Depreciation is correctly placed in the Balance Sheet by indicating the decreased value of the building, but does not belong in the Profit/Loss statement--it has nothing to do with cash flow. By putting it in both, it is being negated from the company's value twice. Can someone explain to me why it is done this way?
It has nothing to do with the cash flow, but it is part of the income balance. It is not part of the balance sheet (please not that the balance sheet at AirlineSim also include the income statement).
The value of the building is part of the balance sheet, and it is correctly decreased when my building's value depreciates. However, it is also included in my income balance, which is incorrect. Example. My building was depreciated by $236 today. This has correctly been subtracted from the value of my building in the balance sheet. It is *also* subtracted from this week's profit, which means it is being subtracted twice from the overall equity of my company. I believe this is incorrect accounting.
Hi,
when I started playing, I was also surprised to find the depreciation of aircraft and buildings in the profit/loss statement. I would have expected a "depreciation" line on the balance sheet of my company.
But I don't think we "pay" twice ;-)
Jan
Hi,
No, you do not "pay" twice.
When you buy an aircraft or building following transaction will be posted in your balance sheet:
- 0700 Aircraft (debit) and 2800 Bank (credit) for the given purchase price.
Every week the deprication will be posted automatically, based on 24 years. This means that during 24 years your aircraft will be depreciated by 0,08012%.
The depreciation is to be posted as follows:
- 6520 Depreciation on aircraft (debit) and 0700 Aircraft (credit).
As you can see, all that happens is a transfer from fixed asset to profit and loss (account 6520) over time and thus, there is no double impact on your profit.
degaulle1407
Accounting 101? :)
Hi,
when I started playing, I was also surprised to find the depreciation of aircraft and buildings in the profit/loss statement. I would have expected a "depreciation" line on the balance sheet of my company.
But I don't think we "pay" twice ;-)
Jan
Depreciation is essential in your profit/loss statement as you want to know whether your company is actually making profits or not.
Imagine a company with a completely owned fleet of aircraft. Say 10 737-900ER BGW aquired for 620m$:
At one point you'll need to replace the old aircraft with new ones.
AS depreciates aircraft over a period of 24 years to a recovery value of 10% if I'm not wrong. So you could calculate with replacement costs of 620m$-10% = 558m$ after 24 years.
You naturally have to subtract those 558m$ from your revenues over those 24 years.
If those costs for depreciation would NOT be part of your profit/loss statement, the report could be as follows (for example):
Total profit after 24 years: 400m$. Sounds great, yet you actually are short of 158m$.
One could however argue that depreciation on buildings is questionable in AS as they actually don't lose value (aircraft do due to increasing costs for maint and decreasing rating)
One thing I'd like to change is the pre-set period for depreciation. 24 years on flight equipment is FAR too long in my opinion. I'd love to have a custom setup for depreciation periods. Personally, I'd depreciate an aircraft over not more than 10 years, actually calculate with 5 years when new.
AS depreciates aircraft over a period of 24 years to a recovery value of 10% if I'm not wrong. So you could calculate with replacement costs of 620m$-10% = 558m$ after 24 years.
You naturally have to subtract those 558m$ from your revenues over those 24 years.
If those costs for depreciation would NOT be part of your profit/loss statement, the report could be as follows (for example):
Total profit after 24 years: 400m$. Sounds great, yet you actually are short of 158m$.
One could however argue that depreciation on buildings is questionable in AS as they actually don't lose value (aircraft do due to increasing costs for maint and decreasing rating)
One thing I'd like to change is the pre-set period for depreciation. 24 years on flight equipment is FAR too long in my opinion. I'd love to have a custom setup for depreciation periods. Personally, I'd depreciate an aircraft over not more than 10 years, actually calculate with 5 years when new.
Depreciation should depend on your company's strategy and would be nice to be possible to set manually yes (including how much % you think the AC will be worth after a certain amount of years).
If you strategy includes having AC no longer then 10 years and buying them new then that is what the depreciation should be set to.
Another interesting info in this equation is the time to pay a full Airframes worth in leasing fees. It's set to 200 weeks = 3 years and 44 weeks.
I think improving deprecation / financing ( Loan purchasing and installments ) are areas that should be easy to make much better without that much effort needed from AS team.