In 2020, Lufthansa, the German national airline, reported that it depreciated its aircraft over 12 years...

 

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In 2020, Lufthansa, the German national airline, reported that it depreciated its aircraft over 12 years on a straight-line basis, with an estimated residual value of 10% of initial cost $60,000. In contrast, industry peers such as Air France-KLM and British Airways depreciated its aircraft over 20 years on a straight-line basis, with an estimated residual value of 15% of initial cost. To adjust for the effect of different depreciation policies, the analyst would like to adjust Lufthansa's depreciation expenses so as to compare with other industry peers. Income tax rate = 30%. Related information is shown below: ($ millions unless otherwise noted) Aircraft cost, 1/1/2020 Average age of aircraft, 1/1/2020 New aircraft purchased evenly throughout the year 2020 $60,000 8 years $8,000 Required (16*2% +3%) a. Assume: income tax expense has been greater than income taxes payable in the past years. Complete the following tables to show the annual depreciation expense reported by the company in 2019 and 2020, and by using industry peers' depreciation policy. Show clear computations. b. What are the adjustments to the 2020 statements of financial position, and to the 2020 income statement ? Show clear computations and complete the following table 3. c. Assume: income tax expense has been smaller than income taxes payable in the past years. What are the differences in the adjustments to the 2020 statements of financial position, and to the 2020 income statement ? In 2020, Lufthansa, the German national airline, reported that it depreciated its aircraft over 12 years on a straight-line basis, with an estimated residual value of 10% of initial cost $60,000. In contrast, industry peers such as Air France-KLM and British Airways depreciated its aircraft over 20 years on a straight-line basis, with an estimated residual value of 15% of initial cost. To adjust for the effect of different depreciation policies, the analyst would like to adjust Lufthansa's depreciation expenses so as to compare with other industry peers. Income tax rate = 30%. Related information is shown below: ($ millions unless otherwise noted) Aircraft cost, 1/1/2020 Average age of aircraft, 1/1/2020 New aircraft purchased evenly throughout the year 2020 $60,000 8 years $8,000 Required (16*2% +3%) a. Assume: income tax expense has been greater than income taxes payable in the past years. Complete the following tables to show the annual depreciation expense reported by the company in 2019 and 2020, and by using industry peers' depreciation policy. Show clear computations. b. What are the adjustments to the 2020 statements of financial position, and to the 2020 income statement ? Show clear computations and complete the following table 3. c. Assume: income tax expense has been smaller than income taxes payable in the past years. What are the differences in the adjustments to the 2020 statements of financial position, and to the 2020 income statement ?

Answer rating: 100% (QA)

a To calculate the annual depreciation expense reported by Lufthansa in 2019 and 2020 and the adjusted depreciation expense using industry peers depre... View the full answer