Airline Depreciation Essay

1056 Words Mar 28th, 2012 5 Pages

BSA 522 Managerial Accounting

Professor Peggy Wright

October 5th, 2011

TO: Dr. Peggy Wright

FROM: Christina Smart, Sean Hall, Chaffon Mouzone, Alvin McLaughlin, and Lisette Jordan

DATE: October 5th, 2011

SUBJECT: Airline Depreciation

Introduction Our team will assess four airlines based upon the different methods of depreciation, useful life, and residual value utilized. The accounting policies reflect the airlines position in determining which accounting methods they deem suitable to maximize profitability. It is important to understand why companies use different accounting principles within their company and analyzing the line of business, airline routes,
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Their current liberal method is creating a lower book value on the balance sheet. It may be easier for Delta to slow the recognition of expenses by using the liberal approach, which may help show more profit with the higher number of years. The reduced depreciation can lead to a higher reported aircraft value, which can lead to a higher book value over realizable value, so Delta needs to be careful in this area. Should AMR continue maintenance and upkeep on the planes, not to mention when flights are low cutting back on the uses of some of their fleet then it can help in making the lifespan of the plan last much longer than possible. If the company would consider all of the possibilities that they can make changes in prices, routes, fuel efficiencies, etc… If the company used a third set of books it could be beneficial in management using this as a way in which they can make further management decisions in regards to the airline’s fleet. They may be able to make more managerial sound financial decisions in regards to the planes and the way in which they are running the company. They may be able to write off assets to but this would be if the depreciation is slowly being removed from the assets. Singapore Airline’s has made a managerial decision to increase its lifespan by seven years since 1989, which is still considered a fast depreciation rate in comparison to the

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