Accounting change - questions and answers thread

[Sami]

This thread is opened to keep all the questions related to the upcoming accounting change in one place ..

Also do note that this thread is for questions only, not requests.

[LemonButt]

Can we get some sort of tax guidance included in the new system?  It would be nice to have a message somewhere indicating estimated taxes based on the numbers and the date it is expected to be paid for planning purposes.  If I have $100 million in cash and spend $90 million on slots, I owe tax on $100 million and not just $10 million so if I need to have $30 million in cash available for the taxman, I'd like to know this.  IRL airlines have a CFO that would tell you this stuff clear as day versus having to dig around and running the numbers yourself.

Since taxes are paid in arrears, accrued tax liabilities should also be reflected somewhere as a liability on the balance sheet.

Edit: Would it also be possible to have a filter option on the income statement for base airports?  It would be awesome if I could pull the financials just for one base to make an educated decision on whether or not that base is profitable.  Some items (marketing) would have to be prorated, but otherwise it looks like the numbers are there for everything else.

[Sami]

Tax advance payments will be probably weekly from now on, and the tax system will also take into account any losses created on previous years. However these haven't been done yet.

And income/cashflow sheets do have a filter for the base already (top-right corner, next to "time period"). Some fees are allocated only to the hq airport.

[LemonButt]

And income/cashflow sheets do have a filter for the base already (top-right corner, next to "time period"). Some fees are allocated only to the hq airport.

I just noticed this--this is awesome.  It seems that some of the HQ costs could be spread to the other airports base (staff training based on headcount, for example).  Another small "feature request" would be to have the bold items (total operating expenses, etc.) have the green arrow dropdown for each base so you could compare the operating profit between bases at a glance since the numbers are already crunched and available when filtering by base.  The numbers are obviously off a bit because of some costs being allocated to HQ, but if the costs were spread it would make things just perfect

[LemonButt]

Should prepaid leases be allocated to the HQ at all times or allocated to delivery base?  I put in a big order for 50 aircraft that was direct purchase that will be delivered across my 3 bases (non-HQ airport), but the expense is booked as aircraft leases at my HQ.

Additionally, since when leasing new aircraft you pay 1 month's lease as a delivery fee, shouldn't this be listed as leasing fees instead of prepaid leases?  I recently put an order in for leased aircraft from the manufacturer and there are no charges showing.

[Sami]

If you are playing in a game world you can also preview the financial staments. However please note that these pages are still partly incomplete and all data does not yet show up there, or is incorrect as the old accounting system is still in force.

[abezerra]

"For the transition please note the following:
[....]
-Any newly ordered or purchased planes will be depreciated according to the new system."

Does this apply from now, or from the go-live of the new system?

[Sami]

All planes ordered after the new system is live will be depreciated/taxed according to the new system. You may see depreciation expense on aircraft details page already for some planes, but those will be set to 0 as they are paid/taxed already.

[Caretakerbc]

Hi Sammi,
I applaud your decision to move to the accrual system, this will give us all a much better idea of how we are doing.

I would question the assignment of slots as an intangible asset, as it is clearly the asset of the airport authority, they charge the non-reoccurring lease fee and generate revenue from the use of that landing  slot by our airlines  with revenue from Passenger taxes etc.

As we effectively lease these slots for a onetime fee from the airport authority, and do not have the ability to sell, sublease, rent or trade these slots, Shouldn't these slot costs should be considered a non-recurring expense. That expense would therefore be tax deductible from our operating Income as  an operating expense for the period the payment was made.
Just my thoughts.
Thank you for your continued dedication to the improvement of this awesome game!
Caretakerbc

[Sami]

The ability to sell/trade the item (here slot) is alone not a reason to deduct the cost of the asset immediately.

Anyway, this has been already discussed in the past, and this is the approach that has been chosen for it for now.

[BD]

All planes ordered after the new system is live will be depreciated/taxed according to the new system. You may see depreciation expense on aircraft details page already for some planes, but those will be set to 0 as they are paid/taxed already.

If I follow this logic correctly, this means until the update is officially implemented, our year end aircraft purchases will still reduce our tax burden for the calendar year it falls in.  Correct?

Hopefully, the update is implemented for Jan 1 (Jan 16?) of each game world's year, so that we have the ability to time our purchases accordingly.

[dmoose42]

sami, I bought three planes for a total of $159.5m and paid for a fresh D-check on one of them.  However, the "Deposits on flight equipment purchases" account only has $157.3m - the difference being the cost of the D-check.  I checked the income statement to see if the D-check was expensed as MX, but my MX expense for the week to date was only 26k so it's not there. However, the cash flow statement does show the D-check in the long-term aircraft MX section, so i think it's just a problem with the balance sheet.

edit: this is in the test world

[LotusAirways]

To Sami

Game: Accounting Test
Airline: Aerial Transit Company https://www.airwaysim.com/game/Info/Airline/View/24/138#AirlineInfo

First, congratulations for the improvements, for setting-up a demo game, and for listening and exchanging your opinions with the players.

Second, it seems that if we buy a second hand plane (or new with discounts) below "recommended price", the value that is accounted for on the balance sheet under Assets/Non-current assets is the purchase price, regardless if the purchase price is below (sometimes 30% to 40% below) the "recommended price". This means that:

(a) the "company value" will not increase by buying an under valued aircraft or by buying large quantities of new aircraft, and
(b) the amount of secured loans is linked with the purchased price, not with the "recommended price", which results in lower borrowing power.

Is there a more realistic way of attributing a dollar value to an asset purchased below market value? One of the fun things of this game is to buy cheap. In the new format the impact of the player's buying skills is reduced to one single item, cash in hand. Both borrowing capability and company value disappear from the equation.  

Finally, I already can see a way around the issue, maybe (or maybe not) against the spirit of the game:
(1) buy cheap;
(2) sell to an alliance member/friend at "recommended price";
(3) buy it back at the same price.
No player made or lost money, and no taxes to pay as the selling and buying prices are the same. The con is 4 weeks lost until final delivery. The gain is an higher borrowing capability, which can be important at the start-up stages, and higher company value (for prestige purposes, self satisfaction, etc.).

Care to comment?
LA

[dmoose42]

Lotus - a couple of clarifications to your post and Sami can comment on the rest.

1) The amount of secured loans available to you is not linked to the purchase price of the aircraft, but rather the Bank's assessment of the value of the aircraft.
2) If you sell your plane to a friend at the recommended price, you will owe taxes on the gain on sale between the purchase price and the sale price.
3) I agree, that having access to a market value view of one's aircraft (similar to the historical CV) is a good idea because otherwise it is very difficult to fairly compare the CV of different airlines...

[Sami]

The 'recommended price' has got nothing to do with accounting. The initial book value is always the price you paid for it (and this IS the realistic method for it).

Also, dmoose; balance sheet is now adjusted to show D check payments before delivery.

[LotusAirways]

Dmoose 1- The amount of secured loans available to you is not linked to the purchase price of the aircraft, but rather the Bank's assessment of the value of the aircraft.
Dmoose 2- If you sell your plane to a friend at the recommended price, you will owe taxes on the gain on sale between the purchase price and the sale price.
Sami 3- The 'recommended price' has got nothing to do with accounting. The initial book value is always the price you paid for it.

1) Yes, and the bank's assessment is the purchased value. In other words, the company buys 50 aircraft and gets a discount of say 30%. The value of the aircraft is not 100%, but 70%. The bank's assessment is 70%.

2) Indeed, thanks.

3) Fine, in that case just re-read my post and instead of "recommended price" read "initial book value". And the question remains: is there a better way of assessing the value of an aircraft purchased second hand or new below market value?

I would like to emphasize that I am not complaining. I am just pointing out something that can probably be improved and/or asking for clarifications.
Tks
LA

[Sami]

This has been talked at the feature rq forum's thread (check that one for details) but to sum it up: the book value of the aircraft is always based on the price you paid for it, and depreciation is counted from there. Companies may re-valuate their assets if needed, but commonly that is used only for intangible assets like goodwill. And for the scope of the game the "market value" is something that is determined independetly between players when they sell the planes and it will be more dynamic than before, and it is not a mean to base for any revaluations of the aircraft.

= book keeping value and actual market value have nothing in common (anymore).

[LotusAirways]

Thanks.

[abezerra]

LA, IMO there might a conceptual misunderstanding behind your point on AC value.

If you "underpay" an AC by 10 millions, you will also have 10 millions more cash than if you had paid the recommended price. And cash IS company value too.
That means that your company value right after the purchase will be the same regardless the price you have paid for the aircraft.

On the contrary, "paying cheap" is good for the long term perspectives of your company value. These extra 10 millions cash may eventually allow you to increase your investment in ACs and slots, and possibly earn more cash in the future than if you had overpaid the aircraft.

[LemonButt]

Yes, but then there would be incentive for players to clog up production lines and resell aircraft (sound familiar?).  If an aircraft is $100 million and I get a 20% discount to $80 million, I have an $80 million aircraft (worth $100 million on the open market) and $20 million in cash.  If I can sell the aircraft for $100 million then I earn $20 million.  Therefore, there is a huge incentive for me to jam up the production lines and resell popular models.

IMO the easy solution would be to eliminate the discounts for direct purchase (but keep for leasing) since immediate resale is unrestricted.  This would remove part of the incentive to jam up the production lines.