Depreciation at Delta Air

Topics: Depreciation, Asset, Generally Accepted Accounting Principles Pages: 28 (2843 words) Published: July 3, 2013
Depreciation at Delta Air Lines and Singapore Airlines
UAA – ACCT 650 Seminar in Executive Uses of Accounting Dr. Fred Barbee

Financial Reporting

Yeah!

MB

A

MBA

Why study this case?
l To

“compare and contrast” depreciation assumptions from two airlines that . . . l l

Are in some ways alike, and In other ways vastly different

5

Why Look at an Airline?
l PP&E

for airlines usually comprise greater than 50% of total assets. of one airline are substantially similar to aircraft of another airline (at least to the lay person).

l Aircraft

6

Depreciation – The Concept

1

Time Consumed as Depreciation Expense

l Depreciation

is not

an attempt to establish the value of an asset.
l Depreciation

is not a measure of the decline in value of an asset.

Depreciation Defined
l

The process of allocating the cost of property, plant, and equipment as an expense in a systematic and rational manner to those periods expected to benefit from the use of the asset.

11

B E G I N N I N G

Depreciation
96 97 98 99 00 01 02 03 04 05

Life of the Asset

E N D I N G

Depreciation is a process of allocation, not valuation.

Depreciation
Balance Sheet Acquisition Cost Cost Allocation Income Statement Expense

Unused

Used

An application of the matching principle.
13

Depreciation
Depreciation Expense Income Depreciation for the current year Statement

Accumulated Depreciation Total depreciation to date of balance sheet

Balance Sheet

14

Long-Term Assets

Long-Term Assets
l Have l Are l Are l Are

a useful life of more than one year.

acquired for use in the business. not intended for resale to customers. reported at carrying (book) value.

16

Management Issues related to Accounting for Long Term Assets

Management Issues
l The l The

cost of the asset must be measured.

depreciable life of the asset must be estimated.

18

Management Issues
l The

salvage value of the asset at the end of its life must be estimated pattern for recognizing depreciation over the depreciable life of the asset must be selected.

lA

19

Issues Related to Long-Lived Assets
Asset Service Potential
Use in business operations Acquisition
Declin e in fu tu servic e be n r e efits.

Disposal

Book Value

Time

Accounting Issues
Measuring Cost Allocation of cost Accounting For post acquisition expenses. Recording Disposals

Issues Related to Long-Lived Assets
Asset Service Potential
Use in business operations Acquisition
Declin e in fu tu servic e be n r e efits.

Disposal

Book Value

Time

Accounting Issues
Measuring Cost Allocation of cost Accounting For post acquisition expenses. Recording Disposals

Acquisition cost of Property, Plant, and Equipment

Fundamental Issue #1: What is the value of the asset?

Measuring the Carrying Amount of Long-Lived Assets

1

Expected Benefit Approach
l Recognizes

that assets are valuable because of the future cash inflows they are expected to generate.

24

Economic Sacrifices Approach
l Focuses

on the amount of resource expenditures required to acquire an asset.

25

Measuring the Carrying Value of Long-Lived Assets
l Expected
l l

Benefit Approaches

Discounted present value. Net realizable value.

l Economic
l

Sacrifice Approaches

Historical cost less accumulated depreciation. Replacement cost. 26

l

1

Hypothetical Case – A Truck
l Original l Two

cost $100,000

years old, has remaining useful life of 8 years salvage value using straight-line

l No

l Depreciated

28

1

Discounted Present Value
l Expected

net operating cash inflows = $18,000 per year (assumed) for eight remaining years, discounted at a 10% (assumed) rate. x $18,000 = $96,029

l 5.33493

30

Net Realizable Value
l Current

resale price from an over-theroad equipment listing (Purple Book) for the specific vehicle...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Depreciation at Delta Airlines Essay
  • Depreciation at Delta and Singapore Airlines Research Paper
  • Depreciation at Delta & Singapore Airlines Essay
  • Total Depreciation Essay
  • Depreciation Essay
  • INTRODUCTION Of Depreciation Essay
  • Delta Air Line Essay
  • Delta air Essay

Become a StudyMode Member

Sign Up - It's Free