Bed, Bath and Beyond 2015 Annual Report Download - page 74

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INFLATION
The Company does not believe that its operating results have been materially affected by inflation during the past
year. There can be no assurance; however, that the Company’s operating results will not be affected by inflation
in the future.
CRITICAL ACCOUNTING POLICIES
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting
principles requires the Company to establish accounting policies and to make estimates and judgments that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of
the consolidated financial statements and the reported amounts of revenues and expenses during the reporting
period. The Company bases its estimates on historical experience and on other assumptions that it believes to be
relevant under the circumstances, the results of which form the basis for making judgments about the carrying
value of assets and liabilities that are not readily apparent from other sources. In particular, judgment is used in
areas such as inventory valuation, impairment of long-lived assets, goodwill and other indefinite lived intangible
assets, accruals for self insurance, litigation, store opening, expansion, relocation and closing costs, stock-based
compensation and income and certain other taxes. Actual results could differ from these estimates.
Inventory Valuation: Merchandise inventories are stated at the lower of cost or market. Inventory costs are
primarily calculated using the weighted average retail inventory method.
Under the retail inventory method, the valuation of inventories at cost and the resulting gross margins are
calculated by applying a cost-to-retail ratio to the retail values of inventories. The cost associated with
determining the cost-to-retail ratio includes: merchandise purchases, net of returns to vendors, discounts and
volume and incentive rebates; inbound freight expenses; duty, insurance and commissions.
At any one time, inventories include items that have been written down to the Company’s best estimate of their
realizable value. Judgment is required in estimating realizable value and factors considered are the age of
merchandise and anticipated demand. Actual realizable value could differ materially from this estimate based
upon future customer demand or economic conditions.
The Company estimates its reserve for shrinkage throughout the year based on historical shrinkage and any
current trends, if applicable. Actual shrinkage is recorded at year end based upon the results of the Company’s
physical inventory counts for locations at which counts were conducted. For locations where physical inventory
counts were not conducted in the fiscal year, an estimated shrink reserve is recorded based on historical
shrinkage and any current trends, if applicable. Historically, the Company’s shrinkage has not been volatile.
The Company accrues for merchandise in transit once it takes legal ownership and title to the merchandise; as
such, an estimate for merchandise in transit is included in the Company’s merchandise inventories.
Impairment of Long-Lived Assets: The Company reviews long-lived assets for impairment when events or
changes in circumstances indicate the carrying value of these assets may exceed their current fair values.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to
the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an
asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the
carrying amount of the asset exceeds the fair value of the assets. Assets to be disposed of would be separately
presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and
are no longer depreciated. The assets and liabilities of a disposal group classified as held for sale would be
presented separately in the appropriate asset and liability sections of the balance sheet. The Company has not
historically recorded any material impairment to its long-lived assets. In the future, if events or market conditions
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