05 Jul ACCT 3200 Income Measurement and Asset ValuationCa
ACCT 3200 Income Measurement and Asset ValuationCase 2: Depreciation Spring 2020General Instructions1. This case is due 11:59pm CST, Friday, May 1st, 2020. Cases handed in 1 day late will be reduced 50% and 2 days late will receive zero points for purposes of calculating grades.2. The deliverable for this case is one single pdf document. You must combine the memo, the appendix, and the PowerPoint slide into a single pdf document. Please seek help from Stead Technology if you do not know how to produce a single pdf document. You must electronically submit the same pdf document under both Case 2: Technical Analysis and Case 2: Writing assignment through ICON. Hardcopy submissions are not required.3. You are free to discuss this case with other students in the class, but the analysis and writing must represent your own work. Plagiarism and other types of academic dishonesty will be checked. Failure to properly cite the writing of others or submission of work of others as your own is a serious Honor Code violation.4. The case will be graded on the technical content of the analysis (10 points) and the quality of the writing including language, spelling, punctuation and adherence to report requirements (15 points).1Depreciation ReconsideredYou were just selected for the highly competitive position in the FASB’s postgraduate technical assistant program.1 Congratulations! As a postgraduate technical assistant, you are assigned to major agenda projects or to short-term practice and implementation issues. You are involved in all phases of the assigned projects, including analyzing written submissions received on documents issued for public comment, reviewing and analyzing published research, preparing memorandums on technical issues for Board members’ information, drafting due process documents, and evaluating accounting proposals of other organizations.Your first project involves the accounting for Depreciation. Walter Willis, one of FASB’s Practice Fellows (i.e., project leaders), describes your task like this:The FASB is considering a new proposal requiring all firms to use the same depreciation policies for similar assets. For example, every firm owning a Boeing 787 Dreamliner would depreciate it over the same period with the same residual value. To help you familiarize yourself with the topic, take a look at the depreciation policies of three major airlines and complete the table I have provided for you in Exhibit A. Then, write up a memo addressing the following:First, pick two of the three airlines and compare their depreciation policies. Summarize their policies in your own words, and use the numbers from your table to emphasize the similarities and differences between the two depreciation policies.Next, try to explain why these two airlines would depreciate the exact same model airplane using different useful lives? Describe at least two possible explanations (see below). Explain which of the two explanations is more reasonable and why. There is no right answer, but you need to have reasons supporting your position.Explanation 1: Suggest any financial reporting incentives that might cause the airlines to choose different policies. Evaluate the financial reporting implications of both the depreciation charges over the useful life of the planes as well as the financial reporting implications when they eventually sell or dispose of the airplane.Explanation 2: Suggest an economically justifiable / business purpose explanation for the differences. For example, are there differences in their business model or how they use the assets that might explain the differences in their policy?Finally, based on your analysis, should FASB require all firms to use the same depreciation policies for similar assets? Why or why not? Again, there is no right answer. Regardless of your position, you should discuss the advantages and disadvantages of the new proposal.Requirements:1) Prepare a 2-2.5 page double-spaced internal research memo that addresses the issues that the Practice Fellow has posed. See handout from Dr. Steinitz for additional information regarding memo formatting and other writing-related expectations.2) Complete the table in Exhibit A and include it as an Appendix to your memo.1 If interested, see details at http://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1175801855136.23) Prepare one (1) PowerPoint slide reflecting the content of the memo’s executive summary. The slide will be graded based on clear organization, visual readability (text placement, font choice, etc.) and the slide’s ability to convey the memo’s most important findings in an efficient manner.4) The deliverable for this case is one single pdf document. You must combine the memo, the appendix, and the PowerPoint slide into a single pdf document. Please seek help from Stead Technology if you do not know how to produce a single pdf document. You must electronically submit the same pdf document under both Case 2: Technical Analysis and Case 2: Writing assignment through ICON. Hardcopy submissions are not required.3Exhibit AComplete the table below and include it as an Appendix to your internal research memo. The information you need to complete the table has been provided in the following three pages of the case, which includes excerpts taken from the 2018 annual reports of American Airlines, Delta Air Lines, and United Airlines. Assume that on January 1, 2018, each of the three airlines purchases a new Boeing 787 Dreamliner for $200 million. Each airline uses the average residual value and depreciation period that is consistent with its policies as stated. On January 1, 2028, each firm sells the 787 Dreamliner for $130 million.AmericanDeltaUnitedBook value (1/1/2018)Residual valueDepreciable amountUseful lifeAnnual depreciationAccumulated depreciation (12/31/2027)Book value (12/31/2027)Sale priceGain / (loss) on sale4Exhibit A Continued: Deprecation PoliciesAmerican Airlines 2018 10-K5Delta Air Lines 2018 10-K6United Airlines 2018 10-K
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