Question: How are ICOs treated on the balance sheet of the issuer (i.e. are tokens treated as unearned revenue?)? What are potential ramifications on valuation?
ICO’s-Initial Coin Offerings are a new financing tool used by companies. These offerings are un-regulated crypto-currencies and therefore popular with startups that want to raise funds without the high cost of registering a security or the rigorous vetting process required by venture capitalist and banks. The original question was how to account for the value received for the coins offered.
How you treat the tokens in an ICO will vary depending on what value or rights the token carries with it.
- If the coin represents a right to use the coin for future transactions with the issuing entity, then it is essentially an un-used gift card and represents a liability.
- If the token conveys voting privileges or rights to future dividends, then is is more like conventional equity in the business and would represent paid in capital.
- If the coin carries no future rights or privileges, then any funds received would simply be revenue to the issuing entity. Similar to a Kickstarter project.