Best Buy 2008 Annual Report Download - page 58

Effect if Actual Results Differ From
Description Judgments and Uncertainties Assumptions
Vendor Allowances
We receive funds from vendors for various Based on the provisions of our vendor We have not made any material changes
programs, primarily as reimbursements for agreements, we develop vendor fund in the accounting methodology used to
costs such as markdowns, margin accrual rates by estimating the point at record vendor receivables in the past three
protection, advertising and sales incentives. which we will have completed our fiscal years.
performance under the agreement and the
Vendor allowances provided as a If actual results are not consistent with the
deferred amounts will be earned. During
reimbursement of specific, incremental and assumptions and estimates used, we may
the year, due to the complexity and
identifiable costs incurred to promote a be exposed to additional adjustments that
diversity of the individual vendor
vendor’s products are included as an could materially impact, positively or
agreements, we perform analyses and
expense reduction when the cost is negatively, our gross profit rate and
review historical trends to ensure the
incurred. All other vendor allowances are inventory. However, substantially all
deferred amounts earned are appropriately
initially deferred and recorded as a receivables associated with these activities
recorded. As a part of these analyses, we
reduction of merchandise inventories. The are collected within two months, and all
apply rates negotiated with our vendors to
deferred amounts are then included as a amounts deferred against inventory
actual purchase volumes to determine the
reduction of cost of goods sold when the turnover within the following fiscal year,
amount of funds accrued and receivable
related product is sold. and therefore do not require subjective
from the vendor. Certain of our vendor long-term estimates. Adjustments to gross
agreements contain purchase volume profit rate and inventory in the following
incentives that provide for increased fiscal year have historically not been
funding when graduated purchase volumes material.
are met. Amounts accrued throughout the
year could be impacted if actual purchase A 10% difference in our vendor receivables
volumes differ from projected annual at March 1, 2008, would have affected net
purchase volumes. earnings by approximately $19 million in
fiscal 2008.
Long-Lived Assets
Long-lived assets other than goodwill and Our impairment loss calculations contain We have not made any material changes
indefinite-lived intangible assets, which are uncertainties because they require in our impairment loss assessment
separately tested for impairment, are management to make assumptions and to methodology during the past three fiscal
evaluated for impairment whenever events apply judgment to estimate future cash years.
or changes in circumstances indicate that flows and asset fair values, including We do not believe there is a reasonable
the carrying value may not be recoverable. forecasting useful lives of the assets and likelihood that there will be a material
selecting the discount rate that reflects the
When evaluating long-lived assets for change in the estimates or assumptions we
risk inherent in future cash flows.
potential impairment, we first compare the use to calculate long-lived asset
carrying value of the asset to the asset’s impairment losses. However, if actual
estimated future cash flows (undiscounted results are not consistent with our estimates
and without interest charges). If the and assumptions used in estimating future
estimated future cash flows are less than cash flows and asset fair values, we may
the carrying value of the asset, we be exposed to losses that could be
calculate an impairment loss. The material.
impairment loss calculation compares the
carrying value of the asset to the asset’s
estimated fair value, which may be based
on estimated future cash flows (discounted
and with interest charges). We recognize an
impairment loss if the amount of the asset’s
carrying value exceeds the asset’s
estimated fair value. If we recognize an
impairment loss, the adjusted carrying
amount of the asset becomes its new cost
basis. For a depreciable long-lived asset,
the new cost basis will be depreciated
(amortized) over the remaining useful life of
that asset.
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