- 19 -
petitioners took a physical count, they adjusted any over- or
under-estimate of shrinkage, so that their books and records
reflected inventories on hand as verified by the physical count.
This was a continuous process throughout the year, as stores and
clubs were physically counted in the cycle procedure.
E. Yearend Allocations and LIFO Effects
Wal-Mart estimated shrinkage for each store, not for each
department within each store. At the end of each subject year,
Wal-Mart aggregated the estimate for shrinkage for the stub
period as reported in its records for all of its stores.
Wal-Mart then allocated this aggregate estimated shrinkage to
each department on the basis of the relative amount of all
shrinkage verified during the year for each department as
reported in the December purchase recap report.6 At the end of
each taxable year, Wal-Mart allocated the consolidated ending
inventory (net of shrinkage), as reported in the general journal,
among each of its departments.7 For the 1984, 1985, and 1986
6 Purchase recap reports were prepared monthly, and they
listed beginning inventory at retail, purchases at cost and
retail, sales at retail, markdowns at retail, and ending
inventory at retail. The inventory amounts shown in the monthly
purchase recap reports were stated net of shrinkage (overage) as
determined from physical inventories taken from the beginning of
the year to date. The shrinkage (overage) determined from the
physical inventory was included in the purchase recap report when
the inventory was completed, including verification and recording
in the books. The shrinkage (overage) reported in the purchase
recap report was reported on a departmental basis from the
physical counts of the departments.
7 Wal-Mart recorded purchases, sales, and related
(continued...)
Page: Previous 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 NextLast modified: May 25, 2011