Big Lots 2012 Annual Report Download - page 129

49
BIG LOTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 1 — Basis of Presentation and Summary of Significant Accounting Policies (Continued)
Under the average cost retail inventory method, permanent sales price markdowns result in cost reductions in
inventory. Our permanent sales price markdowns are typically related to end of season clearance events and are
recorded as a charge to cost of sales in the period of management’s decision to initiate sales price reductions
with the intent not to return the price to regular retail. Promotional markdowns are recorded as a charge to net
sales in the period the merchandise is sold. Promotional markdowns are typically related to specific marketing
efforts with respect to products maintained continuously in our stores or products that are only available in
limited quantities but represent substantial value to our customers. Promotional markdowns are principally used
to drive higher sales volume during a defined promotional period.
We record a reduction to inventories and charge to cost of sales for a shrinkage inventory allowance. The
shrinkage allowance is calculated as a percentage of sales for the period from the last physical inventory date to
the end of the reporting period. Such estimates are based on our historical and current year experience based on
physical inventory results.
We record a reduction to inventories and charge to cost of sales for any excess or obsolete inventory. The excess
or obsolete inventory is estimated based on a review of our aged inventory and takes into account any items
that have already received a cost reduction as a result of the permanent markdown process discussed above.
We estimate the reduction for excess or obsolete inventory based on historical sales trends, age and quantity of
product on hand, and anticipated future sales.
Payments Received from Vendors
Payments received from vendors relate primarily to rebates and reimbursement for markdowns and are
recognized in our consolidated statements of operations as a reduction to cost of inventory purchases in the
period that the rebate or reimbursement is earned or realized and, consequently, result in a reduction in cost of
sales when the related inventory is sold.
Store Supplies
When opening a new store, a portion of the initial shipment of supplies (including primarily display materials,
signage, security-related items, and miscellaneous store supplies) is capitalized at the store opening date. These
capitalized supplies represent more durable types of items for which we expect to receive future economic
benefit. Subsequent replenishments of capitalized store supplies are expensed. The consumable/non-durable
type items for which the future economic benefit is less measurable are expensed upon shipment to the store.
Capitalized store supplies are adjusted periodically for changes in estimated quantities or costs and are included
in other current assets in our consolidated balance sheets.
Property and Equipment — Net
Depreciation and amortization expense of property and equipment are recorded on a straight-line basis using
estimated service lives. The estimated service lives of our property and equipment by major asset category were
as follows:
Land improvements ....................................... 15 years
Buildings ................................................ 40 years
Leasehold improvements ................................... 5 years
Store fixtures and equipment ................................ 5 years
Distribution and transportation fixtures and equipment ............ 5 - 15 years
Office and computer equipment .............................. 5 years
Computer software costs .................................... 5 - 8 years
Company vehicles ......................................... 3 years