Best Buy 2011 Annual Report Download - page 76

$ in millions, except per share amounts or as otherwise noted
We establish allowances for uncollectible receivables based on historical collection trends and write-off history. Our
allowances for uncollectible receivables were $107 and $101 at February 26, 2011, and February 27, 2010, respectively.
Merchandise Inventories
Merchandise inventories are recorded at the lower of cost using either the average cost or first-in first-out method, 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 that
newly established cost basis.
Restricted Assets
Restricted cash and investments in debt securities totaled $490 and $496, at February 26, 2011, and February 27, 2010,
respectively, and are included in other current assets or equity and other investments in our consolidated balance sheets.
Such balances are pledged as collateral or restricted to use for vendor payables, general liability insurance, workers’
compensation insurance and warranty programs.
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 initial lease term. Leasehold improvements made
significantly after the initial lease term are depreciated over the shorter of their estimated useful lives or the remaining
lease term, including renewal periods, if 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, 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 lease is comprised of buildings and equipment used in our retail operations and corporate support
functions. The related depreciation for capital lease assets is included in depreciation expense. The carrying value of
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