Don't see purchased Aircraft in the Income Statement

[streetking75]

Hi there,

anyone faceing problems as well that aircraft purchse are not shown in the income statement?

Thanks Streetking

[dmoose42]

See the recent changes to the accounting system.  Purchased planes are no longer expenses on the income statement, but rather exchange one asset (cash) for another (aircraft).  You will see the purchase on the cash flow statement as a use of funds, as well as on the balance sheet.

[QuiGonJinn]

But why doesn´t purchasing a plane reduce the income tax???

[dmoose42]

Instead of being a taxable expense on the day of purchase, instead the plane is depreciated over 25 years (for a new plane) to align the cost of acquiring the plane with the revenue from flying the plane.  This accounting treatment is closer to how real airlines account for their aircraft than the method used historically.

[ezzeqiel]

But why doesn´t purchasing a plane reduce the income tax???

Because you are not loosing money... you are just trading one asset (cash) for another (plane).

[[SC] - King Kong]

I do no depriciate my aircraft in 25 years. I wish to do that before the 2nd D check, at 16 years.....

[dmoose42]

At the point of the sale it shouldn't really matter...

Example 1:

You pay $10m, it is depreciated to $5m and you sell it for $4, you get a $1m taxable loss + the $5m in depreciation for $6m in taxable expense

Example 2:

You pay $10m, it is depreciated to $0m, and you sell it for $4, you get a $4m taxable gain + the $10m in depreciation for $6m in taxable expense

The only difference is the timing of the taxes/taxable expense...

[QuiGonJinn]

Instead of being a taxable expense on the day of purchase, instead the plane is depreciated over 25 years (for a new plane) to align the cost of acquiring the plane with the revenue from flying the plane.  This accounting treatment is closer to how real airlines account for their aircraft than the method used historically.

That´s reasonable!

Thanks a lot!!!

[streetking75]

Thanks guys!

[JJP]

Very nice, simple explanation.  Thanks, guys.