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ELTADelta/ Singapore Airlines – FAA- MIFFT2014, group A8
Question 1
Formulas:Depreciable Value = Gross Aircraft Value - Residual Value |
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Residual Value = Gross Aircraft Value* Residual Value (as % of Cost) |
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Annual Depreciation = Depreciable Value / Estimated Useful Life |
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As given in the Question#1, Annual depreciation expense is calculated per $100 of Gross Aircraft Value |
Part A
Calculation of Annual Depreciation Expense per $100 of Gross Aircraft Value (GAV) - DELTA AIRLINES |
Time Period | Depreciation Method | Estimated Useful Life (in years) | Residual Value (as % of Cost) | Annual Depreciation Expense (in $/$100 of GAV) |
Prior to July 1, 1986 | Straight Line Method | 10 | 10% | 9.00 |
From July 1, 1986 through March 31, 1993 | Straight Line Method | 15 | 10% | 6.00 |
From April 1, 1993 | Straight Line Method | 20 | 5% | 4.75 |
*Information sourced from Pg 7 of the Case |
Part B
Calculation of Annual Depreciation Expense per $100 of Gross Aircraft Value - SINGAPORE AIRLINES |
Time Period | Depreciation Method | Estimated Useful Life (in years) | Residual Value (as % of Cost) | Annual Depreciation Expense (in $/$100 of GAV) |
Prior to April 1, 1989 | Straight Line Method | 8 | 10% | 11.25 |
From April 1, 1989 | Straight Line Method | 10 | 20% | 8.00 |
*Information sourced from Pg 10 of the Case |
Question 2
Yes there were significant differences in the ways the two airlines accounted for depreciation. Delta airlines depreciated its aircrafts on a straight-line basis to 5% residual value over a 20-year period. Whereas Singapore Airlines depreciated its aircrafts on a straight-line basis to 20% residual value over a 10-year period. While they both use the same depreciation method, there is a significant difference in the depreciation period and residual values.
It makes sense that Singapore Airlines use a higher residual value than Delta because they also use a shorter...