Home Depot Inc. (HD) | Analysis of Inventory

Merchandise Inventories

The majority of Home Depot's Merchandise Inventories are stated at the lower of cost (first-in, first-out) or market, as determined by the retail inventory method. As the inventory retail value is adjusted regularly to reflect market conditions, the inventory valued using the retail method approximates the lower of cost or market. Certain subsidiaries, including retail operations in Canada and Mexico, and distribution centers, record Merchandise Inventories at the lower of cost or market, as determined by a cost method. These Merchandise Inventories represent approximately 24% of the total Merchandise Inventories balance. Home Depot evaluates the inventory valued using a cost method at the end of each quarter to ensure that it is carried at the lower of cost or market. The valuation allowance for Merchandise Inventories valued under a cost method was not material to the Consolidated Financial Statements of Home Depot as of the end of fiscal 2012 or 2011.

Independent physical inventory counts or cycle counts are taken on a regular basis in each store and distribution center to ensure that amounts reflected in the accompanying Consolidated Financial Statements for Merchandise Inventories are properly stated. During the period between physical inventory counts in stores, Home Depot accrues for estimated losses related to shrink on a store-by-store basis based on historical shrink results and current trends in the business. Shrink (or in the case of excess inventory, "swell") is the difference between the recorded amount of inventory and the physical inventory. Shrink may occur due to theft, loss, inaccurate records for the receipt of inventory or deterioration of goods, among other things.

Source: Home Depot Inc., Annual Report

Home Depot Inc., Statement of Financial Position, Inventory

		Feb 3, 2013	Jan 29, 2012	Jan 30, 2011	Jan 31, 2010	Feb 1, 2009	Feb 3, 2008
	Merchandise inventories

Source: Based on data from Home Depot Inc. Annual Reports