Wal-Mart Stores, Inc. and Subsidiaries - Page 29

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          accepted standard for a trade or industry may be established by             
          reference to a common practice followed by members of that trade            
          or industry.  See sec. 1.471-2(a)(1), Income Tax Regs.                      
          (inventories must conform to the best accounting practice in the            
          trade or business).  Petitioners' methodology for estimating stub           
          period shrinkage is consistent with and comparable to the best              
          practice used in the retail industry.  Like most major retailers,           
          petitioners use cycle counting, which is widely accepted in the             
          retail industry.  Petitioners' physical inventory process is                
          strictly and carefully conducted and reviewed by independent                
          counting services, petitioners' internal auditors and loss                  
          prevention department, and independent auditors.  Petitioners'              
          competitors also estimate shrinkage as a percentage of sales.               
          Estimating shrinkage for the stub period as a percentage of sales           
          is the best practice available in the industry.  It is also                 
          relevant that petitioners used the same shrinkage estimates for             
          reports issued to the Securities Exchange Commission.                       
                We conclude that petitioners' method of accounting for                
          their inventories, including their estimates of shrinkage at                
          yearend, conforms as nearly as may be to the best accounting                
          practice in the trade or business.  We so hold, and we turn to              
          the second prong.                                                           
          III.  Clear Reflection of Income                                            
                Inventory accounting is governed by sections 446 and 471.             
          Section 471 prescribes the general rule for inventories.  The               




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