Financial Accounting Case: Depreciation at Singapore Airlines and Delta Airlines
1. Depreciation expense that Delta and Singapore would record for each $100 groxx value of aircaraft.
Delta: Prior to July 1, 1986 depreciated straight line to residual values 10% cost residual over 10 years.
Formula= (CAE-0.1CAE)/10 = 0.09 CAE = 9 dollars for every 100 dollars of airplane equipment.
• Delta: After July 1, 1986 to March 31, 1993 depreciated straight line to 10% cost residual value of flight equipment to 15 years from date placed in service.
Formula= (CAE-0.1 CAE)/15 = 6 dollars for every 100 dollars of airplane equipment.
• Delta: After April 1, 1993 flight equipment is being depreciated straight line over a 20 year period with a 5% residual value.
Formula= (CAE-0.05CAE)/20= 4.75 dollars for every 100 dollars of airplane equipment.
• Singapore: Prior to April 1, 1989: 8 years with 10% residual value:
Formula (CAE-01.CAE)/8 = 11.25 dollars for every 100 dollars in airplane equipment
• Singapore: After April 1, 1989: 10 years with 20% residual value:
Formula (Average CAE-0.2RV)/10= 8 dollars per 100 dollars
2. Yes, there are significant differences in the way both companies account for depreciation of airline equipment. Singapore Airways uses a more conservative approach than Delta to depreciate their airplanes, allocating depreciation over a shorter period. The overall impact is extremely significant, especially for airplanes older than 5 years where Singapore depreciates almost 4 times what Delta does.
The two airlines use different depreciable lives and salvage values because of what the air ...