Electric car maker Tesla filed a $170 million impairment charge against the carrying value of its bitcoin assets.
The company also recorded a $64 million profit from some of its bitcoin sales in a filing with the Securities and Exchange Commission on Monday, July 25, 2022.
A 10-Q filing is a more complete version of the quarterly income filing filed with the SEC.
According to the guidelines published by the Association of International Certified Professional Accountants, crypto assets are indefinite intangible assets. Companies must write off the value of an asset that has fallen below its purchase price, taking an impairment loss, based on the result of an impairment test. A loss test examines an asset to see if its fair market value, the price at which it can be sold on the open market, is less than its carrying value. For digital assets, the carrying price is the same as the purchase price.
When it bought its bitcoin last year, Tesla said it would check its bitcoin holdings every quarter to check for losses.
Any profit can be recorded only when the appreciated digital assets have been sold.
Tesla Sells 75% of Bitcoin Holdings
Tesla sold $936 million worth of bitcoin last week to strengthen its cash position in the wake of the closure of its Shanghai factory as China deals with rising Covid-19 cases. The sale represents about 75% of its $1.5 billion cryptocurrency stash, which the company began accumulating in Q1 2021. The company did not disclose when it sold its bitcoins.
The sale of bitcoin did not significantly affect Tesla’s free cash flow. Investors had raised concerns that the sale had boosted Tesla’s free cash flow, with the difference between funds from operations and capital expenditures amounting to $621 million. But the reduction in free cash flow by $2.1 billion in Q1 was due to the Shanghai lockdown.
Tesla Isn’t Away From Bitcoin, Says Musk
CEO Elon Musk said the sale does not indicate a widespread boycott of bitcoin. The company still holds Dogecoin among its remaining $218 million worth of cryptocurrencies. He still personally holds bitcoin, dogecoin and ether, a . According to Tweet In March this year.
Tesla briefly accepted bitcoin payments but stopped in May 2021 due to Musk’s concerns about bitcoin’s environmental footprint.
Musk was summoned by the SEC on June 13, 2022 for a 2018 tweet that said he had arranged funding to take Tesla private. An agreement with the SEC in 2018 mandated that a committee review Musk’s tweets before they were sent.
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