Assignment Details
You are the financial accountant for a mid-sized company and you have been briefed on a meeting that has taken place last week. In that meeting the marketing department discussed the merits of joining a network involving a virtual currency to promote business. In the meeting
the adoption of Bitcoin (a very popular virtual currency) and Emoney were discussed, however due to the security issues, the idea of adopting Bitcoin was dismissed.
The way the virtual currency Emoney works is via a network of suppliers and clients through the network "ENet" and the use of "Emoney". Emoney is the virtual currency that is used to transact within the network. 1 unit of Emoney is equal to 1 Australian dollar.
Each time a company that is within the ENet network provides a good or service to another member within the Network, the value of the service is recorded in "Emoney" and is added to the company's Emoney balance. This value of Emoney can then be exchanged for goods and
services provided by companies within the network and the balance updated accordingly.
There is no active market for Emoney, it has no physical substance and cannot be exchanged for cash. The major advantage of using Emoney is transactions within the network are cashless and it is being used to promote the strengthening of business amongst members within the network.
As the financial accountant you have been asked about the impact this will have on the financial position of the business, any risks involved and how the virtual currency should be recognised from an accounting point of view by writing a report for the Chief Financial Controller (CFO).
Required:
Write a 750 - 1000 word report that addresses the following criteria:
1. With reference to the Framework for the Preparation and Presentation of Financial Statements (Conceptual Framework) justify whether Emoney satisfies the definition and recognition criteria of an asset.
2. With reference to any appropriate accounting standards justify what is the correct initial accounting treatment for recording the value of Emoney.
3. Upon initial classification discuss the subsequent accounting treatment with respect to the initial classification.
4. Discuss any risks associated with the recognition of Emoney and the relevance this has for the accounting treatment.