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Which company’s estimate of useful life more closely reflects reality?

by | Sep 22, 2022 | Accounting | 0 comments

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Airline X depreciates its airplanes over a 15-year period and estimates a salvage value of 10% of the cost of the plane. At the same time, Airline Y depreciates identical airplanes over a 25-year period and estimates a salvage value of 15% of the cost of the plane. As expected, these different assumptions resulted in different operating results. For example, if an airplane costs $ 10 million, Airline X will depreciate $260,000 more per year for 15 years than Airline Y.
Which company’s estimate of useful life more closely reflects reality?
Will you feel comfortable as a passenger in a 25-year-old airplane?
Does the fact that Airline Y subsequently went out of business provide any information as to why its estimates were so substantially different from those of financially sound Airline X?
identify another company which reported accounting errors or changes. How did investors’ and the public’s reaction to the report affect the company?

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