Depreciation at Delta & Singapore Airlines

1393 WordsJan 21, 20106 Pages
Financial Accounting Depreciation at Delta Airlines & Singapore Airlines (Solution to Case #2) 24th November, 2009 1. Calculate the annual depreciation expense that Delta and Singapore would record for each \$100 gross value of aircraft. a. Delta: i. Prior to July 1, 1986 the Delta airline assets were depreciated using Straight Line Method at 10% for 10 years for a salvage value of 10%. Depreciation Expense = (Cost of Asset – Salvage Value) / number of year Depreciation Expense = (100.00 – 10.00) / 10 = 9 dollars for every 100 dollars of airline equipment ii. From July 1, 1986 to March 31, 1993 the depreciation was Straight line at 10% for 15 years for a salvage value of 10%.…show more content…
Every company has their own way to depreciate fixed assets based on their requirements and situations. The main reason for such a difference in strategies is showing the amount of profit in a particular period. In case of Delta they have increased the life of an asset showing low depreciation which leads to low operating expense resulting in higher profits. However for Singapore airline the operating profit is good and there is not much need to show lower depreciation, moreover it adds on to their value by showing a higher salvage value for the equipments they carry. The difference is policies if proper as the useful life of the asset and the salvage value largely depend the experience that the organization has in the field and usage of the equipment. In this case we can clearly see that Singapore airlines have a much smaller operation level than delta. 3. Assuming the average value of flight equipment that Delta had in 1993, how much of a difference do the depreciation assumptions it adopted on April 1, 1993 make? How much more or less will its annual depreciation expense be compared to what it would be were it using Singapore’s depreciation assumptions? |Delta Airlines |1993 | |Value of Owned Aircraft