Acct 652 Delta Case Study

PEP ACCT652 Delta Assignment

Hi guys. I just want to give you a few clarifications for the Delta Airlines assignment. For

Question 2—sorry about the confusion. If you look at the Exhibit 1 in the case study you’ll

realize that for planes between 1998 and 2006 they have two residual values: 5% and 10%. And

then you have the same range of numbers for estimated useful life of planes bought in 2007:

21-30 years. In the write-up of the assignment I put in a typo. It should say “use 25 years and

residual values of 5% for planes between 1998 through 2006.” That’s where my typo was. I

wrote “1993.” So 1998 to 2006, and then use 30 years and 10% for planes acquired in 2007.

And then what you should do is set it up like that: what is useful life of the planes, what is the

residual value, what’s the first year depreciation? Now, for Question 3, what I want you to do is

what would be the netbook value of those planes if I would have just continued with the same

form of depreciation, if nothing would have changed—if Delta would have never filed for

bankruptcy. Now, be careful: if a plane is written down or depreciated to its residual value, then

there is no further depreciation, so that’s probably going to be the case for the planes purchased

earlier on, in ’85 for example. If it depreciated for its useful life, and you reached the residual

value, then there’s no more depreciation. For other planes that may not be the case. And then

what I want you to do for Question 3 is also compare this to the fresh-start accounting. So, now,

the fresh-start accounting—there’s different ways you can think about it. So, for Question 3,

what I want you to do is just do you expect the netbook value to be higher or lower based on the

fresh-start accounting. So, I want this to be somewhat more descriptive.

Then for Question 4, I want you guys to go into more detail. So I want you to look at Exhibits 2-5

in the case study. I also want you to look at what does Delta say in...