Case ID: 4013
Solution ID: 22502
Words: 1424
Price $ 75

Depreciation at Delta Air Lines The Fresh Start Case Solution

Abstract

When students hold the British-language PDF from the Brief Case in the course pack, they'll may also buy a sound version. In calculating depreciation for accounting reasons, Delta Air Lines has changed its presumptions about aircraft lifespan and residual values four occasions in the last 30 years roughly. Within the latest changes, Delta adopted fair value accounting incorporated in the fresh start emergence from personal personal bankruptcy. Each one of these changes to the policy has affected future resource values additionally to provide and future earnings. Students should organize their case analysis three types of questions: 

(1) the thought existence cycle of economic passenger planes 
(2) the reasons of monetary reviews, including the goal of depreciation in verifying on assets and periodic earnings and 
(3) alternative techniques for verifying resource book values and earnings that could better serve clients of financial reviews.

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Excel Calculations

Yes

Questions Covered

What are some of the possible reasons why Delta may have extended the lives of flight equipment and changed residual values four times since 1986?

Assume Delta purchased the following six aircraft. 

Year

Aircraft

Price ($ millions)

Aircraft number

1985

MD88

$33

D2851

1988

MD88

$39

D2882

1992

B-757-200

$66

D3921

1993

B-757-200

$68

D3932

2006

B-777-200ER

$210

D4061

2007

B-777-200ER

$220

D4972

What would have been the assumed residual value of each aircraft and the first-year depreciation for each aircraft? (Use 25 and 30 years for estimated lives after 1998 and residual values of 5% for 1993 through 2006 and 10% of cost for 2007)

 

3. Assume each aircraft in question 2 is still in Delta’s fleet in 2007.  How would you estimate the net book value of aircraft before application of “fresh start” accounting in 2007?  How would this compare to the “fresh start” value that Delta estimated in 2007 as described in the notes from consolidated financial statements included in the Form 10-K and the case?

4. Should the adopting of “fresh start” accounting be open to any corporation where management feels traditional historical cost-based accounting no longer allows them to present a fair picture?

5. Should fresh start accounting be open to any corporation if management feels historical cost no longer presents a fair picture of financial position?