Best Buy 2016 Annual Report Download - page 56

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disposal of inventory and establish a new cost basis. 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. Markdown adjustments involve
uncertainty because the calculations require management to make assumptions and to apply judgment regarding factors such as
forecast consumer demand, the promotional environment and technological obsolescence.
We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we
use to calculate our markdown adjustments. However, if actual outcomes are different than we anticipated, we may be exposed
to losses or gains that could be material. A 10% change in our markdown adjustment at January 30, 2016, would have affected
net earnings by approximately $9 million in fiscal 2016.
Vendor Allowances
We receive allowances from certain vendors through a variety of programs and arrangements. We treat a substantial majority of
these allowances as an offset to the cost of the product or services provided. Sell-through allowances are collected when
inventory is sold to customers and recognized as a reduction in cost of sales at that time. Certain other types of funding, most
notably receipt-based allowances, are collected when we take receipt of inventory and deferred as a reduction of inventory until
inventory is sold. The estimation of the deferral for these types of funding is complex and requires detailed analysis of factors
such as product and vendor mix, inventory turn and a large range of diverse allowance programs.
We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to
calculate our vendor funding deferral. A 10% difference in our vendor funding deferral at January 30, 2016, would have
affected net earnings by approximately $21 million in fiscal 2016.
We also receive vendor allowances for achieving certain volume targets. These vendor allowances are accrued as earned over
the incentive period, based on estimates of purchases. Amounts accrued throughout the program year could require adjustment
if actual purchase volumes differ from projected purchase volumes, especially in the case of programs that provide for
increased funding when graduated volume tiers are met. We believe that our estimate of vendor allowances earned based on
expected volume of purchases over the incentive period is an accurate reflection of the ultimate allowances to be received from
our vendors. Since most volume-based programs apply to a calendar year or our fiscal year, the amount of judgment required as
of any fiscal year end is minimal.
Property and Equipment Impairments
Property and equipment assets are evaluated for impairment whenever events or changes in circumstances indicate that the
carrying value may not be recoverable.
When evaluating property and equipment assets for potential impairment, we first compare the carrying value of the asset to its
estimated undiscounted future cash flows. If the sum of the estimated undiscounted future cash flows is less than the carrying
value of the asset, we calculate an impairment loss. The impairment loss calculation compares the carrying value of the asset to
its estimated fair value, which is typically based on estimated discounted future cash flows. 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 asset, the new cost basis is depreciated over
the remaining useful life of that asset.
When reviewing property and equipment assets for impairment, we group assets with other assets at the lowest level for which
identifiable cash flows are largely independent of the cash flows of other assets and liabilities. For assets deployed at store
locations, we review for impairment at the individual store level. These reviews involve comparing the carrying value of all
property and equipment located at each store to the net cash flow projections for each store. In addition, we conduct separate
impairment reviews at other levels as appropriate. For example, a shared asset such as a distribution center would be evaluated
by reference to the aggregate assets and projected cash flows of all areas of the businesses utilizing those shared assets.
Our impairment loss calculations require management to make assumptions and to apply judgment in order to estimate fair
values, including estimating cash flows and useful lives and selecting a discount rate that reflects the risk inherent in future
cash flows. If actual results are not consistent with our estimates and assumptions we may be exposed to impairments that
could be material. We do not believe there is a reasonable likelihood that there will be a material change in the estimates or
assumptions we use to calculate property and equipment asset impairment losses.
Goodwill