Deprecation at Delta Airlines and Singapore Air Lines

Deprecation at Delta Airlines and Singapore Air lines

Depreciation helps match the expense of using long lived assets with the revenues the assets helped to produce> what means is that Delta ns Singapore pole Air line depreciates one of its airplanes, it is trying to match the cost of air flight to the revenue that air craft helped to produce. Because air crafts can be an item used for more than one income statement period, Delta and Singapore Airlines don’t recognize the air crafts entire cost as an expense immediately. Instead, the companies record them as assets on the balance sheet. Then, in each year of the assets useful life, the companies should recognize a portion of the Item’s costs as an expense.

At the end of the useful life of fixed assets the businesses will dispose, and any amount received from disposal will represent its residual value. This may be difficult to estimate in practice. How ever, an estimate has to be made. If it is unlikely to be significant amount, a residual value of zero will be assumed. The cost of fixed assets less its estimated residual value represents the total amount to be depreciated over its estimated useful life.

Delta Air Line

Item Prior to July 1, 1986 July 1, 1986-march 31, 1993 April 1, 1993- present

Method Straight line Straight line Straight line

Residual Value 10% 10% 5%

Useful Life 10years 15years 20 years

Depreciation expense per $100 of gross air craft value( annually) $100 x 0.1 = $10

$100-$10 = $90

$90/10yrs= $9 per yr $100 x 0.1 = $10

$100-$10 = $90

$90/15yrs= $6 per yr $100 x 0.1 = $10

$100-$10 = $90

$90/20yrs= $4.75 per yr

Singapore

Item Prior to July 1, 1989 April 1, 1989- present

Method Straight line Straight line

Residual Value 10% 20%

Useful Life 8years 10years

Depreciation expense per $100 of gross air craft value( annually) $100 x 0.1 = $10

$100-$10 = $90

$90/8yrs= $11.25per yr $100 x 0.2 = $20

$100-$20 = $80

$90/10yrs= $8 per yr

The amount each company should recognize as expense is given in a given year depends on the following factors

• Company estimate the assets useful life independently

• Residual value

• Depreciation methods

Delta and Singapore air line use the straight line method to calculate annual depreciation expenses, this allow each company to evaluate its residual value and useful life. For example April 1, 1989 Singapore Airline was paying almost double ($ 11.25 / year) in depreciation expanse to delta