ASSIGNMENT: 02

Group Members:
Majid Ali
01-111201-056
Taskeen Zahra
01-111201-116
Aleema Ali Agha
01-111201-151
Fajr Khan
01-111201-031
Hussain Ali Khan
01-111201-046
Date: 18-03-2021
Submitted To: Miss Rabia Umer
Introduction:
All Plant/fixed assets undergo three accounting events during their life, listed as following:

 Acquisition
 Depreciation
 Disposal

Acquisition:
The process involves buying of assets for the business, this could be done for a new business or already
established businesses. So, in simple words purchase of assets is acquisition.

Depreciation:
For any asset, when we allocate its cost over its useful life, this phenomenon is known as depreciation.
As we’ve divided assets into three major categories, similarly there are three different types of
depreciations for each of the asset category.

Tangible assets: Depreciation

Intangible assets: Amortization

Natural resources: Depletion

Disposal:
Disposal is a process which involves selling of any asset after its useful life is over. To dispose any asset,
the accountants remove the record of this particular asset from the data. There are two types of
disposals.

Case 1:

The useful life of asset is all over and it’s of no use anymore so it’s sold to scrap dealers or any buyer.

Case 2:

The useful life is yet not over but still the company wants to replace its old assets with new ones so they
sell it.

Above, we’ve taken a quick overview of assets life, now we’ll see what happened to the assets and
revenues of the two airline company.

Delta Airlines, Inc.

It was one of the largest air carriers in U.S and abroad serving 42 U.S states and 23 international
destinations, earning its most revenue from the domestic flights. Its revenues increased historically
when it acquired Western Airlines, Inc in 1987 and later 1988 was one of their most successful fiscal
year. This was because the newly acquired airline was also generating great revenues, here’s a quick
glance at how the rise in revenues appeared, all comparisons are made between the years 1987-1988:

Enplaned Passengers: increased by 22%

Revenue Passenger miles: increased by 28%

Cargo Ton miles: increased by 36%

Passenger service total: 93%

Total revenue: increased by 30%

Pan Am Corporation:
This air carrier company was serving the states of America and also some foreign countries. In early
1988, the company was suffering some net losses and due to this they hired a new chairman. The
improved policies helped Pan Am earn good revenues.

Enplaned Passengers: increased by 11%

Revenue Passenger miles: increased by 12.2%

Cargo Ton miles: increased by 18.8%

Total revenue: increased by 15.3%

Subsequently, we can devise that the overall growth of Pan Am Corporation was less and slower as
compared to that of Delta Airlines.

DEPRECIATION EXPENSE AT DELTA AIR LINES, INC:

Straight Line Method:

From 1988 to 1998
Cost $50 million

Residual value 10% of cost which is 50*10/100 =$5 million

Estimated life 15 years

Straight line = cost – residual value / estimated life

Straight line = 50m – 5m / 15 years = 3m

YEARS CALCULATIONS (in millions) DEPRECIATION EXP ACCUMULATED DEP BOOK VALUE
0 50 million
1 (1988) 50 - 5 / 15 3 miilion 3 million 47 million
2 (1989) 50 - 5 / 15 3 million 6 million 44 million
3 (1990) 50 - 5 / 15 3 million 9 million 41 million
4 (1991) 50 - 5 / 15 3 million 12 million 38 million
5 (1992) 50 - 5 / 15 3 million 15 million 35 million
6 (1993) 50 - 5 / 15 3 million 18 million 32 million
7 (1994) 50 - 5 / 15 3 million 21 million 29 million
8 (1995) 50 - 5 / 15 3 million 24 million 26 million
9 (1996) 50 - 5 / 15 3 million 27 million 23 million
10 (1997) 50 - 5 / 15 3 million 30 million 20 million
11 (1998) 50 - 5 / 15 3 million 33 million 17 million

Double Declining Method

From 1988 to 1998

Cost $50 million

Residual value 10% of cost which is 50*10/100 = $5 million

Estimated life 15 years

Accelerated rate = 1/15*200 = 0.1333

 YEARS CALCULATIONS (in millions) DEPRECIATION EXP ACCUMULATED DEP BOOK VALUE
0 50 million
1 (1988) 50*0.13 6.5 million 6.5 million 45.5 million
2 (1989) 45.5*0.13 5.655 million 12.155 million 37.845 million
3 (1990) 37.845*0.13 4.92 million 17.075 million 32.93 million
4 (1991) 32.93*0.13 4.28 million 21.355 million 28.65 million
5 (1992) 28.65*0.13 3.72 million 25.075 million 24.93 million
6 (1993) 24.93*0.13 3.24 million 28.315 million 21.69 million
7 (1994) 21.69*0.13 2.82 million 31.135 million 18.87 million
8 (1995) 18.87*0.13 2.45 million 33.585 million 16.42 million
9 (1996) 16.42*0.13 2.13 million 35.715 million 14.29 million
10 (1997) 14.29*0.13 1.86 million 37.575 million 12.43 million
11 (1998) 12.43*0.13 1.62 million 39.195 million 10.81 million

DEPRECIATION EXPENSE AT PAN AIR LINES, INC:

Straight Line Method:

From 1988 to 1998

Cost $50 million

Residual value 10% of cost which is 50*15/100 = $7.5 million

Estimated life 25 years

Straight line = cost – residual value / estimated life

Straight line = 50m – 7.5m / 15 years = 1.7m

 YEARS CALCULATIONS (in millions) DEPRECIATION EXP ACCUMULATED DEP BOOK VALUE
0 50 million
1 (1988) 50 - 7.5 / 25 1.7 million 1.7 million 48. 3 million
2 (1989) 50 - 7.5 / 25 1.7 million 3.4 million 46.6 million
3 (1990) 50 - 7.5 / 25 1.7 million 5.1 million 44.9 million
4 (1991) 50 - 7.5 / 25 1.7 million 6.8 million 43.2 million
5 (1992) 50 - 7.5 / 25 1.7 million 8.5 million 41.5 million
6 (1993) 50 - 7.5 / 25 1.7 million 10.2 million 39.8 million
7 (1994) 50 - 7.5 / 25 1.7 million 11.9 million 38.1 million
8 (1995) 50 - 7.5 / 25 1.7 million 13.6 million 36.4 million
9 (1996) 50 - 7.5 / 25 1.7 million 15.3 million 34.7 million
10 (1997) 50 - 7.5 / 25 1.7 million 17 million 33 million
11 (1998) 50 - 7.5 / 25 1.7 million 18.7 million 31.3 million

Double Declining Method:

From 1988 to 1998

Cost $50 million

Residual value 15% of cost which is 50*15/100 = $7.5 million

Estimated life 25 years

Accelerated rate = 1/25*200 = 0.08

YEARS CALCULATIONS (in millions) DEPRECIATION EXP ACCUMULATED DEP BOOK VALUE
0 50 million
1 (1988) 50*0.08 4 miilion 4 million 46 million
2 (1989) 46*0.08 3.68 million 7.68 million 42.32 million
3 (1990) 42.32*0.08 3.38 million 11.06 million 38.94 million
4 (1991) 38.94*0.08 3.12 million 14.18 million 35.82 million
5 (1992) 35.88*0.08 2.87 million 17.05 million 32.95 million
6 (1993) 32.95*0.08 2.64 million 19.69 million 30.31 million
7 (1994) 30.31*0.08 2.42 million 22.11 million 27.89 million
8 (1995) 27.89*0.08 2.23 million 24.34 million 25.66 million
9 (1996) 25.66*0.08 2.05 million 26.39million 23.61 million
10 (1997) 23.61*0.08 1.88 million 28.27 million 21.73 million
11 (1998) 21.73*0.08 1.738 million 30.008 million 19.99 million

Disposal Process at Delta using Straight Line Method:

Accumulated depreciation = Cost – Book Value
 50m – 14m = 36 million

DATE DESCRIPTION DEBIT CREDIT

31-Dec Cash 20 m
1999 Accumulated Depreciation 36 m
Plane 50 m
Gain on Disposal 6m

Disposal Process at Delta using Double Declining Method:

Accumulated depreciation = Cost – Book Value

50m – 9.4m = 40.6 million

DATE DESCRIPTION DEBIT CREDIT

31-Dec Cash 20 m
1999 Accumulated Depreciation 40.6 m
Plane 50 m
Gain on Disposal 10.6 m

Disposal Process at Pan Am using Straight Line Method:

Accumulated depreciation = Cost – Book Value

50m – 29.6 = 20.4 million

DATE DESCRIPTION DEBIT CREDIT

31-Dec Cash 20 m
1999 Accumulated Depreciation 20.4.6 m
Loss on Disposal 9.6 m
Plane 50 m

Disposal Process at Pan Am using Double Declining Method:

Accumulated depreciation = Cost – Book Value
50 – 18.04 = 31.96 million

DATE DESCRIPTION DEBIT CREDIT

31-Dec Cash 20 m
1999 Accumulated Depreciation 31.96 m
Plane 50 m
Gain on Disposal 1.96 m