DISCLOSURE OF CRYPTOCURRENCY IN INDIA UNDER COMPANIES ACT, 2013
- shrreyans mehta
- Apr 17, 2021
- 3 min read
The Ministry of Corporate Affairs vide Notification No. G.S.R. 207(E) dated 24.03.2021 amended the Schedule III to the Companies Act, 2013 to enhance the disclosures required to be made by the Company in its Financial Statements and the notifications shall come in effect from the 1st day of April, 2021.
The amendment brought first of its kind disclosure in India, wherein the companies are now mandated to disclose their cryptocurrency holdings along with the profit and loss made in trading the cryptocurrency. Further, the amendment also directs the companies to disclose any deposits or advance received as cryptocurrency for the purpose of trading.
What to disclose :
As per the amendment, the disclosure of cryptocurrency must be made in the following instances :
Profit or loss on transactions involving cryptocurrency;
Amount of currency held as at the reporting date;
Deposits or advances from any person for the purpose of trading or investing in cryptocurrency.
How to make the disclosure :
Profit or loss on transactions involving cryptocurrency :
The Amendment directs the companies to disclose their profit or loss on transaction involving cryptocurrencies in their Profit and Loss (P/L) statement. Therefore, if a company derives profit on trading cryptocurrencies, they shall make the entry of profit on the credit side of the P/L statement, whereas, if they incur losses on transaction involving cryptocurrencies, they will make an entry in the debit side of the P/L statement. Furthermore, the profit and loss incurred on transactions involving Cryptocurrencies shall be specifically disclosed under the notes to accounts forming part of the financial statements. For better clarity, a pictorial demo is provided at the end of the paper
2. Amount of currency held as at the reporting date:
The Amendment further directs the companies to state and disclose how much of the cryptocurrencies are held by them as on the date of reporting (can be assumed to be the end of financial year). The Amendment, however, has directed the said disclosure to be part of the P/L statement, whereas the actual disclosure of the cryptocurrencies can only be made in the notes to accounts forming part of financial statements. Further, holding of cryptocurrencies can be paralleled with holding of shares, commodities or money, which are disclosed only in the Balance sheet. Therefore, it would only make logical sense if the companies made the said disclosure of holding cryptocurrencies in the balance sheet of the company also, under the head - “current assets”. For better clarity, a pictorial demo is provided at the end of the paper.
3. Deposits or advances from any person for the purpose of trading or investing in cryptocurrency:
Finally, the Amendment directs the companies to disclose the details of deposits or advances received from any person for the purpose of trading or investing in cryptocurrency. This disclosure requirement leads to some unclarity as it is not clearly stated whether the money received in advance or deposited for trading and investing in cryptocurrency needs to be disclosed or if a cryptocurrency received in advance or deposited for trading and investing in cryptocurrency needs to be disclosed. Therefore, we will presume that both instances ought to be disclosed by the companies as per the Amendment. Hence, this disclosure of deposit or advance received shall be made under the notes to accounts forming part of the financial statement. Further then, if money is received by the company as advance or deposit for trading/ investing in cryptocurrencies, then the entry of disclosure shall be made in the balance sheet of the company, under the head “advance and deposit” under sundry creditors for trade. Likewise, if cryptocurrencies are received by the company as advance or deposit for trading/ investing in cryptocurrencies, then the entry of disclosure shall be made in the balance sheet of the company, under the head “advance and deposit” under sundry creditors for trade. For better clarity, a pictorial demo is provided in the PDF.
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