T.C. Memo. 1997-2
UNITED STATES TAX COURT
THE KROGER COMPANY AND SUBSIDIARIES, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 3358-94. Filed January 2, 1997.
P operated supermarkets and convenience stores.
P used “cycle counting” to conduct physical inventories
of merchandise throughout the year. P maintained book
inventory records from which inventory closing balances
could be determined at year’s end. P estimated losses
from shrinkage factors (e.g., theft and errors in
billing) occurring from the time of the last physical
count of inventory to year’s end and made an accrual of
the estimate. P calculated shrinkage accruals as a
percentage of gross sales.
Held: P’s systems of maintaining book inventories
(including the making of shrinkage accruals) conform to
the best accounting practice and clearly reflect
income. They are, thus, sound within the meaning of
sec. 1.471-2(d), Income Tax Regs.
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