The Kroger Company and Subsidiaries - Page 9

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            those methods and procedures for the years in issue were as                               
            follows.                                                                                  
                        1.  Departments                                                               
                  Store inventories were divided into departments and                                 
            subdepartments.  Shrinkage accrual was made only for the grocery,                         
            drug/general merchandise, and cosmetics departments.                                      
                        2.  Retail Method of Inventory Valuation                                      
                  The retail method of valuing inventory was used by the KFS                          
            division for store inventories in the grocery, drug/general                               
            merchandise, and cosmetics departments.  Under the retail method,                         
            the cost of goods sold is estimated by multiplying sales revenue                          
            by the “cost complement”.  That technique translates the retail                           
            dollar value of the goods sold into its approximate cost dollar                           
            value.                                                                                    
                        3.  LIFO                                                                      
                  Beginning with 1979, Kroger elected to use the last-in-                             
            first-out (LIFO) method of accounting.  Kroger valued its                                 
            inventories in stores and warehouses using the dollar value, link                         
            chain method of implementing LIFO.  The KFS division also elected                         
            to use statistical sample techniques to determine the dollar                              
            value indexes.  The KFS division initially used a single LIFO                             
            pool for all items in the grocery, drug/general merchandise, and                          
            cosmetics departments.  Beginning with 1986, the KFS division                             
            allocated its single pool into nine pools.                                                






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Last modified: May 25, 2011