Best Buy 2016 Annual Report Download - page 70

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Merchandise Inventories
Merchandise inventories are recorded at the lower of cost, using the average cost, or market. In-bound freight-related costs
from our vendors are included as part of the net cost of merchandise inventories. Also included in the cost of inventory are
certain vendor allowances that are not a reimbursement of specific, incremental and identifiable costs to promote a vendor's
products. Other costs associated with acquiring, storing and transporting merchandise inventories to our retail stores are
expensed as incurred and included in cost of goods sold.
Our inventory valuation reflects adjustments for anticipated physical inventory losses (e.g., theft) that have occurred since the
last physical inventory. Physical inventory counts are taken on a regular basis to ensure that the inventory reported in our
consolidated financial statements is properly stated.
Our inventory valuation also reflects markdowns for the excess of the cost over the amount we expect to realize from the
ultimate sale or other disposal of the inventory. Markdowns establish a new cost basis for our inventory. Subsequent changes in
facts or circumstances do not result in the reversal of previously recorded markdowns or an increase in the newly established
cost basis.
Restricted Assets
Restricted cash totaled $185 million at January 30, 2016 and is included in other current assets. Restricted cash totaled $292
million at January 31, 2015, of which $184 million is related to continuing operations and included in other current assets and
$108 million is included in current assets held for sale in our Consolidated Balance Sheet. Such balances are pledged as
collateral or restricted to use for general liability insurance and workers' compensation insurance.
Property and Equipment
Property and equipment are recorded at cost. We compute depreciation using the straight-line method over the estimated useful
lives of the assets. Leasehold improvements are depreciated over the shorter of their estimated useful lives or the period from
the date the assets are placed in service to the end of the lease term, which includes optional renewal periods if they are
reasonably assured. Accelerated depreciation methods are generally used for income tax purposes.
When property is retired or otherwise disposed of, the cost and accumulated depreciation are removed from our Consolidated
Balance Sheets and any resulting gain or loss is reflected in our Consolidated Statements of Earnings.
Repairs and maintenance costs are charged directly to expense as incurred. Major renewals or replacements that substantially
extend the useful life of an asset are capitalized and depreciated.
Costs associated with the acquisition or development of software for internal use are capitalized and amortized over the
expected useful life of the software, generally from three to seven years. A subsequent addition, modification or upgrade to
internal-use software is capitalized to the extent that it enhances the software's functionality or extends its useful life.
Capitalized software is included in fixtures and equipment. Software maintenance and training costs are expensed in the period
incurred.
Property under capital and financing leases is comprised of buildings and equipment used in our operations. The related
depreciation for capital and financing leases assets is included in depreciation expense. The carrying value of property under
capital and financing leases was $165 million and $44 million at January 30, 2016, and January 31, 2015, respectively, net of
accumulated depreciation of $107 million and $75 million, respectively.
Estimated useful lives by major asset category are as follows:
Asset
Life
(in years)
Buildings 35
Leasehold improvements 3-25
Fixtures and equipment 3-20
Property under capital and financing leases 2-20