The FASB has issued Proposed Accounting Standards Update EITF 2015-15B, Recognition of Breakage for Certain Prepaid Stored-Value Cards. If finalized, it would change the way that retail merchants who sell gift cards for redemption at other stores account for “breakage” — the curious term used for gift card values (and similar items) that ultimately will not be redeemed.
This post is not primarily about the Proposed Update. Rather, I am going to focus on the accounting rules it supplements. My goal is to convince you that the way in which merchants currently account for gift cards is a pig. That makes the Proposed Update essentially lipstick, the specious quality of which I will reluctantly address in closing.
The following simple fact pattern is a sufficient basis for our luau:*Gary the grocer sells a $50 gift card for its face value, redeemable at any one of the hundreds of retail outlets [Read More...]