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Analysis of Inventory
Inventory Accounting Policy
The vast majority of Target’s inventory is accounted for under the retail inventory accounting method (RIM) using the last-in, first-out (LIFO) method. Inventory is stated at the lower of LIFO cost or market. The cost of the inventory includes the amount Target pays to the suppliers to acquire inventory, freight costs incurred in connection with the delivery of product to the distribution centers and stores, and import costs, reduced by vendor income and cash discounts. The majority of Target’s distribution center operating costs, including compensation and benefits, are expensed in the period incurred. Inventory is also reduced for estimated losses related to shrink and markdowns. The LIFO provision is calculated based on inventory levels, markup rates, and internally measured retail price indices.
Under RIM, inventory cost and the resulting gross margins are calculated by applying a cost-to-retail ratio to the inventory retail value. RIM is an averaging method that has been widely used in the retail industry due to its practicality. The use of RIM will result in inventory being valued at the lower of cost or market because permanent markdowns are taken as a reduction of the retail value of inventory.
Target routinely enters into arrangements with vendors whereby Target does not purchase or pay for merchandise until the merchandise is ultimately sold to a guest. Activity under this program is included in Sales and Cost of Sales in the Consolidated Statements of Operations, but the merchandise received under the program is not included in Inventory in Target’s Consolidated Statements of Financial Position because of the virtually simultaneous purchase and sale of this inventory. Sales made under these arrangements totaled $2,562 million, $2,448 million, and $2,314 million in 2017, 2016, and 2015, respectively.
Source: 10-K (filing date: 2018-03-14).
Target Corp., Statement of Financial Position, Inventory
USD $ in millions
|Feb 3, 2018||Jan 28, 2017||Jan 30, 2016||Jan 31, 2015||Feb 1, 2014||Feb 2, 2013|
Based on: 10-K (filing date: 2018-03-14), 10-K (filing date: 2017-03-08), 10-K (filing date: 2016-03-11), 10-K (filing date: 2015-03-13), 10-K (filing date: 2014-03-14), 10-K (filing date: 2013-03-20).
|Inventory||Amount after valuation and LIFO reserves of inventory expected to be sold, or consumed within one year or operating cycle, if longer.||Target Corp.’s inventory declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level.|