Bear Transport’s accounting policy for maintenance on its fleet of cargo planes is to capitalise the cost of major airframe and engine maintenance checks and depreciate over the shorter of the scheduled usage period to the next major inspection or the remaining life of the aircraft. The latest data shows the aircraft and engines at cost (including major maintenance costs) to be at a similar level as last year while depreciation costs have decreased by 5 per cent.

Required

Discuss the risk of misstatement for depreciation costs. What could go wrong?