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Analysis of Inventory
Inventory Accounting Policy
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 30% 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 net realizable value. The valuation allowance for merchandise inventories valued under a cost method was not material to Home Depot’s consolidated financial statements at the end of fiscal 2017 or 2016.
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 merchandise inventories are properly stated. Shrink (or in the case of excess inventory, "swell") is the difference between the recorded amount of inventory and the physical inventory. Home Depot calculates shrink based on actual inventory losses occurring as a result of physical inventory counts during each fiscal period and estimated inventory losses occurring between physical inventory counts. The estimate for shrink occurring in the interim period between physical inventory counts is calculated on a store-specific basis based on recent shrink results and current trends in the business.
Source: 10-K (filing date: 2018-03-22).
Home Depot Inc., Statement of Financial Position, Inventory
USD $ in millions
|Jan 28, 2018||Jan 29, 2017||Jan 31, 2016||Feb 1, 2015||Feb 2, 2014||Feb 3, 2013|
Based on: 10-K (filing date: 2018-03-22), 10-K (filing date: 2017-03-23), 10-K (filing date: 2016-03-24), 10-K (filing date: 2015-03-26), 10-K (filing date: 2014-03-27), 10-K (filing date: 2013-03-28).
|Merchandise inventories||Amount after valuation and LIFO reserves of inventory expected to be sold, or consumed within one year or operating cycle, if longer.||Home Depot Inc.’s merchandise inventories increased from 2016 to 2017 and from 2017 to 2018.|