Case Study Of Inventory Accounting In The Airline Industry

Question 2

Apart from the accounting policies identified in this chapter, what are likely to be policies that should closely be watched by auditors and analysts for a company in the airline industry? Why have you chosen each of them?

1. Inventory accounting method.

Different inventory accounting method may have different impacts on Airline company like Qantas. Due to the complexity of the aircraft system and also to ensure the airline operation safety, airlines need to devote a great deal of manpower and material resources to maintain and repair the aircrafts. Inventories such as aircraft components play significant role in repairing and maintaining aircrafts, which is the basis for achieving the goal of on-time flight. So it is a very important

This will include the purchase price paid for the aircraft plus any other related costs incurred for making the purchase and any adjustments to these costs made as part of the purchase agreement of the aircraft by the airline. Examples of these costs include costs of airframes, cabin fits, seats, assembly works, over-head compartments etc. The capitalisation of interest on advance payments made to manufacturers is quite common in the airline industry. Interest on advance payments is considered as the cost incurred for putting the aircraft into working condition. Additional costs that are capitalised also includes payments for purchase rights and borrowing costs. There are a wide range of fleet acquisition terms and conditions existing across the airline industry with every airline has to follow. As a result, a detailed assessment of a specific purchase agreement will be required in order to determine the exact final cost of what has to be capitalised. The Qantas group capital expenditure commitments as on 30th June 2016 were $11,623 million (and for 2015 the capital expenditure was $10,090 million). The Qantas Group has several rights within its aircraft purchase contracts which can defer the capital expenditure. Their capital expenditure commitments are mostly in US dollars. An entire aircraft (or any other asset) comprises of several

It is probable that the benefits that arise in the future is associated with the item that will flow to the firm and the cost of the component can be measured accurately and precisely. Otherwise the costs are considered to routine maintenance and are recognised in the income statement as and when they are incurred. The existing assets whether being replaced or upgraded should be reviewed regularly to make sure that they are either written off or their useful lives are revised or maintained at current values depending on the information. For example: cost of in-flight entertainment, cabin refurbishment,