BAO2203 Corporate Accounting Assignment
Case study (Replicated)
Aviator Airways Ltd and Eagle Airlines Ltd
This comparative study of accounting policies adopted by two international airlines for the depreciation of aircraft, spares and spare engines provides an insight into the differences in accounting policy that may emerge, even when accounting practice in the jurisdictions involved is regulated.
Non-current assets
Depreciation
Depreciable amount
Useful
Comparability of results
Financial statement analysis
Aviator Airways Ltd (Aviator) and Eagle Airlines Limited (Eagle) both operate in the international aviation industry. Aviator is Australia’s largest airline, having been formed in 1920 and the Eagle was formed in 1972, although its origins date back to 1947, and is based in Asia-Pacific region.
Both companies operate a diverse airline fleet. Aircraft, spares and spare engines collectively constitute a major asset of such corporations as is demonstrated by reference to the 2012 Statements of financial position of these two companies. In the case of Aviator, this non-current asset, shown as ‘Property plant and equipment’ at a stated written-down value (i.e., carrying amount) of $9 753.7 million, represented 55.5 per cent of the total group assets of $17 574.2 as at 30 June 2012. For eagle, this fixed asset category, disclosed as ‘Aircraft, spares and spare engines’ at a written-down value of $12 464.5 million, constituted 62.4 per cent of total group assets as at 31 March 2012 of $19 990 million. Accordingly, the accounting policies adopted in depreciating such assets over their useful lives assume importance in assessing the financial performance and position of airline operator.
In the case of Aviator, the ‘Depreciation and amortisation’ policy for aircraft, spares and spare engines was disclosed in Note 1 (n) of the ‘Notes to the financial statements’ for the year ending 30 June 2012. The relevant portion of this note is reproduced as…