ACC304 accounting theory

M Bank Bhd. (M) has a subsidiary CM Finance Co. Ltd (CM) which operates in a foreign country which recognise and regulate a crypto asset. CM develops cryptocurrency funds and specialises in Initial Coin Offerings (ICO) to raises fund from investors in the form of a crypto asset.

CM enters pre-sale contracts to raise funding from chosen investors before to a public sale of token. CM entered a pre-sale contract with an investor which entitles the investor to a 10% discount on the price for tokens compared to other investors during the ICO. On 1 June 2021, the investor paid CM RM2 million in cash, however, the issue date of the ICO is 31 July 2021. The cash is only refundable if the ICO is cancelled before 31 July 2021 because the minimum funding amount of RM18 million is yet to achieve.

Once the tokens are issued, ICO investors can readily convert them into cash or cryptocurrencies on CMs platform, but they do not entitle the holder to future goods and services from CM other than supporting the purchase and sale of tokens. The funding received for tokens are utilised by CM to finance the future development of the payment platform and other projects.

To attract more investments for ICO, CM has made an obligation to the token holders to make one payment of 10% of any annual profit for the year ended 30 June 2022. The holders do not have any other rights such as redemption of their tokens or any residual interest in CMs assets.

The ICO raised RM20 million on 31 July 2021.

You are the group financial controller of M who leads accountants from CM. The year end of the group is 30 June.

You are required to:

1. Describe the good presentation and disclosure practices which should be applied to inform investors including those from Malaysia in relating to CMs holding of crypto assets. (10 marks)

2. Discuss how the receipt of RM2 million in cash in the pre-sale contract should be accounted for in the financial statements of CM for the year ended 30 June 2021 in accordance with relevant IASs/IFRSs. (4 marks)

M Bank Bhd. (M) has a subsidiary CM Finance Co. Ltd (CM) which operates in a foreign country which recognise and regulate a crypto asset. CM develops cryptocurrency funds and specialises in Initial Coin Offerings (ICO) to raises fund from investors in the form of a crypto asset.

CM enters pre-sale contracts to raise funding from chosen investors before to a public sale of token. CM entered a pre-sale contract with an investor which entitles the investor to a 10% discount on the price for tokens compared to other investors during the ICO. On 1 June 2021, the investor paid CM RM2 million in cash, however, the issue date of the ICO is 31 July 2021. The cash is only refundable if the ICO is cancelled before 31 July 2021 because the minimum funding amount of RM18 million is yet to achieve.

Once the tokens are issued, ICO investors can readily convert them into cash or cryptocurrencies on CMs platform, but they do not entitle the holder to future goods and services from CM other than supporting the purchase and sale of tokens. The funding received for tokens are utilised by CM to finance the future development of the payment platform and other projects.

To attract more investments for ICO, CM has made an obligation to the token holders to make one payment of 10% of any annual profit for the year ended 30 June 2022. The holders do not have any other rights such as redemption of their tokens or any residual interest in CMs assets.

The ICO raised RM20 million on 31 July 2021.

You are the group financial controller of M who leads accountants from CM. The year end of the group is 30 June.

You are required to:

2. Discuss how the receipt of RM2 million in cash in the pre-sale contract should be accounted for in the financial statements of CM for the year ended 30 June 2021 in accordance with relevant IASs/IFRSs. (4 marks)