Delta Inc Depreciation

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Problem 1 Refer to the information provided by the excerpts of Delta’s 2010 10-K attached. Assume Delta also uses the 5% as the residual value for its flight equipment and the average useful lives for its flight equipment are 26 years (mid-point between 21 and 30). Questions: a. What is the depreciation expense for every $100 of flight equipment used for a given year? Depreciation for a given year = (cost of flight equipment – residual value) /average useful live = (20,312.00 - 1015.60) /26 = 19296.4/26 =742.15 Depreciation for every $ 100 for a given year = 742.15*100/20312.5 = 3.65 b. Estimate the average ages of the Delta’s flight equipment at Dec 31, 2010 and at Dec 31, 2009? Average Useful Life = Depreciable Asset Cost/Depreciation Expense For 2010 Average Useful Life (or Age) = 2605/742.15 = 3.51 years For 2010 Average Useful Life (or Age) = 1731/742.15 = 2.33 years c. Suppose Delta decided to change its depreciation policy at 2010 year-end. In particular, Delta would increase estimate useful live by one year, estimate how much this increase would change the depreciation amount of its flight equipment for 2010? [Hint: There is no precisely correct answer for this question; alternative estimates are accepted as long as well-justified.] For average useful life of 26 yrs, Depreciation for a given year = 742.15 (from question a) For Average useful life of 27 yrs, depreciation for a given year = (20,312.00 - 1015.60 [5% of cost i.e. 20312*5/100]) /27 = 19296.4/27 = 714.68 Change in depreciation = 742.15 – 714.68 = $27.47 millions d. Suppose Delta decided to change its depreciation policy at 2010 year-end. In particular, Delta would increase estimate residual value from 5% to 10%, estimate how much this increase would change the depreciation amount of its flight equipment

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