Best Buy 2008 Annual Report Download - page 57

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actual results could differ from our assumptions and
Critical Accounting Estimates
estimates, and such differences could be material.
Our consolidated financial statements are prepared in
Our significant accounting policies are discussed in
accordance with GAAP. In connection with the preparation
Note 1, Summary of Significant Accounting Policies, of the
of our financial statements, we are required to make
Notes to Consolidated Financial Statements, included in
assumptions and estimates about future events, and apply
Item 8, Financial Statements and Supplementary Data, of
judgments that affect the reported amounts of assets,
this Annual Report on Form 10-K. Management believes
liabilities, revenue, expenses and the related disclosures.
that the following accounting estimates are the most
We base our assumptions, estimates and judgments on
critical to aid in fully understanding and evaluating our
historical experience, current trends and other factors that
reported financial results, and they require management’s
management believes to be relevant at the time our
most difficult, subjective or complex judgments, resulting
consolidated financial statements are prepared. On a
from the need to make estimates about the effect of
regular basis, management reviews the accounting
matters that are inherently uncertain. Management has
policies, assumptions, estimates and judgments to ensure
reviewed these critical accounting estimates and related
that our financial statements are presented fairly and in
disclosures with the Audit Committee of our Board.
accordance with GAAP. However, because future events
and their effects cannot be determined with certainty,
Effect if Actual Results Differ From
Description Judgments and Uncertainties Assumptions
Inventory Reserves
We value our inventory at the lower of the Our markdown reserve contains We have not made any material changes
cost of the inventory or fair market value uncertainties because the calculation in the accounting methodology used to
through the establishment of markdown requires management to make assumptions establish our markdown or inventory loss
and inventory loss reserves. and to apply judgment regarding inventory reserves during the past three fiscal years.
aging, forecasted consumer demand, the
Our markdown reserve represents the We do not believe there is a reasonable
promotional environment and technological
excess of the carrying value, typically likelihood that there will be a material
obsolescence.
average cost, over the amount we expect change in the future estimates or
to realize from the ultimate sale or other Our inventory loss reserve contains assumptions we use to calculate our
disposal of the inventory. Markdowns uncertainties because the calculation markdown reserve. However, if estimates
establish a new cost basis for our inventory. requires management to make assumptions regarding consumer demand are
Subsequent changes in facts or and to apply judgment regarding a number inaccurate or changes in technology affect
circumstances do not result in the of factors, including historical results and demand for certain products in an
restoration of previously recorded current inventory loss trends. unforeseen manner, we may be exposed to
markdowns or an increase in that newly losses or gains that could be material. A
established cost basis. 10% difference in our actual markdown
reserve at March 1, 2008, would have
Our inventory loss reserve represents affected net earnings by approximately
anticipated physical inventory losses $4 million in fiscal 2008.
(e.g., theft) that have occurred since the
last physical inventory date. Independent We do not believe there is a reasonable
physical inventory counts are taken on a likelihood that there will be a material
regular basis to ensure the inventory change in the future estimates or
reported in our consolidated financial assumptions we use to calculate our
statements is properly stated. During the inventory loss reserve. However, if our
interim period between physical inventory estimates regarding physical inventory
counts, we reserve for anticipated physical losses are inaccurate, we may be exposed
inventory losses on a location-by-location to losses or gains that could be material. A
basis. 10% difference in actual physical inventory
losses reserved for at March 1, 2008,
would have affected net earnings by
approximately $5 million in fiscal 2008.
49