Following the collapse of the Toys“R”Us franchise in the United States, Toys“R”Us Australia went into administration on 21 May 2018, leaving 700 staff and 44 stores nationwide with an uncertain future.
Subsequent to the announcement of financial difficulties of Toys“R”Us, the administrator announced that gift vouchers would be honoured only if customers spent the equivalent amount of the voucher in store. Thus, customers attempting to use gift vouchers were being told they had to spend double the value of each voucher. As the administrator of Toys“R”Us Australia was unable to achieve a going-concern sale, the business was wound down and subsequently closed in August 2018. Gift card holders had until 5 July 2018 to have their cards honoured by Toys“R”Us.

Required
(a) Explain the initial recording that Toys“R”Us should prepare when a customer purchases a gift voucher for $100 cash. 3 marks
(b) Using the definition and recognition of financial report elements contained in the revised Conceptual Framework, discuss why you have suggested the particular recording. 8 marks
(c) Explain the recording that Toys“R”Us would prepare when a customer redeemed their $100 gift voucher by using it to purchase $100 worth of toys. The cost price of the toys that the customer purchased is $40. 6 marks
(d) It was reported in the financial press that Toys“R”Us Australia had a total of $6.7 million in cash and inventory on hand of $47.5 million when it went into voluntary administration. Further, it had employee benefits (amounts owed to employees for annual leave) of $3.02 million and unsecured creditors of $94.9 million. Using the revised Conceptual Framework, explain the essential characteristics that categorise amounts owed to employees for annual leave as a liability. 5 marks