# Depriciation

Topics: Depreciation, Singapore Airlines, Airline Pages: 3 (728 words) Published: April 8, 2013
1. Calculate the annual depreciation expense that Delta and Singapore would record for each \$100 gross value of aircraft. Depreciation=(original value-residue value)/estimated used year a) For Delta, what was its annual depreciation expense (per \$100 of gross aircraft value) prior to July 1, 1986; from July 1, 1986 through March 31, 1993; and from April 1, 1993 on? Annual depreciation expenses each \$100 gross value of aircraft: Before July 1, 1986: (100-100x10%)÷10=9\$

July 1, 1986 ---- March 31, 1993: (100-100x10%)÷15=6\$ After April 1, 1993: (100-100x5%)÷20=4.75\$ [pic]
b) For Singapore, what its annual depreciation expense (per \$100 of gross aircraft value) prior to April 1, 1989; and from April 1, 1989 on? Annual depreciation expenses each \$100 gross value of aircraft: Before April 1, 1989: (100-100x10%)÷8=11.25\$ After April 1, 1989: (100-100x20%)÷10=8\$

[pic]
2. Are the differences in the ways that the two airlines account for depreciation expense significant? Why would companies depreciate aircraft using different depreciable lives and salvage values? What reasons could be given to support these differences? Is different treatment proper? We assume a fixed asset with original value of \$100, and get its depreciation below: [pic]We can conclude that at each time, for the fixed asset with the same original amount, Singapore Airline depreciate 25% to 87.50% more than Delta Airline, which is quite significant. Because Delta Airline’s revenue from international flights represented only 21% of total operating revenue in 1993, while for Singapore Airline this percentage increased to 56%. Singapore Airline mainly focuses on long-distance trip and customer’s comfort, so it needs to maintain its aircraft modern and updated, so it uses short-term estimated year for its fixed asset. At the same time, from 1989 to 1993, Singapore Airline profit was quite outstanding...