On Jan. 1, 2019 Spitfire Airlines buys a new Boeing 737 aircraft for $ 50,000,000. It is expected to last 15 years and fly 50,000 hours. At the end of its useful life, Spitfire expects to sell the aircraft for $2,000,000. In 2019 the aircraft flies for 3,800 hours. a. What is the 2019 depreciation, assuming straight line depreciation is used? b. What is the 2019 depreciation, assuming units of production depreciation is used? c. Suppose that straight line depreciation is used. On Jan. 1, 2021, the airline decides that the total useful life will be 20 years (including the years already used). What is the straight linedepreciation for 2021?
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.
On Jan. 1, 2019 Spitfire Airlines buys a new Boeing 737 aircraft for $ 50,000,000. It is expected to last 15 years and fly 50,000 hours. At the end of its useful life, Spitfire expects to sell the aircraft for $2,000,000. In 2019 the aircraft flies for 3,800 hours.
a. What is the 2019
b. What is the 2019 depreciation, assuming units of production depreciation is used?
c. Suppose that straight line depreciation is used. On Jan. 1, 2021, the airline decides that the total useful life will be 20
years (including the years already used). What is the straight linedepreciation for 2021?
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