Question

What happens when the gift card is expired? Does that mean no inventory movement? Will there be increase in cost of sales?

Answer 1

When you give or receive a gift card, the last thing you want is the balance to disappear because the issuer has deducted fees slowly. In the past, gift card recipients had the awful experience of having their gift card balances drained even though the cards had been in their wallets for months.

Expiration and Fees:-
Part of the Credit CARD Act of 2009 required the Federal Reserve to come up with rules for gift cards to keep consumers from losing their gift card funds. After receiving feedback from consumers, consumer groups, card issuers, industry commenters, and even a state attorney general, the Federal Reserve proposed these rules:

_Gift cards can only expire five years after the date the card was purchased or the date money was last loaded onto the card. If the card and the underlying money expire at different times, the card issuer should make it known which date applies. You should not be charged a fee to replace your card if it expires before the underlying funds expire (less than five years).
_Issuers can only charge an inactivity fee on a gift card if the card hasn’t been used in one year. Only one service charge* or inactivity fee can be charged per calendar month.

When the card is sold, the company debits cash and credits a corresponding gift card liability. As cards are redeemed, the liability is debited and revenue is recognized as a credit to sales, but what about the unused portions of gift cards, known in the industry as “breakage?” Breakage results most commonly when the remaining value on the gift card is negligible, or when the owner loses it. Across the country, it’s estimated that about $1 billion of the value of gift cards sold every year is never used.

For gift cards with no expiration date, the legal obligation to provide goods and services never expires. Leaving this on the balance sheet indefinitely results in a perpetually growing liability, which doesn’t reflect reality. The seller has the cash, and after enough time has passed, it’s unlikely that the gift card owner will ever redeem it. As a result, the seller really doesn’t owe the owner anything.
(This is all what I know about this question).