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Singapore & Delta Airlines.

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This ppt carries the information regarding the different approaches followed by both the airlines in terms of depreciation.

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Singapore & Delta Airlines.

  1. 1. CASE STUDY ON Depreciation at Delta Airlines and Singapore Airlines BY :- NAKUL DEV GAUR CMBA5
  2. 2. 'Depreciation'  The gradual reduction of an asset's value. It is an expense, but because it is noncash, it is often effectively a tax write off i.e, a person or company usually may reduce his/her/its by the amount of the depreciation on the asset. Because there are different ways to account depreciation, it often bears only a rough resemblance to the asset's usefullife. This may further benefit the company as they may continue to use the asset taxfree after its value has technically depreciated to nothing.
  3. 3. Straight-line method Depreciation Expense per Year Cost - Salvage Value Useful life in years = Known Estimated Estimated
  4. 4. Straight-line method  On December 31, 2001, equipment was purchased for $50,000 cash. The equipment has an estimated useful life of 5 years and an estimated salvage value of $5,000. Depreciation Expense Per Year =$50,000 - $5,000 5 Years = $9000
  5. 5. Delta Singapore
  6. 6.  One of the major airlines in the U.S. with almost $12 billion in annual revenues.  Served 161 cities in 44 states in U.S.  Also, operated flights to 33 foreign countries.  In 1993, third largest airline in U.S.  At end of 1993, revenues from international flights represented 21% of total operating revenues.  The average of Delta’s aircraft was 8.8 years, which was relatively young by industry standards. DELTA AIR LINES
  7. 7. SINGAPORE AIR LINES  It was the largest private sector employer in the Singapore’s booming economy.  At the end of 1993, its route network covered 70 cities in 40 countries.  In 1993, its total operating revenues, $3.1 billion would have made it the seventh largest airline in the United States.  The average age of its was 5.1 years, which was the youngest of any major airline in the world.
  8. 8. Calculate the annual depreciation expense that Delta Airlines and Singapore Airlines would record for each $100 gross value of aircraft. Delta Airlines Depreciation=(Asset value –Residual Value)/Asset Life Before 1 July 1986 1 July 1986 to 31 March 1993 After 1 April 1993 Residual Value 10% 10% 5% Asset Life 10 15 20 Depreciation $9 $6 $4.75 Before 1 April 1989 After 1 April 1989 Residual Value 10% 20% Asset Life 8 10 Depreciation $11.25 $8 Singapore Airlines
  9. 9. Are the difference in the ways that two airlines account for depreciation expense significant? Both the airlines used the straight line methods. Salvage value and life of the asset (aircraft) are different in different time for both the cases. Delta has higher average life period(8.8yrs) then Singapore has(5.1yrs). Where as residual value/Scrap value of Singapore is higher then delta airline.
  10. 10. Why would companies depreciate aircraft using different depreciable lives and salvage value? Due to companies are different and they have different authority. Due to lesser usage and higher maintenance. Due to need of the time.
  11. 11. Singapore airlines maintain depreciation assumptions that are very from delta’s. what does it gain or lose doing so? How does it relate to company’s overall strategy? I. They focused on to show less profit by using higher depreciation rate and save taxes. II. They targeted to sell the aircraft for a fair market value having 20% residual value after 10 years. Overall strategy Their overall strategy was to use new and comfortable airlines for the customers. Hence they sold the aircrafts to maintain their standards which we can easily understand as they have the youngest airline in the world.
  12. 12. Does the difference in the av. age of the Delta’s & Singapore’s aircrafts’ fleets have any impact on its amount of depreciation expenses? Yes. More the asset life less is the depreciation and vice versa. What is the possible reason that the Delta airline’s operates almost half of its aircraft on operating leases, where as Singapore airlines operates no aircraft on operating leases? In the year of inflation the delta airline focused on cost cutting by decreasing its staff and reducing flights where as Singapore airline did not do the same.
  13. 13. Comparable study between the 2 airlines on assets, long term debt and depreciation expenses in the year 1993. Delta Airline Singapore Airline Total assets (in $ millions) 11871 9417 Long term debt (in $ millions) 3717 0 Depreciation expenses (in $ millions) 679 708
  14. 14. Thank You

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