Financial Accounting Case: Depreciation at Singapore Airlines and Delta Airlines
Depreciation expense that Delta and Singapore would record for each $100 groxx value of aircaraft. Delta: Prior to July 1, 1986 depreciated straight line to residual values 10% cost residual over 10 years. Formula= (CAE-0.1CAE)/10 = 0.09 CAE = 9 dollars for every 100 dollars of airplane equipment.
Delta: After July 1, 1986 to March 31, 1993 depreciated straight line to 10% cost residual value of flight equipment to 15 years from date placed in service. Formula= (CAE-0.1 CAE)/15 = 6 dollars for every 100 dollars of airplane equipment.
Delta: After April 1, 1993 flight equipment is being depreciated straight line over a 20 year period with a 5% residual value. Formula= (CAE-0.05CAE)/20= 4.75 dollars for every 100 dollars of airplane equipment.
Singapore: Prior to April 1, 1989: 8 years with 10% residual value: Formula (CAE-01.CAE)/8 = 11.25 dollars for every 100 dollars in airplane equipment
Singapore: After April 1, 1989: 10 years with 20% residual value: Formula (Average CAE-0.2RV)/10= 8 dollars per 100 dollars
Yes, there are significant differences in the way both companies account for depreciation of airline equipment. Singapore Airways uses a more conservative approach than Delta to depreciate their airplanes, allocating depreciation over a shorter period. The overall impact is extremely significant, especially for airplanes older than 5 years where Singapore depreciates almost 4 times what Delta does. The two airlines use different depreciable lives and salvage values because of what the airplanes are being used for – A Delta passenger averages 900 miles per roundtrip while the Singapore passenger averages 2700 miles. You can assume that the longer haul trips put more stress on the airplane, and that might explain Singapore’s conservative depreciation especially since both companies probably maintain their fleet well. Delta has older aircraft...
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