The Kroger Company and Subsidiaries - Page 13

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            method.  Superx determined the booking rate by calculating a                              
            company key rate from cost price data obtained from 80 selected                           
            stores.  The booking rate represented the percentage of each                              
            dollar of sales that represented gross profit.  Gross income was                          
            further reduced by shrinkage accrual.                                                     
                  Cost of sales was computed by multiplying sales by the                              
            percentage equal to (1) 100 percent less (2) the applicable                               
            booking rate.  That amount was used to reduce inventory.                                  
                        2.  LIFO                                                                      
                  For its 1984 and 1985 years, Superx used the dollar value                           
            LIFO method of calculating its inventories, using five LIFO                               
            pools.  It excluded optical centers, deli, restaurants, liquor,                           
            and inventories maintained by Florida Choice from its LIFO                                
            method.  It discontinued the LIFO method for its 1986 tax year.                           
                        3.  Shrinkage Accruals                                                        
                  Superx made shrinkage accruals for all of its departments                           
            except its optical departments.  Superx developed a single                                
            shrinkage accrual rate, which was expressed as a percentage of                            
            gross sales and used by all of Superx’s drug stores (and applied                          
            uniformly, although yielding different shrinkage accruals                                 
            depending on a store’s sales).                                                            
                  Superx’s shrinkage accrual rate was determined at Superx                            
            headquarters.  Superx management primarily examined historical                            
            shrinkage experience and recent shrinkage trends at the company                           

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