This case explores the accounting treatment of the essential items that appeared in the financial statements of Madison Holdings Group Limited (Madison Holdings or the Group, stock code: 8057.HK). A seller of alcoholic beverages for decades, the Group had no expertise and know-how in financial technology. Through acquisitions, Madison Holdings opened the new blockchain services segment without the need to build everything from scratch on its own. However, the lifespan of the segment was unexpectedly short. Management disposed of the whole segment due to unsatisfactory performance in less than two years. The company’s stock price dropped by more than 90% from its peak, largely due to the huge impairment loss recognized in the cryptocurrency mining activities.
The case seeks to highlight the accounting treatment of various financial statement items of a company that engages in cryptocurrency mining activities. Through the case, students will grapple with the practical questions of whether Madison Holdings appropriately recognized its cryptocurrency mining revenue and recorded the corresponding costs of cryptocurrency mining activities, including the depreciation expenses and impairment loss of plant and mining equipment.
On completion of the case, students will be able to:
1. Develop an accounting policy on financial statement items related to financial technology but in the absence of well-established accounting standards
2. Develop an accounting policy for cryptocurrency mining revenue
3. Develop an accounting policy for classifying cryptocurrencies held for the purpose of trading
4. Develop an accounting policy for cryptocurrency mining machines
5. Perform analysis of segment results by decomposing segment revenue and segment expenses
6. Perform reconciliation of a working capital item across different places within a set of financial statements