- 39 -                                                   
            1993    162,692    1.70      188,526    1.98      25,834    0.28       16.47                 
            Dr. Gaffney observed that out of the 14 years considered by him,                             
            an overaccrual of shrinkage was made in 12 of those years.                                   
                        3.  Dr. LaRue                                                                    
                  Dr. LaRue testified to, among other things, the “tax                                   
            effects” resulting from the accrual of erroneous estimates of                                
            unverified shrinkage (shrinkage estimation errors).  He designed                             
            simulation models to analyze shrinkage estimation errors that                                
            result from the use of cycle counting in conjunction with the                                
            LIFO Retail Method.  Dr. LaRue believes that the LIFO Retail                                 
            Method imposes certain additional demands on any method of                                   
            shrinkage estimation.  To better appreciate Dr. LaRue's                                      
            assertion, we must acquire a basic understanding of the LIFO                                 
            Retail Method.  See secs. 1.471-8, 1.472-1(k), 1.472-8(c), Income                            
            Tax Regs.                                                                                    
                  The LIFO Retail Method is a method of inventory valuation                              
            designed to meet the special needs of high volume retailers                                  
            dealing in a wide variety of merchandise.  In general terms, the                             
            sales at retail for an accounting period are subtracted from the                             
            retail value of goods available for sale during that period to                               
            produce a figure for the retail value of ending inventory.  That                             
            figure for the retail value of ending inventory must be converted                            
            into a figure for cost of ending inventory, which can be                                     
Page:  Previous   29   30   31   32   33   34   35   36   37   38   39   40   41   42   43   44   45   46   47   48   NextLast modified: May 25, 2011