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Q. Engines (2 at $9 million each) – replaced 1 April 2005
No residual values are attributed to any of the component parts.
$18m 36,000 flying hours
At 1 April 2008 the aircraft log showed it had flown 10,800 hours since 1 April 2005. In theyear ended 31 March 2009, the aircraft flew for 1,200 hours for the six months to
30 September 2008 and a further 1,000 hours in the six months to 31 March 2009.On 1 October 2008 the aircraft suffered a ‘bird strike’ accident which damaged one of the
engines beyond repair. This was replaced by a new engine with a life of 36,000 hours at costof $10.8 million. The other engine was also damaged, but was repaired at a cost of
$3 million; however, its remaining estimated life was shortened to 15,000 hours. Calculate the charges to the statement of profit or loss in respect of the aircraft for the
year ended 31 March 2009 and its carrying amount in the statement of financial position
as at that date.Ans: For the damaged engine :
Till 1oct it has carrying value of 6m .
After that it was repaired at cost of 3m so the total cost at that time becomes 9m and on the basis of 15000 hr life and travel of 1000 hr.
Depn = 9m\15000*1000=0.6m
But m wrong …….what is the depn charge ?SoFP :
Engines Cost 19,800 accumulated depn 3,700 carrying value 16,100I dont understand how its 3700 ??
No, me neither. I get to $4,320 depreciation
Depreciation on engine 1 to 1 October, 2008 is $3,000,000 and carrying value is therefore $6,000,000 before the $3,000,000 repair giving a revised carrying value of $9,000,000
Engine 2 is scrapped on 1 October, 2008 – nil residual value
Engine 3 (replacing engine 2) bought for $10,800,000 with a 15,000 hours life
6 months 1,000 hours to 31 March, 2009 ($9,000,000 + $10,800,000) / 15,000 x 1,000 = $1,320,000
Add that to the engine 1 $3,000,000 depreciation brought forward as at 1 October, 2008 and we arrive at $4,320,000
IF (and it’s a BIG IF) I have misinterpreted the line “No residual values are attributed to any of the component parts.” and there is in fact an expected useful life of 36,000 hours for engine 3 (because, for example, it can be moved to another plane when the aircraft has flown 15,000 more hours and engine 1 packs up) then depreciation for engine 3 will be $10,800,000 / 36,000 x 1,000 = $300,000 instead of the $720,000 used in the earlier calculation
That will bring aggregate depreciation down by $420,000 for the 6 months and gives accumulated depreciation to carry forward of $3,900,000
Where’s the question from?
its a june 2009 question.I would like to put up whole question to u as previously i had extracted a portion of it only.
Flightline is an airline which treats its aircraft as complex non-current assets. The cost andother details of one of its aircraft are: $000 Estimated life
Exterior structure – purchase date 1 April 1995 120,000 20 years
Interior cabin fittings – replaced 1 April 2005 25,000 5 years
Engines (2 at $9 million each) – replaced 1 April 2005
No residual values are attributed to any of the
component parts.
18,000 36,000 flying hours
At 1 April 2008 the aircraft log showed it had flown 10,800 hours since 1 April 2005. In theyear ended 31 March 2009, the aircraft flew for 1,200 hours for the six months to
30 September 2008 and a further 1,000 hours in the six months to 31 March 2009.
On 1 October 2008 the aircraft suffered a ‘bird strike’ accident which damaged one of the
engines beyond repair. This was replaced by a new engine with a life of 36,000 hours at costof $10.8 million. The other engine was also damaged, but was repaired at a cost of
$3 million; however, its remaining estimated life was shortened to 15,000 hours. The
accident also caused cosmetic damage to the exterior of the aircraft which required
repainting at a cost of $2 million. As the aircraft was out of service for some weeks due to
the accident, Flightline took the opportunity to upgrade its cabin facilities at a cost of
$4.5 million. This did not increase the estimated remaining life of the cabin fittings, but the improved facilities enabled Flightline to substantially increase the air fares on this aircraft
Required:
Calculate the charges to the statement of profit or loss in respect of the aircraft for the
year ended 31 March 2009 and its carrying amount in the statement of financial position
as at that date. Note: The post accident changes are deemed effective from 1 October
2008Statement of profit and loss :
Depreciation (w (i)) 13,800
Loss on write off of engine (w (iii)) 6,000
Repairs – engine 3,000
– Exterior painting 2,000Statement of financial position as at 31 March 2009
Non-current asset – Aircraft
Cost Accumulateddepreciation Carryingamount
$000 $000 $000
Exterior (w (i)) 120,000 84,000 36,000
Cabin fittings (w (ii)) 29,500 21,500 8,000
Engines (w (iii)) 19,800 3,700 16,100
–––––– –––––– ––––––
169,300 109,200 60,100For engine answer is presented as :
Engines – before the accident the engines (in combination) were being depreciated at a rate of $500 per flying hour. At the date of the accident each engine had a
carrying amount of $6 million ((12,600 – 600)/2). This represents the loss on disposal
of the written off engine. The repaired engine’s remaining life was reduced to
15,000 hours. Thus future depreciation on the repaired engine will be $400 per flying
hour, resulting in a depreciation charge of $400,000 for the six months to 31 March
2009. The new engine with a cost of $10.8 million and a life of 36,000 hours will be
depreciated by $300 per flying hour, resulting in a depreciation charge of $300,000
for the six months to 31 March 2009. Summarising both engines:
Cost Accumulateddepreciation Carrying amount
$000 $000 $000
Old engine 9,000 3,400 5,600
New engine 10,800 300 10,500
–––––––– ––––––– ––––––––
19,800 3,700 16,100And my problem is i couldnt get 3700 as depreciation ?
It’s there for you!
There’s $400,000 for the second 6 months on engine 1, $300,000 for the second 6 months on engine 3, and $3,000,000 brought forward on engine 1
And there’s your $3,700,000
But I don’t see why the repair has not been capitalised 🙁 The repair appears to satisfy the criteria for capitalisation
Hi Mike! I finally understand the question that I previously asked regarding the Delta but I can’t reply to that topic. So here I am. Thank you for the answer
However, now I’m stucked with Flightline Qs. The problem is with the engine. Can I calculate both the engines separately ? I look at the suggestion answer but I cannot relate the depreciation part of the engine.
I assume that the flying hours is divided by the two engines
1. For the previous year
* (10800/2) = 5400 hoursEngine 1= $9 000 000 – ( $500/flying hour x 5400 hour)
= $6 300 000Engine 2 = $9 000 000 – ( $500/flying hour x 5400 hour)
= $6 300 000This give the same carrying amount as the suggested answer which is $12 600 000
2. For the six months of 1/4/2008 to 30/9/2008
* (1200 / 2 ) = 600 hours
Carrying value Engine 1 = $6 300 000 – ($500/flying hour x 600 hour)
= $6 000 000Carrying value Engine 2 = $6 300 000 – ($500/flying hour x 600 hour)
= $6 000 0003. Until this part, I still understand, but after the accident, I lost because the answer is not the same as suggested.
From 1/10/2013 to 31/3/2009
* (1000/2) = 500 flying hours
Engine 1 ( Replaced)
= $10 800 000 – ( $300/flying hour x 500 )
= $ 10 650 000Engine 2 ( Repair, useful live shortened to 15000 hour)
= $6 000 000 – ( $500/flying hour x 500)
=$ 5 750 000I believe the mistake is because i divided it by two. But why we can get the answer if we divided the flying hour between both of the engine before the accident but not after the accident ?
The answer took the full 1000 hours for one engine, which I think will is 2000 hours for two machine. Really hope u understand this question. Thnk youu so much.
When there are two engines on one plane, they are both working
Imagine having a 4 engined plane with estimated flying hours of 40,000
Does that mean that each engine will be being used for only 10,000 hours (40,000/4)?
Does that answer it?
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