Accounting for investment in gold
In a world of financial uncertainty and political turbulence, investment gold is increasingly seen as a reliable alternative for preserving asset value. It is high-purity gold that investors choose for its safety, stability, and liquidity.
According to current tax regulations, investment gold is exempt from value added tax (VAT), but only if it meets certain criteria.
The law defines it as:
- Gold in the form of bars – which is produced in standardized masses accepted in the precious metals market, with a degree of fineness of at least 995 parts per thousand, regardless of whether its value is expressed through securities.
- Gold coins – which have a fineness of at least 900 parts per thousand, were minted after 1800, and which were or still are legal tender in their country of origin. In addition, their selling price may not exceed 80% of the market value of the gold they contain.
It is important to emphasize that this category does not include monetary gold, which countries use as a means of settling international obligations when they are unable to cover them through exports or loans.
Investment gold, therefore, represents a specific form of precious metal, clearly defined and tax-privileged, which makes it an increasingly common choice for investors in uncertain times.
How investment gold is valued: Accounting treatment in practice
Investment gold, in addition to being recognized as a safe haven in unstable times, also has a specific accounting treatment that depends on its purpose in business. Recommendations regarding the initial valuation and subsequent measurement of this precious metal are based on the positions of the International Financial Reporting Standards Board (IFRS) and the corresponding standards.
The method of recording investment gold in the business books depends on the company’s decision about its purpose:
- Long-term assets – If the company’s intention is to hold investment gold for a longer period of time to maintain financial stability, it is recorded as part of long-term assets.
- Current assets – If gold serves as a highly liquid asset, i.e. represents an alternative to cash and cash equivalents, or if it is acquired with the aim of making a profit through changes in its price on the market, it is recorded under current assets.
This approach allows companies to accurately present the economic substance of investments in investment gold in their financial statements, in accordance with international accounting standards.
Accounting policy for investment gold: Obligation to precisely determine purpose and treatment
Companies that decide to invest in investment gold must develop a clear and consistent accounting policy in accordance with the guidelines of the International Financial Reporting Standards Board. Namely, the way in which investment gold will be recorded depends solely on its purpose within the company’s operations, and the decision on this is left to management.
The management of each company is required, using its own judgment, to determine and apply accounting policies that will provide financial statements with relevance, reliability and neutrality.
In this way, accounting policy becomes a key instrument in ensuring the transparency and accuracy of financial statements, which is of crucial importance both for the owners and management themselves, and for the wider business community.
Investment gold as a long-term asset: Valuation and reporting rules
Companies that decide to hold investment gold as a fixed asset in order to maintain financial stability must adhere to clear accounting rules. According to current standards, the initial recognition of this type of asset is carried out at its purchase price, increased by all associated acquisition costs, if any.
After initial recognition, investment gold is measured at fair value at each balance sheet date, in accordance with the provisions of International Accounting Standard IAS 40 – Investment Property. This approach ensures that the value of gold in the books reflects its fair market price at the end of each financial year.
Since fair value is determined at the balance sheet date, an impairment test is not required, nor is investment gold depreciated, as its value in use does not decline over time. Also, due to the nature of this asset, it is not depreciated, as gold retains its value regardless of the length of the holding period.
Valuation of investment gold classified as current assets
When a company decides to use investment gold as part of its current assets, the accounting treatment of this asset is aligned with business objectives and applicable international standards. This approach is applied in cases where gold is held as a highly liquid asset – a kind of alternative to cash and cash equivalents – or when the intention is to take advantage of speculative opportunities in the market and make a profit through price changes.
The initial recognition and subsequent measurement of investment gold in such situations is carried out in accordance with the provisions of the International Financial Reporting Standard – IFRS 9 Financial Instruments. This ensures that the value of this asset in the financial statements at all times reflects its real market price, and the financial data remains transparent and in accordance with the requirements of international accounting practice.
Disclosure and Valuation of Investment Gold: Rules for Traders and VAT Payers
When preparing financial statements, companies that deal with investment gold are required to clearly disclose in the notes to the financial statements the accounting policies they apply when valuing this type of asset — both upon initial recognition and subsequent measurement.
When it comes to companies that are engaged in the purchase and sale of investment gold, either for their own account or for someone else’s account, with the aim of making a profit based on changes in market prices or margins, gold is recorded as inventory in the business books. In that case, the valuation is made at the lower of the two — the purchase value or the net realizable value. At the end of each reporting period, companies are required to make a new assessment of the net realizable value. If economic conditions improve and there are no longer any reasons for the previous reduction in value, or if there is evidence of an increase in the net realizable value, the previously made write-off may be restored, but not more than the amount of the original write-off, whereby the book value is adjusted to the lower of the purchase value or the newly determined net realizable value.
Special rules also apply to value added tax (VAT) taxpayers who trade in investment gold. If they decide to apply the special taxation procedure, they are required to issue invoices for each trade in investment gold, keep detailed records of all transactions and preserve documentation in accordance with the VAT Law. It is important to note that taxpayers who, in addition to investment gold, sell other types of goods or provide services, apply the special regime exclusively to trade in investment gold and brokerage services, while trade in other goods and services is taxed according to the general rules.
