Question

Disclosure note 2 discusses Target's accounting gift card sales. Disclosure Note 18 indicates the amount of gift card liability that is recognized in targets balance sheet

A. How would the following affect Target's gift card liability (indicate "increase," "decrease," or "no change" for each):

i. Sale of gift card

ii. Redemption of a gift card (the holder using it to acquire goods or services)

iii. Increase in breakage estimated for gift cards already sold

Please explain your answer for each.

Answer 1

1. Sale of Gift Card will increase the liability as the obligation will increase with sale of Gift Card which will be fulfilled only when the card buyer will use the card fully.

2. Redemption of a gift Card will Decrease the gift cards liability as the company is fulfilling its obligation towards sale of Card.

3. Increase in breakage estimated for gift cards​​- will further decrease the liability towards Gift cards as those cards will remain unused at the end of the period and hence reducing the obligation of the company.