Depreciation at Delta and Singapore Airlines
Depreciation at Delta Air Lines and Singapore Airlines
Acct 531 – Intermediate Finance Acct 1 SECTION 1 – 13WQ
Instructor: John V. Merle, MBA
February 27, 2013
Emma Waage
Roarke Stone
Tim Gould
Introduction
Depreciation expense is the way that the use of an asset is matched with the revenue that is generated from the asset on the income statement during the time period being reported. Each asset used in a business has a useful life as disclosed by the company’s depreciation policies for each category of asset. The other piece of calculating depreciation is the assumed salvage or “residual” value. There are several different methods of depreciating an asset:
1) Straight-line = [pic] 2) Double-declining balance =
[pic]
Delta and Singapore both use “straight-line” but they assume different salvage values for their fleet as well as different useful life assumptions. This case study will evaluate the differences in their rates of depreciation and the impact on their operating income and profitability before and after they changed their methodology and depreciation assumptions in their policy.
Question One – Calculate the annual depreciation expenses that Delta and Singapore would record for each $100 gross value of aircraft:
a) a)Delta • deprec. exp. prior to July 1, 1986: $9.00 [(100-(10%*100))/10] • deprec. exp. from July 1, 1986-March 31, 1993: $6.00 [(100-(10%*100))/15] • deprec. exp. from April 1, 1993 to today: $4.75 [(100-(5%*100))/20]
b) b)Singapore • deprec. exp. prior to April 1, 1989: $11.25 [(100-(10%*100))/8] • deprec. exp. from April 1, 1989 on: $8.00 [(100-(20%*100))/10] • deprec. exp for used aircraft more than 5 years old at the fiscal year 1993: $16.00 [(100-(20%*100))/5]
Question Two -- Are the differences in the ways that the two airlines account for depreciation significant? Why would companies
Acct 531 – Intermediate Finance Acct 1 SECTION 1 – 13WQ
Instructor: John V. Merle, MBA
February 27, 2013
Emma Waage
Roarke Stone
Tim Gould
Introduction
Depreciation expense is the way that the use of an asset is matched with the revenue that is generated from the asset on the income statement during the time period being reported. Each asset used in a business has a useful life as disclosed by the company’s depreciation policies for each category of asset. The other piece of calculating depreciation is the assumed salvage or “residual” value. There are several different methods of depreciating an asset:
1) Straight-line = [pic] 2) Double-declining balance =
[pic]
Delta and Singapore both use “straight-line” but they assume different salvage values for their fleet as well as different useful life assumptions. This case study will evaluate the differences in their rates of depreciation and the impact on their operating income and profitability before and after they changed their methodology and depreciation assumptions in their policy.
Question One – Calculate the annual depreciation expenses that Delta and Singapore would record for each $100 gross value of aircraft:
a) a)Delta • deprec. exp. prior to July 1, 1986: $9.00 [(100-(10%*100))/10] • deprec. exp. from July 1, 1986-March 31, 1993: $6.00 [(100-(10%*100))/15] • deprec. exp. from April 1, 1993 to today: $4.75 [(100-(5%*100))/20]
b) b)Singapore • deprec. exp. prior to April 1, 1989: $11.25 [(100-(10%*100))/8] • deprec. exp. from April 1, 1989 on: $8.00 [(100-(20%*100))/10] • deprec. exp for used aircraft more than 5 years old at the fiscal year 1993: $16.00 [(100-(20%*100))/5]
Question Two -- Are the differences in the ways that the two airlines account for depreciation significant? Why would companies
References: 1) http://en.wikipedia.org/wiki/Depreciation#Depreciable_basis