Accounting Depreciation at Delta Airlines & Singapore Airlines (Solution to Case #2) 24th November‚ 2009 1. Calculate the annual depreciation expense that Delta and Singapore would record for each $100 gross value of aircraft. a. Delta: i. Prior to July 1‚ 1986 the Delta airline assets were depreciated using Straight Line Method at 10% for 10 years for a salvage value of 10%. Depreciation Expense = (Cost of Asset – Salvage Value) / number of year Depreciation Expense
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The word ’Depreciation ’ has been derived from the Latin word ’Depretium ’ which means ’decline in price ’ or ’value ’. Depreciation relates to fixed assets which loose value on account of usage. Therefore ’Depreciation ’ means decline in value of fixed assets on account of usage. Definitions: Depreciation may be defined as the permanent and continuing diminution in the quality‚ quantity or the value of an asset.William Pickles Depreciation in the shrinkage in the value of an asset at a given
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Depreciation at Delta Air Lines and Singapore Airlines Acct 531 – Intermediate Finance Acct 1 SECTION 1 – 13WQ Instructor: John V. Merle‚ MBA February 27‚ 2013 Emma Waage Roarke Stone Tim Gould Introduction Depreciation expense is the way that the use of an asset is matched with the revenue that is generated from the asset on the income statement during the time period being reported. Each asset used in a business has a useful life as disclosed by the company’s depreciation
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Depreciation: Airplanes and Garbage Trucks Part I: Airplanes Assume that on January 1‚ 2005‚ each of the three airlines purchases a new Boeing 757 for $75 million. Each airline estimates that the residual value will be 5% of cost. Each airline uses the average depreciation period that is consistent with its policies as stated in the Appendix‚ found on page 3. On January 1‚ 2009‚ each firm sells the plane. First‚ assume that Northwest sells its plane for $55 million‚ Delta sells its plane
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Sum of the Years’ Digits Method of Depreciation Sum of the years’ digits method of depreciation is one of the accelerated depreciation techniques which are based on the assumption that assets are generally more productive when they are new and their productivity decreases as they become old. The formula to calculate depreciation under SYD method is: SYD Depreciation = Depreciable Base × Remaining Useful Life Sum of the Years’ Digits In the above formula‚ depreciable base is the difference between
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Mattel Property‚ Plant‚ and Equipment Property‚ plant‚ and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over estimated useful lives of 10 to 40 years for buildings‚ 3 to 10 years for machinery and equipment‚ and 10 to 20 years‚ not to exceed the lease term‚ for leasehold improvements. Tools‚ dies‚ and molds are amortized using the straight-line method over 3 years. Estimated useful lives are periodically reviewed
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with purchase of new assets comes the frequently heard term i.e. depreciation! All of us must have heard about depreciation and know that it is deducted before arriving at Net Profit. However‚ not many of us are aware of its nitty-gritty’s and the part that it plays in determining the profits of a company. In fact many of us completely ignore analyzing this important parameter. However‚ with considerably flexibility over how depreciation is calculated‚ it is one of the easiest figures to manipulate
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Discussion Q’s Why might the companies be using different depreciation methods? Average age of Delta’s aircraft = 8.8yrs; Average age of Sing Aircraft = 5.1yrs. The useful life of an airplane may be much less for Singapore since one of their competitive advantages is flying a modern fleet. How could you argue for Delta changing its depreciation assumptions? Against? Perhaps Delta changes its assumptions because technologically newer aircraft now tend to last longer than technologically older
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are competing to sell a fleet of 25 cars to Hertz. Hertz fully depreciates all of its rental cars over five years using the straight-line method. The firm expects the fleet of 25 cars to generate $100‚000 per year in earnings before taxes and depreciation for five years. Hertz is an all-equity firm in the 34-percent tax bracket. The required return on the firm’s unlevered equity is 10 percent‚ and the new fleet will not add to the risk of the firm. a. What is the maximum price that Hertz
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ACCT332 Quiz 1 Last Name___________________ First Name ________________ Section#____________________ 1. Diversified Industries sells electronic products in reusable containers. Customers pay a deposit for each container. The deposit is equal to the container’s cost. Customers receive a refund when the container is returned. During 2012‚ deposits collected on containers shipped were $350‚000. Deposits are forfeited if containers are not returned in 18 months. During 2012‚ $250‚000 was refunded
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