Learning Objective 3: Compute partial year depreciation, and select the bestdepreciation method) Assume that on September 30, 2017, EuroAir, an international airlinebased in Germany, purchased a Jumbo aircraft at a cost of €45,000,000 (€ is the symbol for theeuro). EuroAir expects the plane to remain useful for four years (4,000,000 miles) and to havea residual value of €6,000,000. EuroAir will fly the plane 350,000 miles during the remainderof 2017. Compute EuroAir’s depreciation on the plane for the year ended December 31, 2017,using the following methods:a. Straight-lineb. Units-of-productionc. Double-declining-balanceWhich method would produce the highest net income for 2017? Which method produces thelowest net income?
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Learning Objective 3: Compute partial year
depreciation method) Assume that on September 30, 2017, EuroAir, an international airline
based in Germany, purchased a Jumbo aircraft at a cost of €45,000,000 (€ is the symbol for the
euro). EuroAir expects the plane to remain useful for four years (4,000,000 miles) and to have
a residual value of €6,000,000. EuroAir will fly the plane 350,000 miles during the remainder
of 2017. Compute EuroAir’s depreciation on the plane for the year ended December 31, 2017,
using the following methods:
a. Straight-line
b. Units-of-production
c. Double-declining-balance
Which method would produce the highest net income for 2017? Which method produces the
lowest net income?
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