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testified that petitioners' inventory method did not comply with
GAAP, we are unpersuaded by that testimony.
Petitioners' shrinkage methodology is supported by FASB
Statement of Concepts No. 6 (Statement No. 6). In relevant part,
Statement No. 6 states:
26. An asset has three essential characteristics:
(a) it embodies a probable future benefit that
involves a capacity * * * to contribute directly or
indirectly to future net cash inflows, (b) a
particular entity can obtain the benefit and control
others' access to it, and (c) the transaction or
other event giving rise to the entity's right to or
control of the benefit has already occurred.
* * * * * * *
33. Once acquired, an asset continues as an asset
of the entity until the entity collects it,
transfers it to another entity, or uses it up, or
some other event or circumstance destroys the future
benefit or removes the entity's ability to obtain
it.
Petitioners' method of accounting for shrinkage comports with
Statement No. 6 because petitioners adjusted their inventories,
which were their largest asset, to reflect the value of the
merchandise that was on hand at yearend. If petitioners had not
made these adjustments, the value of their ending inventories
would have been overstated by the value lost through shrinkage.
Merchandise that is not available for sale to customers does not
"contribute * * * to future net cash inflows" or provide a
"benefit".
We also are guided by the retail industry's accounting
practice. In the absence of specific guidance, the generally
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