Question
EAC Airlines acquired a Boring 787 in 2012 for $300 million. At the time of recognition of the aircraft as a long-term operating asset, (i.e.
EAC Airlines acquired a Boring 787 in 2012 for $300 million. At the time of recognition of the aircraft as a long-term operating asset, (i.e. on January 1, 2012, the company estimated its useful life to be 15 years with an expected scrap value of $50 million at the end of its useful life.
The company uses straight-line depreciation method for the aircraft.
Regulatory changes introduced in January 1, 2020 prohibit the company from flying this aircraft after the end of 2022. Therefore, management is forced to sell it and acquire an upgrade aircraft by end of 2022. In 2020 (as of January 1, 2020), it revised the useful life of the aircraft down to 10 years and increased its salvage value to $90 million. Note that the aircraft was depreciated under the original useful life and scrap value through the end of 2019.
- Indicate the amount of depreciation expense reported on the income statements for the years ended December 31, 2018, 2019 and 2020.
- Is disclosure of this change in method required? Justify your response.
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