Accounting games of the

airlines

By Prathish Peeriz
LIBA
How Accounting Changes helped
reduce Jet Airways’ Losses
§Purchased Air Sahara(renamed as JetLite) $325
million
§Financed through loans from abroad
§Exchange differences accounted as per Schedule VI of
the Companies Act.
§Schedule-VI of the Companies act permits the
companies to adjust foreign exchange differences to the
fixed cost of the asset
§Must have been accounted as per AS-11 “Accounting
for the Effects of Changes in Foreign Exchange Rates “
§AS-11 requires that the differences in foreign
exchange be charged to the P&L A/c
§Initially used Written Down Value(WDV)
method
§Depreciation is charged on the net book value
as on date
§Changed to Straight Line Method(SLM)
§Depreciation is charged on the historical cost
§Effect: Rs.915.48 Cr shown in the balance
sheet as Extra ordinary revenue
How Kingfisher Airlines
was able to reduce loss
§Aircraft maintenance charges have to be
allocated or deposited with the lease company
§Used only in case of repairs or overhauls
§Was mostly wasted since most of the aircrafts
were new
§Deccan used the method of monthly
maintenance charges
§Kingfisher used the Letter Of Credit model
§LOC- Just an assurance given by the
company.
§On acquisition of Deccan changed the
method to that of Kingfisher
§Hence wrote back the maintenance charges to
the P&L A/c there by inflating the profits
THANK
YOU