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Author Topic: My least favorite part of the income statement  (Read 1109 times)

Offline JumboShrimp

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My least favorite part of the income statement
« on: August 21, 2019, 10:15:11 PM »
My least favorite part of the income statement is: Aircraft lease fees

It throws off the income statement up and down whenever the new aircraft is ordered on a lease.  Is there a way to just get rid of it, or spread it over the entire lease period?

Offline schro

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Re: My least favorite part of the income statement
« Reply #1 on: August 21, 2019, 11:24:08 PM »
Accounting rules in the real world say nope. The 1 month lease fee is fully incurred at time of order, so no more accrual for you.

Offline Infinity

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Re: My least favorite part of the income statement
« Reply #2 on: August 22, 2019, 03:25:11 AM »
Accounting rules in the real world say nope. The 1 month lease fee is fully incurred at time of order, so no more accrual for you.

Not sure how it is under current standards, but the incoming IFRS 16 leases standard commands such costs to be amortized over the lease period.

IFRS 16.24:
The cost of the right-of-use asset shall comprise:
(a) the amount of the initial measurement of the lease liability, as described in paragraph 26;
(b) any lease payments made at or before the commencement date, less any lease incentives received;
(c) any initial direct costs incurred by the lessee; and
(d) an estimate of costs to be incurred by the lessee in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease, unless those costs are incurred to produce inventories. The lessee incurs the obligation for those costs either at the commencement date or as a consequence of having used the underlying asset during a particular period.

Offline schro

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Re: My least favorite part of the income statement
« Reply #3 on: August 22, 2019, 10:46:38 AM »
Ifrs has been a pipe dream and incoming for something like a decade though? I've been out of the bean counting world for too long to know though :-). If I remember right the lease changes were fairly controversial....

Of course, if ifrs is adopted by aws, the entire way leases are accounted for (i.e. the estimated total liability is not put in the balance sheet right now and I would guess that seat configuration changes and upgrades would also need to be capitalized on their own depreciation scale). Should be good for some entertainment if that happens. Time for a feature request?

Offline Kontio

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Re: My least favorite part of the income statement
« Reply #4 on: August 22, 2019, 12:51:08 PM »
Instead of (or in addition to) figures based on real-life accounting rules, could we have some simple answers to whether a certain plane or fleet group is actually making or losing money? That would be really useful for us non-accountants.

Offline dmoose42

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Re: My least favorite part of the income statement
« Reply #5 on: August 22, 2019, 09:51:11 PM »
What are you looking for?

I think the simplest thing that would be helpful is to separate the expense portion of the income statement so that all line items included in a frame's P&L are combined to one number "gross profit"? and then the others (personnel, marketing, etc.) and below in a separate bucketing of costs. That would at least provide more transparency to the new users.

Alternatively, we could include the plane's pro-rata expenses (personnel, marketing, etc) into the plane by plane profit calculation to give a fuller picture. That would require some assumptions for some costs (marketing), and others would be straight forward (commonality), but wouldn't be too difficult.

Offline JumboShrimp

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Re: My least favorite part of the income statement
« Reply #6 on: August 22, 2019, 10:36:29 PM »
What are you looking for?

I think the simplest thing that would be helpful is to separate the expense portion of the income statement so that all line items included in a frame's P&L are combined to one number "gross profit"? and then the others (personnel, marketing, etc.) and below in a separate bucketing of costs. That would at least provide more transparency to the new users.

Alternatively, we could include the plane's pro-rata expenses (personnel, marketing, etc) into the plane by plane profit calculation to give a fuller picture. That would require some assumptions for some costs (marketing), and others would be straight forward (commonality), but wouldn't be too difficult.

Kontio is talking about a separate issue from the one I raised.  Regarding Kontio's issue of improving estimates of plane profitability, I made a very simple feature request to include just one (of several) variable costs - pilots + cabin crew included in aircraft profitability estimate:
https://www.airwaysim.com/forum/index.php/topic,82249.0.html

Offline Infinity

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Re: My least favorite part of the income statement
« Reply #7 on: August 22, 2019, 11:46:21 PM »
Ifrs has been a pipe dream and incoming for something like a decade though?

Well this one's been in and out of committees for the past 10 years for sure, but it's now final and applicable for public companies from the current fiscal year.

 

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