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
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What does it gain or lose by doing so? How does this relate to the company’s overall strategy?
Singapore maintains one of the youngest average fleet ages in the industry at 5.1 years old. They were depreciating their aircraft over 8 years with a salvage value of 10% up until 1989 and then increased it to 10 years and 20% salvage value. The average depreciation rate per $100 for Singapore Airlines was $11.25 prior to this change and $8.00 after, compared with Delta’s $6.00. The company is majority-owned by the Singapore government, but did not receive any subsidy from the government. Its stock is, however, followed by over 20 investment analysts worldwide. In 1993, their net profit dropped from $922 to $741 million in Singapore dollars as depreciation expense as a percent of total operating expenses had grown from 14.8% to 15.8% in one year. Staff bonuses were cut from 3.4 months of pay to .5 months of pay in one year. The other issue that that was hurting their profitability was that their strategy was not in line with their utilization rate of only 71.3%, down from 78.9% in 1989. They should have been focusing on the amount of depreciation they were paying expensing as a percent of operating expense much sooner. With profits and utilization rates declining constantly over the last five years, a focus on the depreciation methods could have helped them reduce the decline in net profits. With an aggressive capital expansion program
The value of fixed assets typically decreases over time. The amount of the decrease each year is accounted for and is called depreciation. Depreciation for the year is expensed on the income statement and added to the accumulated depreciation account on the balance sheet. So the value of the fixed assets on the balance sheet is reduced by the accumulated depreciation.
| In Year 1, depreciation is $5,000 plus 15% of the asset’s outlayFrom Year 2, depreciation is either * 30% of the asset’s book value; or * if the asset’s book value is less than $6,500, depreciation is the asset’s book value (i.e. asset is depreciated to zero once book value < $6,500)
It adds value to the business i.e. it enhances the business operations which would inturn have a positive impact on the business
How can it be helpful to a company's growth? How can it be harmful? Give examples to support your answer.
Depreciation and depletion are two models of computing financial reports. These techniques are used as adjustments when preparing statements of cash flow within the direct or indirect method. This paper will identify and examine the methods of depreciation and depletion, describe the difference between the methods, and compare and contrast depreciation and depletion as well using scholarly references to support the points.
“Delta Tops Airline Performance Ranking”, according to Justin Worland’s 2014 article in TIME magazine. The article continues about how Airfare watchdog’s annual rankings raised Deltas performance from sixth place in 2013 to king of the airways in 2104. Delta Airlines Inc.’s performance is the best option for fliers; provide Delta service their region, which is highly probable (Worland, 2014).
It is has a higher priority as well as is more in line with their business goals for the company.
Before abandonment the asset should be depreciated so at the time of disposal the carrying value equals the salvage value, but not less than zero. Assets that are distributed to owners or exchanged for a similar productive asset must recognize an impairment loss if the carrying amount exceeds fair value at the time of disposal. Assets that are going to be disposed of by sale must be classified as such and the gain or loss it recognizes must be disclosed on the income statement or in the notes. For assets disposed of by sale, the amount of cash received is compared the asset's book value, which is calculated by subtracting accumulated depreciation from the cost of the asset. A gain is recorded if the proceeds of the sale are greater than book value. A loss is recorded if the proceeds of the sale are less than the book value (FASB, 2014).
2. Depreciable asset B was purchased January 3, 2006. It originally cost $180,000 and, for depreciation
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%.
Depreciation is the reduction in the value of certain fixed assets. It is a periodic reduction of fixed assets, usually done every year. Fixed assets are assets that add value to the company. Examples of fixed assets that can be depreciated are vehicles, buildings, machinery, equipment and fixture and fittings. The only fixed asset that is not depreciated is land, because it is not worn-out overtime, unless natural resources are being exploited. When a company buys a new fixed asset it doesn’t account for the full cost of it as one single large expense, instead the expense is spread over the life time of the asset. This is done by depreciating the asset. For example a company purchases a CNC router for €50,000 and will be used for five year. If they pay the full amount in the
From the humble financial portfolio as a crop dusting outfit in the mid twentieth century, to the multi-billion dollar portfolio of a major airline in the twenty first century, Delta Air Lines has risen as a successful business. The airline industry is directly affected by outside economic conditions and is also cyclical in nature. These factors make it very difficult for airlines to make predictions to stay financially afloat. Delta has ridden the bumpy path of the last twenty years and managed to survive. In the past twenty years there has been many events that
Addressing the needs of its employees. Meeting the needs of the employees and maintaining a profit margin.
This makes the company look good and they can afford to do this from good financial skills. Decisions like this make a good profit in the long run and all in all this is why it is so important to have a good management team.
As a surplus unit, Singapore Airline has increased their net cash used in investing and financing activities. Stated in the cash flow, SIA purchase intangible assets, making new long-term investment, and also receiving interest from deposits and investments. This year 2013/2014, they making a lot if