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The challenge in places like California, is they don't legally recognize "breakage" or "Dormancy Fees" - so that any company that sells a gift card will have to

• rahimnathwani 11y ago
  "so that any company that sells a gift card will have to carry that liability on their books forever" There are at least two separate issues here: 1) Gift cards issued in California cannot usually have an expiry date or dormancy fees, so can be redeemed at any time after issuance, even 1000 years in the future. 2) IFRS 15 requires issuers to estimate breakage (usually based on historical redemption patterns). Once the issuer deems the chance of redemption to be remote, they can immediately recognise the amount as revenue, i.e. DR liabilities and CR revenue. These issues do not conflict. Estimate your breakage balance every quarter. If it's gone up since last time, recognise some additional revenue. If it's gone down, then reverse some revenue. These affect your financial reporting, but doesn't affect your dealings with customers. You'd calculate breakage in a similar way to that in which lenders calculate provisions for bad debts. You would do it at a portfolio level (perhaps breaking unredeemed gift cards into buckets based on value, date of issuance, and last activity date).