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accruals, and of calculating such accruals as a percentage of
sales, is the prevalent, if not the virtually universal,
practice; it is the best practice in that industry.
Respondent disallowed the retailers’ shrinkage accruals.
That had the consequence of decreasing cost of goods sold and, as
a result, increasing gross income. Respondent has proposed
deficiencies based upon that increased income.
II. KFS Division of Kroger
A. General Operations
Kroger managed its grocery products warehouses and
supermarkets on a geographic basis as Kroger Marketing Areas
(KMAs). A KMA contained between 34 and 161 supermarkets. The
KMAs were part of the Kroger Food Stores Division of Kroger (the
KFS division). Altogether, the KFS division operated between
1,000 and 1,500 supermarkets between 1979 and 1992. Each KMA had
its own management organization, which was part of the Kroger
management structure. Management of each KMA reported to
corporate management in Kroger’s general office (the Kroger
general office). The Kroger general office set the policies that
governed the operation of the KMAs. After 1984, Florida Choice,
although a division of Superx, was treated as a KMA for certain
accounting purposes.
B. Accounting Methods and Procedures
The accounting methods and procedures used by each KMA were
prescribed by the Kroger general office. Pertinent aspects of
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