Singapore and Delta Airlines Discussion

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Depreciation at Delta and Singapore Airlines


A question is asked, “What makes a business successful?” While this question can have many answers, the financial standing among of the businesses in comparison can make a strong argument. One way to tell how financially fit said business by looking at the net earnings Airline companies consider Property, Plant, and Equipment (PP&E) as a significant portion under the asset category on the balance sheet.

1. Calculate the annual depreciation expense that Delta and Singapore would record for each $100 gross value of aircraft.

(a) For Delta, what was its annual depreciation expense (per $100 of gross aircraft value) prior to July 1, 1986; from July 1, 1986 through March 31, 1993; and from April 1, 1993 on?

Pre- 1986: (100-10)/10 = 9 annual depreciation
1986-1993: (100-10)/15 = 6 annual depreciation
1993-beyond: (100-5)/20 = 4.75 annual depreciation

(b) For Singapore, what was its annual depreciation expense (per $100 of gross aircraft value) prior to April 1, 1989; and from April 1, 1989 on?

1b. Pre-1989: (100-10)/8 = 11.25 annual depreciation 1989-on: (100-20)/10 = 8 annual depreciation

2. Are the differences in the ways that the two airlines account for depreciation expense significant? Why would companies depreciate aircraft using different depreciable lives and salvage values? What reasons could be given to support these differences? Is different treatment proper?

Yes, they are different, especially after 1993 when Singapore was recognizing almost 70% (8 vs. 4.75 annual depreciation) more depreciation expense then Delta per 100 dollars spent. Each company has different intentions for the use of their assets. For example, Singapore has a custom airplane made for them; they usually went for the newest and greatest…...

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