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Question 7
Comparing the balance sheets and income statements of Delta and
Singapore has serious shortcomings given the extreme difference
between the financial structures of the two companies’ aircraft fleets.
From the information provided in the case, calculate adjusted figures
for Delta’s aircraft fleet so as to make Delta’s total depreciation
expense, total assets, and total long-term debt more comparable to
Singapore’s.
Comparability
Aircraft fleet composed of both Aircraft fleet comprises of only Use Case B’s Exhibit 1 on Delta’s
OWNED and LEASED assets OWNED assets operating lease obligations to
- Leased assets make up - SIA not operating any under estimate the value of the leases if
substantial proportion of total operating leases they were to be capitalized and be
fleet included in the Balance Sheet
- Significant off-balance sheet
financing effect Concept: Capitalization of Operating
LEASES as Finance Lease
Excerpt from Delta Air Lines “Notes to Consolidated Financial
Statements”
Year 1992 (SGD$ millions) 1993 (SGD$ millions)
1993 907 -
Effects:
1. Increase in Non-Current Assets of Delta by $8264.50 million
2. Increase in Non-Current or Long-Term Debt of $8254.51 million
(Liability is recorded)
Less: Accumulated Depreciation Assume assets bought evenly across 1992 – 1993
(Opening Balance + Closing Balance) / 2
620.42 / 2 = 310.21
191.26
Effect on 1993 Financial Statements
P/L Adjustments SGD $ millions
Depreciation (429)
DTL (11.5)
Equity (34.5)
Depreciation 286
DTL (8)
Equity (23)