Airline Depreciation

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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, age of aircrafts, and awareness of the economy are key factors for business managers. Statement of the Problem

Estimating the replacements of aircrafts in relation to straight line versus accelerated can be difficult to estimate. The implication of the straight line depreciation with airlines, such as Delta, is taking a more liberal accounting approach. Management has to anticipate which accounting method would be more profitable to the airline. This can be difficult due to the uncertainty of the economy, wear and tear on the aircraft and proper book keeping methods. As flight hours increase the maturity factor, or costs increases. With only 5% residual value, Delta is looking to recognize gains later as opposed to Singapore that is taking their expenses up front over 15 years. One may assume Delta plans to keep their inventory longer. Management also has to determine if maintaining three sets of books is feasible for the company with relation to costs and practicality. AMR, the parent company of American Airlines, is one of the most liberal of the four airlines that are used as examples. The company will show a higher depreciation, but it may also hide losses on financial statements, while showing as well higher...
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