Airline Depreciation Essay

1037 Words Mar 24th, 2012 5 Pages
Team HMJM

BSA 522 Managerial Accounting

Professor Peggy Wright

October 5th, 2011

TO: Dr. Peggy Wright

FROM: Christina Smart, Sean Hall, Chaffon Mouzone, Alvin McLaughlin, and Lisette Jordan

DATE: October 5th, 2011

SUBJECT: Airline Depreciation

Introduction Our team will assess four airlines based upon the different methods of depreciation, useful life, and residual value utilized. The accounting policies reflect the airlines position in determining which accounting methods they deem suitable to maximize profitability. It is important to understand why companies use different accounting principles within their company and analyzing the line of business, airline routes,
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Singapore Airlines accounting practices are conservative in comparison to the American airlines reviewed. It has progressively adopted more liberal accounting practices since 1989. Singapore Airlines managerial decision to have rapid depreciation matches its business objective. The company strives to maintain a younger fleet the industry norms (www.airfleets.net, 2011). The increased depreciation decreases net income, which can result in gains through accruing less tax due to lower income (www.slideshare.net). Singapore Airlines business strategy also incorporates readily selling aircraft in correlation to industry practices. The company’s high depreciation method allow for the company to sell at market value for higher then the residual value after the aircraft’s lifespan (www.slideshare.net).
Alternatives and Solutions Delta has a more conservative salvage value of 5%, compared to Singapore, AMR and Lufthansa, which represent significantly higher residual values. Compared to Delta’s past residual value of 10% in 1986, estimating a lower one may decrease the depreciation expense. The straight line is easier to anticipate costs for aircraft replacement than accelerated, due to recognizing expenses faster. Delta can use the useful lives to identify the appropriate cost methods to

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