The following information is from the June 30, 1998, balance sheet for Delta Air Lines. (Amounts are in millions)
Flight equipment $11,180 $9,619
Less: Accumulated depreciation 3,895 3,510
Depreciation and Amortization - Effective July 1, 1998, the Company increased the decpreciable life of certain new generation aircraft types from 20 to 25 years. Owned flight equipment is depreciated on a straight-line basis to a residual value equal to 5% of cost.
1. Assume that all flight equipment will be affected by this policy change. The new policy will not be reflected in the 1998 financial statements, as the policy was changed on July, 1 1998. Estimate the total depreciation expense recognized by Delta on flight equipment for the year ended June 30, 1998, using the old 20-year life and the new 25-year life. Assume there were no flight equipment retirements during the year and new acquisitions are depreciated for half the year.
Please see the attached Excel file for proper format and formulas.
Purchase of Assets= Assets as on 1998-Assets as on 1997+(Accumulated Depreciation as on 1998-1997)
Solution discusses the Depreciation methods for Delta Airlines