Accounting change - questions and answers thread

[dmoose42]

Sami, once the accounting change occurs, when will the tax calculation change?  For example, right now on the new income statement it shows that I have a huge tax liability because I haven't paid tax on all the plane orders over the past three years...

Profit/Loss: 27.2 bn
Taxes Paid: 0.9 bn
Taxes Owed: 7.3 bn

I assume that I won't retroactively owe 7.3 bn in taxes, but rather the system will reconcile your taxes under the old system and you will pay any tax liability or receive a refund as required.  Then the tax liability will start accruing on day one using the new income calculation.  Correct?

Thanks...

[dmoose42]

Another question.  How will partially prepaid aircraft work under the transition?

Example:  I paid $5m in advance and owe $20m on delivery.

The $5m was deducted from my taxable income last year, but under the new system, will the remaining $20m be tax deductible as well?  I assume it would be tax deductible to avoid confusion, but wanted to check.  If if it's not then you would have depreciate only the $20m and not the remaining $5m in order not get a double tax benefit, which seems like a lot of unnecessary data tracking.

Thanks.

[Sami]

Taxation; it will switch to new system on the exact moment it goes live. And during the first game year of the new system it takes into account the losses only from current year (vs. last 3 years) for any existing airlines when it starts - or in other words the first day of the game year when the new system goes live is the date to which it checks backwards the previous losses (instead of 3 yrs backwards for any new games) .. (so after 3 years also existing airlines are fully in the new tax system). So check your new incomesheet and see what it shows now for current year, and that is the new taxable 'balance' (but for now the tax overview at the bottom of income statement is not correct as the 'live date' is not configured yet!). If you by that still owe taxes they will be returned normally.

Any aircraft purchases made within the old system (ordered before system is live) are treated in the old way like the transition notes say. So $5+$20mil will both show under 'purchased aircraft' as immediate taxable losses.

[BD]

Taxation; it will switch to new system on the exact moment it goes live. And during the first game year of the new system it takes into account the losses only from current year (vs. last 3 years) for any existing airlines when it starts - or in other words the first day of the game year when the new system goes live is the date to which it checks backwards the previous losses (instead of 3 yrs backwards for any new games) .. (so after 3 years also existing airlines are fully in the new tax system). So check your new incomesheet and see what it shows now for current year, and that is the new taxable 'balance' (but for now the tax overview at the bottom of income statement is not correct as the 'live date' is not configured yet!). If you by that still owe taxes they will be returned normally.

Any aircraft purchases made within the old system (ordered before system is live) are treated in the old way like the transition notes say. So $5+$20mil will both show under 'purchased aircraft' as immediate taxable losses.

Thanks...addresses a question I had in another thread.  I presume that the exact game day for go live will be announced so we can plan accordingly.

[Sami]

There won't be exact preplanned game dates, but plan for thursday midday EU time for the change (whatever the game dates may be then)..

[BD]

There won't be exact preplanned game dates, but plan for thursday midday EU time for the change (whatever the game dates may be then)..

If you mean CET, then noon there would mean about 6:00 a.m. EST (e.g. New York), 3:00 a.m. PST (e.g. L.A.).  Ok will watch for announcement, and plan to be on around then on Thursday.  Thanks.

For others who want to do a quick lookup...

http://www.worldtimezone.com/index.shtml

[Sami]

"Last chance" for feedback and comments based on the test game ....

[LemonButt]

Should the aircraft delivery fee (1 month's worth of lease) be allocated to the date the order was placed or the date the aircraft is delivered?  I just put in a big $240 million order and got a $42 million expense on the income statement for the current week, but in using the accrual method I believe this cost should be allocated to the delivery week versus the order week.  It should also technically remain on the balance sheet somewhere as an asset.  If another airline were to purchase my airline, then those delivery fees are prepaid expenses that would be viewed as an asset.

[Sami]

For leases you prepaid 5 months and 1 month as a delivery fee which is non-refundable, so that's why it's written down as expense (immediately)... Perhaps not the most the realistic way, but otherwise would be rather complicated and would require other changes. But in theory yes, you're right.

(or just change it 6 months prepaid?)

[schro]

For leases you prepaid 5 months and 1 month as a delivery fee which is non-refundable, so that's why it's written down as expense (immediately)... Perhaps not the most the realistic way, but otherwise would be rather complicated and would require other changes. But in theory yes, you're right.

(or just change it 6 months prepaid?)

Since the fee is non-refundable, then it should be expensed when it is incurred, thus, I think your implementation is more correct.

[LemonButt]

(or just change it 6 months prepaid?)

I think players would prefer this simply due to the fact they get something for their money versus a one time expense.

If the expense is taken immediately, this could be a possible way for players to "game" the system and dodge the tax man, especially since lines like the A320 in DOTM can have a 10 year lead time.  I have a $42 million expense that negated $10+ million in taxes, for example.

[dmoose42]

I don't think you're really gaming the system that much.  Yes you got an immediate write-off, but as schro said, you've lost that money forever, so it doesn't seem that unreasonable to me.  I would just leave it as is...

[BD]

I may have missed it, but has any discussion been had on tax treatment of capital gains?  In many (most?) countries, that is treated with a lower tax rate than regular income tax.

[Sami]

It is the same tax rate

[abezerra]

I have not placed any order since the go-live of the new accounting system.
DOTM
https://www.airwaysim.com/game/Info/Airline/View/144/129#AirlineInfo


(A) I see in my financial statements some amounts that I do not really understand.

Weeks 33, 31, 30, 28, 27, 26, 24
In each of these weeks, the amount 22.763.290 USD (always the same!) appears (a) negative in income statement [purchased aircrafts] (b) and negative in the cashflow statement [capex/purchased aircraft]

These amounts do not correspond to aircraft deliveries: what are they?


(B) Modification of down payment amounts prior to aircraft delivey (for new purchased new aircrafts): how is the tax treatment?

I modified the purchase orders of two A320-200s to be delivered in 1995. Orders had been created before the go-live.
After the go-live, I increased one down payment from 20% to 60% in week 27 (spent 25 millions), and the other down payment from 20% to 40% in week 33 (spent 13 millions).

These expenditures both correctly appear as fixed assets additions in the B/S, and capex in the cashflow statements (both of them "polluted", though,  by the unidentified periodic amount of point A above).
But no trace of these expenditures in the Income Statement.

The initial down payments of 20% had already entered into my taxable result before the go-live. But what about these additional down payments?
As I understand that there will be no taxable depreciation for "old orders", my expectation was to see them in the "purchased aircraft" line of the income statement.
Or they became "new orders"?


Can you please help me to understand?

[spiff23]

I'll start here because not sure if a bug or accounting change but best I can tell, you can now break any lease regardless of term for $28,500 regardless of the term.  As leasee, I terminated a BAC-500 lease with 2 weeks left...$28.5. - this seemed reasonable.  Then I terminate a DC-10 lease with 4 months to go... $28.5k - I was thinking I would pay at least $200-$500k.

Then as lessor, I had 2 DC-8s returned...no idea what was left on the term, but I got $28.5k back for both of them.

This is leading me to think a bug or something  illogical that unintentionally happened as a lease is a binding contract regardless of accounting method.   If there is truly no time based penalty for breaking them, then what is to prevent someone taking a 15 year lease and then just terminating at the 8 year D check?

I could go through a whole long list of other points...but will save until the issue with breaking lease vis a vis the new accounting system is better explained or investigated/fixed if a bug.

[dmoose42]

Spiff - the fee for breaking the lease should be 50% of the remaining payments on the lease.  If you are paying 100k a month and have 4 months to go, the fee would be 200k

[spiff23]

Right, but that's not what happened...I'm 4 leases broken in past 12 RW hours and each one only cost $28'500 exactly.  2 I broke and  2 someone broke on planes they leased from me.  The DC-10 is the one that tripped my alarm since I don't remember what I was paying, but with 4 months to go no way was a 50% penalty only $28,500. 

[dmoose42]

I would post in the bug forum with as much detail for each plane as you can.  I have not observed the same issue...

[spiff23]

Posted in bug forum with more detail.