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Delta & Singapore Airlines

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Depreciation at Delta & Singapore Airlines

1. a. Delta Airlines

| Prior to | Between July 1, 1986 | April 1,1993 | | July 1, 1986 | & March 31, 1993 | Forward | | | | | Fixed Price $100 | | | | | | | | Residual Value | 10% | 10% | 5% | Asset Life | 10 | 15 | 20 | Depreciation | $9 | $6 | $4.75 | Calculation | (100-10/10) | (100-10/15) | (100-5/20) |

b. Singapore Airlines

| Prior to | April 1,1989 | | April 1, 1989 | Forward | | | | Fixed Price $100 | | | | | | Residual Value | 10% | 20% | Asset Life | 8 | 10 | Depreciation | $11.25 | $8.00 | Calculation | (100-10/8) | (100-20/10) |

2. Delta & Singapore Airlines both use the straight line depreciation method. The salvage values and asset lives used by both companies differ. Delta uses a higher average asset life than Singapore, but their residual value is less than Singapore’s. This is done because airlines use different types of fleet’s. Once newer technology was introduced, airlines claimed that they could operate a new fleet of aircraft for a longer period of time thus depreciation was over a longer period of time also. The older planes required less usage but higher maintenance costs, so airlines may want to increase its average usage period creating a lower depreciation rate. This would allow the airlines to show a greater net profit due to the decline in depreciation expense.

3. Delta Depr.

Year | 1993 | | | | | | | Flight Equip. Owned | 9043 | | | Flight Equip.-Capital Lease | 173 | | | Total Equipment | 9216 | | | Diff. in Depreciation Value | 0.0125 | | | Total Change | 115.2 | | | | | | | Calculation: | Depr diff (6 - 4.75) = 1.25 | | 1.25/100 = 0.0125 | | | | | |

Singapore’s Depr. Assumption

Year | 1993 | | |

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