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crime levels, management problems, measures to improve shrinkage,
industry trends, performance of warehouses, and store
acquisitions. Except for stores opened during the year, Target
generally conducted a complete physical inventory of an entire
store on a particular day once each year.
Dayton's accounted for shrinkage as a percentage of sales
using rates (accrual rates) that were set for each department for
each taxable year. Companywide, department accrual rates were
based on a combination of factors including the most recent
shrinkage history and shrinkage trends of the particular
department, the employment of new marketing strategies, changes
in demographics, trends that were developing in related
departments, changes in security procedures, and particular theft
problems. Dayton's conducted its physical inventories of its
departments by counting inventory on the same day at every store
that maintained a particular department. The physical
inventories of the departments were performed at various times
throughout the year, and, during the year in issue, they were
performed as early as February 1983 and as late as January 1984.
In sum, both Target and Dayton's estimated losses from
shrinkage factors as a percentage of sales, using methods that
essentially reflected (1) verified shrinkage for the preinventory
period, (2) an estimate of yearend shrinkage (shrinkage
accruals), and (3) accrual error attributable to the shrinkage
accrual for the prior taxable year.
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