Delta Airlines

Depreciation at delta Air Lines and Singapore Air Lines

1)

(a) For DELTA (per $100 of gross aircraft value)

Prior to July 1, 1986: (100-10)/10 = $9/ year

From July 1, 1986 through March 31, 1993: (100-10)/15 = $6/year

From April 1, 1993 on: (100-5)/20 = $4, 75/year

(b) For SINGAPORE (per $100 of gross aircraft value)

Prior to April 1, 1989: (100-10)/8 = $11, 25/year

From April 1, 1989 on: (100-20)/10 = $8/ year

2) The method for accounting depreciation expense in both airline companies is same that they are both using the straight-line basis. But the assumptions for salvage value and depreciation lives are different between Delta and Singapore airlines.

Companies prefer to depreciate aircraft using different salvage value and depreciation lives because of the managerial decision /policies about the recording the depreciation expense. SING prefers to record their depreciation expense in short period so that they can decrease their profit to pay less tax. While they have enough net profit, it is beneficiary for them to follow this policy.

While there are no fixed rules for the treatment, and it is decided by each company management, we can say that the treatment is proper as per their company policy.

3) In April 1, 1993 hey change their rules for depreciation and as a result (from question 1 above) they started to record $4,75/year instead of $6/year per $100 of gross aircraft value, which makes 21% decrease in their depreciation expenses.

If they used the Singapore's depreciation assumptions,

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