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Dear Tutor,
I have a question regards to depreciation method.
Engines ( 2 at 9 million each ) replaced at 1 april Cost 18000 usd and estimated life is 36,000 flying hours. At 1 april 2008 the aircraft log showed it had flown 10800 hours since 1 april 2005. In the year ended 31 march 2009 it flew for 1200 hours for the six month to 30 september 2008 and a further 1000 hours in the six months to 31 March 2009. On 1 october 2008 one of the engine was damaged but was repaired at a cost of 3mln.however it’s remaining estimated life was shortened to 15000 hours.
Question: Calculate it’s carrying amount in the financial statement of financial position as at 31 March of 2009.Thanks in advance.
In the 6 months to 30 September, 1200 hours would attract depreciation of $600,000
It’s not clear whether the repair in October improved the performance of the engine or merely maintained it. On balance, it seems to me to have simply maintained performance and is a repair expense rather than a capitalisable improvement
In addition, I presume that the two engines both have a reduced useful life expectancy
As at 30 September, original estimated remaining life was 24,000 and carrying value was $12,000,000
Revision of remaining useful life from 24,000 down to 15,000
Depreciation for the 6 months to 31 March, 2009 is therefore $12,000,000 * 1,000 / 15,000 = $800,000
Carrying amount is therefore $11,200,000 as at 31 March, 2009
But that is on the assumption that the $3,000,000 repair cost is not to be captalised
If it in fact is to be capitalised, carrying value immediately after the repair would be $15,000,000 and revised remaining useful life is 15,000 hours. Depreciation for the 1,000 hours to 31 March, 2009 would therefore be $1,000,000 and carrying value would be $14,000,000
Ok?
yes defintely, you are right, 3mln is just only maintanance cost because it was not mentioned about the performance of the engine. we depreciate just only CV (6mln) by 15000 hours.
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