management control system case

单击此处编辑母版标题样式,单击此处编辑母版文本样式,第二级,第三级,第四级,第五级,2014/10/16,#,Behavioral Implications,of,Airline Depreciation,Accounting Policy,Choices,Miao Yiyu,Liu Hong,Chen Dan,Wang Jiachen,Wang Meng,Outline,Introduction,A Third Set Of Book?,More Liberal Or Conservative?,Depreciation & Manager Decisions,Introduction,0,Conservative,L,iberal,More,Depreciation,Less,Depreciation,Nonstop you,Lufthansa,Frankfurt, Germany,50%,PP&E,50%,other assets,Keep climbing,Delta,Atlanta, Georgia, USA,BEFORE 1986,10% residual value 10-year life,1986,10% residual value 15-year life,1993,5,% residual value 20-year life,Fort Worth, Texas, United States,1999,5% residual value,20-year life,10%,residual value,25-,year life,Reduce depreciation expense,$158 million,A Great Way to,Fly,-Singapore Airlines,S,ingapore,-1989,10%,residual value,8,-,year life,1989-2001,10% residual value,15-year life,2001-,10%,residual value,15-,year life,An aircraft can fly indefinitely,Take advantage of,tax rules,F,A,T,C,Difficult to estimate,economic life,90%,Maintain,high original value,Influences,Of Depreciation On Management Decisions,a. Replacement,of,aircraft,Factors that affect aircrafts,lives:,Company strategy,Deltautilizes older aircrafts; MRO organization,Singaporemaintains a young fleet; renews frequently,Economic environment,prosperity VS downturn,Technological development,fuel efficiency; noise; comfort,How can depreciation policy affect this decision?,Choices of Depreciation policy,Conservative Liberal,(dep. more) (dep. less),Depreciation pattern Accelerated S-L,Estimated useful,life,12-25years Indefinitely,Residual value 5%-15% 50%-90%,Absorb the write-off of the remaining book value,Gain on asset disposal,a. Replacement,of,aircraft,Illustration,Depreciation,rate,(%) Actual average ages(y),Delta Airlines 4.75 17,Lufthansa,(From Wikipedia),Thus, airlines,which,choose to depreciate aircrafts more,rapidly,tend to,be quick to replace aircrafts.,b. Pricing,Assumption:,Prices are at least somewhat dependent on costs.,Cost analysis,Lower depreciation,Lower total cost,Lower pricing,Thus, airlines which,choose to depreciate more slowly tend,to price low.,Illustration,Depreciation rate(%) Price of ticket(),(BJ-NY 31,Oct,2014),Delta Airlines 4.75 6078,AMR 3.6 5847,Lufthansa 7.08 17856,(From Ctrip ),AMR Most liberal Lowest price,Lufthansa Most conservative Highest price,c. Evaluations of routes of business,Assumption:,all the routes of business have the same,revenues,Depreciation patterns straight-line (less) lower expense more profitAccelerated (more) higher expense less profit Longer estimated useful lives (less) lower expense more profit higher residual value(less)lower expense more profit,c. Evaluations of routes of business,Straight-line methodlonger estimated useful liveshigher residual valuemore profitbetter evaluations,Depreciation policy choiceschosen in the beginningbuilt into the budgets (primary performance standard),d. Manager evaluations,Budget-Income statement illustration,Revenues,Cost of Goods Sold,Depreciation(Fixed),Selling Expenses,General and administrative expenses,Interest expense,Income taxes,Total expenses,Net Income,The answer: not,a,ffected,Depreciation fixed at the beginning of the yearEvaluations of a manager variable expenses and revenues in the current year,Depreciation,No relationship,Evaluations,2,Whether To Keep A Third Set Of Books?,1. Accounting Books,According to accounting standards like IFRS or GAAP,2. Tax Books,According to Local Tax Policy,3. A third set of books?,=Can either accounting value or tax value reflect real value of an aircraft?,Important Facts about depreciation,Accounting: straight-line method,Accounting Value,Years,Carrying value(%),Important Facts about depreciation,Accounting: straight-line method,Tax: MACRS (more depreciation expenses than accounting),Tax value,Years,Carrying value(%),Important Facts about depreciation,Accounting: straight-line method,Tax: MACRS (more depreciation expenses than accounting),Market values: decrease much slowly, maintain,50%90%,after,decades,of use,Market Value,Years,Carrying value(%),Comparison,Market,Accounting,Tax,Years,Carrying value(%),Airline Company should maintain third set of books,for,the purpose of running,business,Benefits,Reflect real value of,aircrafts,Better decision,making,No adjustment for present accounting and tax,books,Drawbacks,Increase administration expenses,(shouldnt be a problem for airplane company),Trainings,for managers to better understand the third set of,books,(Well educated; Not hard to study),Market value can be difficult to,get,(better than zero),Choose Between Conservative And Aggressive Methods,3,134m,i,s the average gain on disposal,Less depreciation closer to reality,LONG-HAUL AIRLINE,costs less than frequent takeoffs,Depreciation should connect to real costs,PP&E EFFICIENCY,c,an vary through periods,Depreciate less when airplanes grow inefficient,Depr.,Real Economic Effects,Depr. Financial,Reporting Effects,1/ Theoretically depreciation has no real impacts on valuation of a company.,2/ In practice, when business does well managers can be safe to choose straight-line method.,3/ When sales and profits are in a downward trend or adjusting down from a peak, managers may choose accelerated depreciation methods.,Advancements In,Tech.,Influence Of Market Risk,Inflations & Fluctuations,Recessions In Demand,Macroeconomy,Potentials,For Asset Write-offs,1/ Avoid using too aggressive depreciation method.,3/,Form a suitable strategy on aircraft replacement, company development, market positioning.,2/ A worldwide airline cannot use planes for more than 30 years.,Delta,AMR,Lufthansa,Singapore,1/ Behaves the best,2/ Using aircraft for longer,3/ Second least conservative,1/ High end market,2/ Young fleet,3/ most conservative,1/ Income always minus,2/ record least depreciation,3/ least conservative,Thank you!,Q&A,