocurrencies. It was criticized by accountants and financial statement users alike because it can lead to reporting cryptocurrencies at amounts that no longer reflect their value on crypto markets. Indeed, this possibility was explained in Tesla$$s accounting policy note: Digital assets are considered indefinite$-$lived intangible assets under applicable accounting rules. Accordingly, any decrease in their fair values below our carrying values for such assets at any time subsequent to their acquisition will require us to recognize impairment charges, whereas we may make n