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TARGET'S SHRINKAGE METHOD
Target Book
Taxable Sales- Shrinkage Minus Difference as
Year Target Allocated Sales-Allocated Percent of
Ending Book Taxable Year Taxable Year Sales-Allocated
In Shrinkage Shrinkage Shrinkage Shrinkage
1983 $54,175,800 $48,257,951 $5,917,849 12.26%
1984 63,773,400 63,217,484 555,916 0.88%
1985 66,205,504 73,483,645 -7,278,141 -9.90%
1986 82,227,200 81,441,206 785,994 0.97%
1983- 266,381,904 266,400,286 -18,382 -0.01%
1986
RESPONDENT'S METHOD - TARGET DIVISION
Verified
Taxable Loss Sales- Loss Minus Difference as
Year Verified by Allocated Sales-Allocated Percent of
Ending Physical Taxable Year Taxable Year Sales-Allocated
In Inventory Shrinkage Shrinkage Shrinkage
1983 $41,733,212 $48,257,951 -$6,524,739 -13.52%
1984 51,323,565 63,217,484 -11,893,929 -18.81%
1985 65,194,206 73,483,645 -8,289,439 -11.28%
1986 80,248,800 81,441,206 -1,192,406 -1.46%
1983- 238,499,783 266,400,286 -27,630,152 -10.37%
1986
Dr. Seago determined that Target's estimates of taxable year
shrinkage produced, in the aggregate, a net underestimate in the
amount of $18,382 for the taxable years ending in 1983 through
1986 when compared to sales-allocated taxable year shrinkage. He
also determined that the maximum error under Target's shrinkage
method was 12.26 percent of sales-allocated taxable year
shrinkage. From that analysis, Dr. Seago concludes that the
Divisions' shrinkage methods produced “a reasonably accurate
measure of the loss” occasioned by shrinkage factors. Dr. Seago
notes that, in contrast, respondent's method yields a cumulative
overstatement of income in the amount of $27,630,152. Dr. Seago
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