Keywords: Mazars, Thailand, Accounting, Prepaid cards, IFRS, IFRS IC, IFRS 9, IAS 39
18 May 2016
The prepaid card is non-refundable and non-exchangeable for cash. The IFRS IC was also asked how an entity should account for any unspent balance on such a card.
The question relates to businesses that sell vouchers for restaurants, holidays or other gifts, which the cardholder may redeem in exchange for goods or services. It does not cover gift cards that are sold by a particular business for use only within its own shops.
In the particular situation discussed by the IFRS IC, the prepaid card had no expiry date.
The IFRS IC concluded that:
- The prepaid card meets the definition of a financial liability for the issuer, as it represents an obligation to deliver cash to the merchants who accepted the card as a means of payment. The entity does not have an unconditional right to avoid this obligation;
- As the obligation arising from the prepaid card is a financial liability, it shall be accounted for in line with IFRS 9 / IAS 39.
This decision was published in IFRIC Update, but the IFRS IC did not discuss the consequences of including prepaid cards within the scope of the Financial Instruments standard. In practice, it is our understanding that the financial liability may not be recognised at less than the face value of the card, as the entity could be required to reimburse a merchant immediately. Thus, patterns of card use (and the proportion of cards that are never used) may not be taken into account when measuring the liability. In the situation discussed by the IFRS IC, the issuer would thus have to retain a liability on the balance sheet indefinitely for prepaid cards that had been forgotten, lost or destroyed by the cardholder and that would consequently never be used.
We believe that the IFRS IC’s conclusions would apply in the same way to prepaid cards that have an expiry date (like restaurant or gift vouchers). At the date of issue, a financial liability would be recognised at the face value of the voucher. It would then be derecognised either when the cardholder used the card, or at the expiry date.
However, prepaid cards issued as part of customer loyalty programmes do not fall within the scope of the Interpretations Committee’s decision.
For more information, please read the March 2016 IFRIC Update.