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New rules were announced on November 16, 2009, regarding stricter rules to govern fees and expiration dates for gift cards, gift certificates, and general use pre-paid cards. While the rules have not be enacted and are open for comment for the next month, proposals include the prohibition of dormancy fees for a year and the extension of expiration periods to at least five years from the time the funds were loaded and the card sold and issued.

QUESTIONS:

  1. How would you classify gift cards on the financial statements?
  2. If a $50 gift card has a five year period before it expires, how should the company selling the card recognize income on it?
  3. Under the proposed changes, issuers can still charge inactivity fees for gift cards, are limited to one fine per month after a 12-month period. In addition, monthly maintenance fees, balance-inquiry fees and re-loading fees will be allowed. How should these fees be recorded by the issuing companies?

SOURCE: Jaffe, C. “No Gifts, Please,” Wall Street Journal- Market Watch (Retrievable online at http://www.marketwatch.com/story/gift-card-fees-keep-on-giving-to-card-issuers-2009-11-18)

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