Delta Airlines Case Study Solution

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Register to read the introduction… The implication of the straight line depreciation with airlines, such as Delta, is taking a more liberal accounting approach. Management has to anticipate which accounting method would be more profitable to the airline. This can be difficult due to the uncertainty of the economy, wear and tear on the aircraft and proper book keeping methods. As flight hours increase the maturity factor, or costs increases. With only 5% residual value, Delta is looking to recognize gains later as opposed to Singapore that is taking their expenses up front over 15 years. One may assume Delta plans to keep their inventory longer. Management also has to determine if maintaining three sets of books is feasible for the company with relation to costs and …show more content…
Compared to Delta’s past residual value of 10% in 1986, estimating a lower one may decrease the depreciation expense. The straight line is easier to anticipate costs for aircraft replacement than accelerated, due to recognizing expenses faster. Delta can use the useful lives to identify the appropriate cost methods to identify how soon to adjust prices based upon anticipated costs. Delta will have to continuously evaluate their inventory in relation to the industry in order to adopt the best accounting principles. 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 …show more content…
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

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