with purchase of new assets comes the frequently heard term i.e. depreciation! All of us must have heard about depreciation and know that it is deducted before arriving at Net Profit. However‚ not many of us are aware of its nitty-gritty’s and the part that it plays in determining the profits of a company. In fact many of us completely ignore analyzing this important parameter. However‚ with considerably flexibility over how depreciation is calculated‚ it is one of the easiest figures to manipulate
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Discussion Q’s Why might the companies be using different depreciation methods? Average age of Delta’s aircraft = 8.8yrs; Average age of Sing Aircraft = 5.1yrs. The useful life of an airplane may be much less for Singapore since one of their competitive advantages is flying a modern fleet. How could you argue for Delta changing its depreciation assumptions? Against? Perhaps Delta changes its assumptions because technologically newer aircraft now tend to last longer than technologically older
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are competing to sell a fleet of 25 cars to Hertz. Hertz fully depreciates all of its rental cars over five years using the straight-line method. The firm expects the fleet of 25 cars to generate $100‚000 per year in earnings before taxes and depreciation for five years. Hertz is an all-equity firm in the 34-percent tax bracket. The required return on the firm’s unlevered equity is 10 percent‚ and the new fleet will not add to the risk of the firm. a. What is the maximum price that Hertz
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DETERMINING A DEPRECIATION POLICY [IFRS for SME’s: Section 17] IFRS for SMEs defines depreciation as the systematic allocation depreciable amount of an asset over its useful life‚ Depreciation is often described as the amount by which the economic value embedded in the asset diminishes through its use‚ namely‚ the estimated cost of using the asset in the process of generating income or carrying out the operating activities of the entity. Many practicing applies the depreciation based on the
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ACCT332 Quiz 1 Last Name___________________ First Name ________________ Section#____________________ 1. Diversified Industries sells electronic products in reusable containers. Customers pay a deposit for each container. The deposit is equal to the container’s cost. Customers receive a refund when the container is returned. During 2012‚ deposits collected on containers shipped were $350‚000. Deposits are forfeited if containers are not returned in 18 months. During 2012‚ $250‚000 was refunded
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U.S. GAAP vs. IFRS on Depreciation Generally‚ U.S GAAP and IFRS both view depreciation as allocation of cost over an asset’s life. There are three steps of the depreciation process: firstly find depreciable base of the asset‚ and then estimate asset’s useful life and last choose a method of cost apportionment that best matches revenue flow from the asset. Depreciation methods allowed under U.S. GAAP include straight-line‚ units of production‚ or accelerated methods (sum of digits or declining
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Depreciation at Delta Airlines and Singapore Airlines 1. Calculate the annual depreciation expense that Delta and Singapore would record for each $100 gross value of aircraft. (a) For Delta‚ what was its annual depreciation expense (per $100 of gross aircraft value) prior to July 1‚ 1986; from July 1‚ 1986 through March 31‚ 1993; and from April 1‚ 1993 on? Prior to July 1: (100-10)/10 = $9 annual depreciation From July 1‚ 1986 through March 31‚ 1993: (100-10)/15 = $6 annual depreciation From
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Account/Description Debit Credit CashEquipmentAccum. deprec.-EquipmentLoss on disposalGain on disposalDepreciation expense Accum. deprec.-EquipmentCashEquipmentGain on disposalDepreciation expenseLoss on disposal (To update depreciation) EquipmentLoss on disposalGain on disposalDepreciation expenseAccum. deprec.-EquipmentCash CashAccum. deprec.-EquipmentEquipmentGain on disposalDepreciation expenseLoss on disposal Gain on disposalDepreciation expenseEquipmentAccum
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99 Accounting Standard (AS) 6 (revised 1994) Depreciation Accounting Contents INTRODUCTION Definitions EXPLANATION Disclosure ACCOUNTING STANDARD Paragraphs 1-3 3 4-19 17-19 20-29 94 AS 6 (issued 1982) Accounting Standard (AS) 6* (revised 1994) Depreciation Accounting (This Accounting Standard includes paragraphs 20-29 set in bold italic type and paragraphs 1-19 set in plain type‚ which have equal authority. Paragraphs in bold italic type indicate the main principles. This Accounting
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Use of Accelerated Depreciation Methods Allows Shifting of Income The past two decades of tax law have created more opportunities than ever for business owners to defer tax amounts. Today‚ it is common practice for businesses to rely on accelerated depreciation to help lessen the burden of taxes imposed on corporate profits‚ and also shift their income to ethically maximize financial growth. For the purpose of accounting‚ accelerated depreciation intends to reflect how much of the corporation’s
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