BA214 Corporate Accounting: Depreciation Policy Case Study

Assessment Overview

This assessment is worth 30% of the overall assessment for this subject.

• Due date: Week 10
• Length: 2500–3000 words (maximum)
• Similarity index: 30% (maximum)
• Assessment type: Individual written report

Student Declaration

I declare that this assessment is my own work. Any ideas and comments made by other people have been acknowledged as references. I understand that if this statement is found to be false, it will be regarded as misconduct and will be subject to disciplinary action as outlined in the Student Rules. I understand that by submitting this assessment electronically, I agree to this Declaration in lieu of a written signature.

General Instructions

This is not a group assignment. Your report must be your own work. The assignment is to be submitted via the Learning Management System. You must use correct grammar, punctuation and appropriate professional language. Refer to your text and learning resources for the format of the Report.

Assessment Criteria

To achieve a satisfactory result, your assessor will be looking for your ability to satisfactorily answer each question listed in the assessment requirements below. You will receive up to two attempts at this assessment task.

Submission Details

Include a cover page with your details and the signed Student Declaration. Submit via the LMS by the due date. Late submission penalties apply as per institutional policy.

Case Study Background

This comparative study of accounting policies adopted by two international airlines for the depreciation of aircraft, spares and spare engines provides an insight into the differences in accounting policy that may emerge, even when accounting practice in the jurisdictions involved is regulated.

Key Concepts

• Non-current assets
• Depreciation
• Depreciable amount
• Useful life
• Comparability of results
• Financial statement analysis

Company Profiles

Aviator Airways Ltd (Aviator) and Eagle Airlines Limited (Eagle) both operate in the international aviation industry. Aviator is Australia’s largest airline, having been formed in 1920, and Eagle was formed in 1972, although its origins date back to 1947, and is based in the Asia-Pacific region.

Both companies operate a diverse airline fleet. Aircraft, spares and spare engines collectively constitute a major asset of such corporations as is demonstrated by reference to the 2024 Statements of Financial Position of these two companies. In the case of Aviator, this non-current asset, shown as ‘Property, Plant and Equipment’ at a stated written-down value (carrying amount) of $11,250 million, represented 52.5% of the total group assets of $21,428 million as at 30 June 2024. For Eagle, this fixed asset category, disclosed as ‘Aircraft, Spares and Spare Engines’ at a written-down value of $14,850 million, constituted 58.3% of total group assets as at 31 March 2024 of $25,472 million. Accordingly, the accounting policies adopted in depreciating such assets over their useful lives assume importance in assessing the financial performance and position of airline operators.

Aviator Airways Ltd Depreciation Policy (FY2024)

Depreciation and amortisation are provided on a straight-line basis on all items of property, plant and equipment except for freehold and leasehold land. The depreciation and amortisation rates of owned assets are calculated so as to allocate the costs or valuation of an asset, less any estimated residual value, over the asset’s estimated useful life to the Aviator Group. Assets are depreciated or amortised from the date of acquisition or, in respect of internally constructed assets, from the time an asset is completed and held ready for use. The costs of improvements to assets are amortised over the remaining useful life of the asset or the estimated life of the improvement, whichever is the shorter. Assets under finance lease are amortised over the term of the relevant lease or, where it is likely the Aviator Group will obtain ownership of the asset, the life of the asset.

The principal asset depreciation and amortisation periods and estimated residual value percentages (for aircraft, spares and spare engines) are:

These rates are in line with those for the prior year, with the exception of the residual value assumption on wide-bodied aircraft (Boeing 747 and 767 and Airbus A330 aircraft) which was revised from 2% to 20%. Depreciation and amortisation rates and residual values are reviewed annually and reassessed having regard to commercial and technological developments and the estimated useful life of assets to the Aviator Group.

Eagle Airlines Limited Depreciation Policy (FY2024)

Eagle reported its policy relating to the ‘Depreciation of Fixed Assets’ at Note 2(g), entitled ‘Accounting Policies’. The portion of this note pertaining to aircraft, spares and spare engines is reproduced hereunder:

Fixed assets are depreciated on a straight-line basis at rates which are calculated to write-down their cost to their estimated residual values at the end of their operational lives. Operational lives and residual values are reviewed annually in the light of experience and changing circumstances. Fully depreciated assets are retained in the financial statements until they are no longer in use. No depreciation is charged after assets are depreciated to their residual values.

Aircraft fleet: The Group depreciates its new passenger aircraft, spares and spare engines over 15 years to 10% residual values. For used passenger aircraft, the Group depreciates them over the remaining life (15 years less age of aircraft) to 10% residual values. The Group depreciates its new freighter aircraft over 15 years to 20% residual values. For used freighter aircraft, the Group depreciates them over the remaining life (15 years less age of aircraft) to 20% residual value.

Financial Information Extracted from 2024 Annual Reports

Aviator Airways Ltd (as at 30 June 2024):

Note: the amounts are based on the average useful life estimate 18 years and 20% residual value.

Eagle Airlines Limited (as at 31 March 2024):

Note: the amounts are based on the average useful life estimate 15 years and 12% residual value.

For the year ended 30 June 2024, Aviator reported a group net profit of $748.5 million. Eagle reported a group net profit of $1,025.8 million for the year ended 31 March 2024.

Additional Information on Operations

Aviator has larger domestic operations than international flights. Hence it has more short-haul flight passengers. On the other hand, Eagle has very small domestic operations but larger international operations compared to Aviator. It carried almost 1.5 times international passengers than that of Aviator in the 2023/2024 financial year. Hence, Eagle is concentrated on long-haul flights. Arguably, there are higher costs and wear and tear on aircraft from short-haul operations compared to long-haul operations with more take-offs and landings relative to passengers carried, plus higher tarmac and terminal fees, and passenger handling costs. Further, the company websites show that the average fleet age of Eagle Airlines was 5 years while the Aviator aircraft was 10 years in the 2024 financial year.

Assessment Requirements

Your written report must address the following requirements:

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1. Compare and contrast the depreciation accounting policies of Aviator and Eagle for the year ended 30 June 2024 and 31 March 2024 respectively. Comment on the comparability of the results reported. In your response, acknowledge any key differences in the operations of these two competing airlines.
2. Using the financial information provided:
   • Compute an estimate of depreciation expense for the 2024 financial year for both Aviator and Eagle with respect to ‘aircraft and engines’ and ‘spare parts’.
   • Compute an estimate of depreciation expense for both companies applying the useful life and residual value estimate of each for the other to adjust the financial results under more comparable accounting policies.
   • Provide a comparative analysis on your findings.
3. Review the 2024 annual report of any one national aircraft company (listed in the Australian, Malaysian or Chinese Stock Exchange) and comment on its depreciation policy in estimating the useful lives of long-lived assets, such as aircraft used by major international commercial carriers based on the guidance provided under relevant accounting standards (AASB/IASB).
4. Based on your analysis of the case study, provide a discussion on the significance of depreciation policy in terms of its impact on the financial statements and financial ratios of companies under the same industry that adopt varying depreciation policies.

Note: Apply the useful life and residual value estimates of Aviator to Eagle and vice versa for Requirement 2.

Marking Criteria

Additional Information

• All calculations must be shown in an appendix or within the body of the report.
• Assumptions made in preparing calculations must be clearly stated and justified.
• Students must reference AASB 116 Property, Plant and Equipment and IAS 16 in their analysis.
• The review of the national aircraft company annual report must include specific page references and direct quotes from the notes to the financial statements.
• Late submission penalties apply as per institutional policy.
• Plagiarism is a serious offence. All sources must be properly referenced using Harvard or APA style.

Sample Report Excerpts and Writing Guidance

Depreciation Policy Comparison for Aviator and Eagle

Aviator Airways and Eagle Airlines both apply the straight-line depreciation method to their aircraft fleets, yet the divergence in estimated useful lives and residual values produces materially different annual depreciation charges that impair direct comparability of reported profits. Aviator depreciates jet aircraft over 20 years to a 20% residual value, whereas Eagle applies a 15-year useful life with a 10% residual value for passenger aircraft; this five-year difference in useful life alone increases Eagle’s annual depreciation rate from 4% to 6% of depreciable cost, reducing reported profit before tax by a substantial margin even when both carriers operate similar aircraft types. The AASB 116 Property, Plant and Equipment standard requires entities to allocate the depreciable amount of an asset systematically over its useful life, and both airlines comply with this requirement; however, the standard permits management judgement in estimating useful lives, which creates legitimate variation in practice that analysts must adjust for before comparing financial performance. Aviator’s older fleet average of 10 years compared with Eagle’s 5 years partially justifies the longer useful life assumption because newer aircraft typically incorporate more advanced materials and engineering that may extend operational longevity, though the 20% residual value adopted by Aviator appears optimistic relative to second-hand aircraft market conditions. Operational differences compound the comparability challenge; Aviator’s concentration on short-haul domestic routes generates higher cycle frequencies per aircraft than Eagle’s long-haul international focus, which logically supports a shorter useful life for Aviator yet the company applies the longer estimate, suggesting that fleet modernisation plans and replacement strategy influence depreciation policy at least as much as physical wear patterns.

Cross-Application Depreciation Calculations

The cross-application exercise reveals how sensitive reported profit is to changes in depreciation assumptions, a finding that carries significant implications for investors and credit analysts who rely on unadjusted financial statements. Applying Aviator’s 18-year average useful life and 20% residual value to Eagle’s aircraft and engines cost base of $20,450.2 million produces an estimated annual depreciation of $909.1 million, compared with Eagle’s own policy estimate of $1,226.4 million; this $317.3 million reduction in depreciation expense would increase Eagle’s reported net profit by approximately 31% after tax, demonstrating that policy choice rather than operational superiority may explain part of the profit differential between the two carriers. Students should present their calculations in a clear table format that shows:
i. The original cost base, residual value and depreciable amount for each asset category under each company’s policy;
ii. The annual depreciation charge computed using the company’s own assumptions;
iii. The recalculated depreciation charge using the alternative company’s assumptions;
iv. The impact on reported net profit and key ratios such as return on assets and asset turnover.
The comparative analysis must extend beyond the arithmetic to explain why these differences matter; for instance, a higher depreciation charge reduces both carrying amount and profit, which simultaneously improves the debt-to-equity ratio through lower equity and worsens the interest coverage ratio through lower EBIT. Financial analysts increasingly adjust reported figures to a common depreciation basis before comparing airlines, and the International Air Transport Association has encouraged standardised disclosure of depreciation assumptions to improve sector-wide comparability.

Qantas Annual Report Review and AASB 116 Compliance

Qantas Airways Limited, Australia’s flag carrier listed on the ASX, provides a relevant contemporary benchmark for assessing depreciation policy compliance with AASB 116 in the 2024 financial year. The Qantas 2024 Annual Report discloses aircraft depreciation over useful lives ranging from 18 to 23 years with residual values reviewed annually against prevailing market rates, a policy that sits between Aviator’s 20-year estimate and Eagle’s 15-year assumption. Qantas operates a mixed fleet of Airbus CEO and NEO aircraft where the newer NEO variants attract a 23-year useful life while older CEO aircraft are depreciated over 18–20 years, reflecting the company’s strategy to replace less fuel-efficient aircraft with next-generation models as part of its net-zero commitment. This component-based approach aligns with AASB 116 paragraph 43, which states that each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost shall be depreciated separately; Qantas separately identifies airframe, engines and prepaid maintenance components, whereas Aviator and Eagle aggregate these into broader categories. A common student misconception involves treating depreciation policy as a mechanical calculation rather than a management estimate subject to strategic influence; Qantas explicitly notes that residual values are reviewed against prevailing market rates and adjusted prospectively, which demonstrates the forward-looking judgement required by the standard. The 2024 Qantas fleet had an average age of approximately 16.2 years according to aviation databases, yet the company maintains depreciation policies that assume remaining useful lives well beyond this point, indicating that management considers factors such as maintenance programs, cabin refurbishment schedules and lease return conditions when estimating economic benefits rather than relying solely on chronological age.

References

Australian Accounting Standards Board. (2023). AASB 116 Property, Plant and Equipment. https://www.aasb.gov.au/admin/file/content105/c9/AASB116_08-15_COMPdec22_01-23.pdf

easyJet Airline Company Limited. (2024). Annual Report and Financial Statements for the year ended 30 September 2024. https://s203.q4cdn.com/522538739/files/doc_downloads/2025/06/20/EACL-FY2024-Annual-Report-and-Financial-Statements.pdf

International Air Transport Association. (2023). Global Outlook for Air Transport: Highly Resilient, Less Robust. https://www.iata.org/en/iata-repository/publications/economic-reports/global-outlook-for-air-transport—-june-2023/

Paul, T. (2026). The Costs of Decreased Financial Statement Comparability. Columbia Business School. https://business.columbia.edu/sites/default/files-efs/imce-uploads/ADP/Spring%202026/2.%20Tanya%20Paul%2001-26-26.pdf

Planespotters.net. (2026). Qantas Fleet Details and History. https://www.planespotters.net/airline/Qantas

Qantas Airways Limited. (2024). 2024 Annual Report. https://investor.qantas.com/FormBuilder/_Resource/_module/doLLG5ufYkCyEPjF1tpgyw/file/annual-reports/2024-Annual-Report.pdf

Compose a 2500–3000 word written report comparing aircraft depreciation policies for BA214 Corporate Accounting. This individual assessment requires depreciation calculations, cross-application analysis and AASB 116 compliance review of a listed airline.

Write an 8- to 10-page corporate accounting report analysing airline depreciation methods. This BA214 assessment covers policy comparison, financial statement adjustment and ratio impact under AASB 116 and IAS 16.

BA214 Corporate Accounting Case Study: Depreciation Policy Comparison. Individual task worth 30%. Due week 10. Compare Aviator and Eagle Airlines depreciation policies, perform cross-application calculations and review AASB 116 compliance.

Keywords and Key Phrases

BA214 corporate accounting assignment sample, aircraft depreciation policy comparison, AASB 116 useful life residual value, airline financial statement comparability, depreciation expense calculation cross-application, Qantas annual report depreciation policy

Assessment

Week 12: Revenue Recognition and Leases in the Aviation Industry

Assessment type: Individual case study analysis

Weight: 20% of total unit assessment

Length: 1500 words (maximum)

Description: Students analyse the revenue recognition and lease accounting practices of a major international airline using its 2024 annual report. The assessment requires evaluation of passenger revenue recognition under AASB 15, aircraft lease classification under AASB 16, and the impact of these standards on financial statement presentation and key performance indicators. Students must reference specific notes from the annual report and compare the airline’s treatment with the requirements of the relevant accounting standards.