EXHIBIT 2 Selected financial statement items ARCHINA LIMITED RMRN 31 December 2012 EXHIBIT 2 Selected francial statement terms (continued) KOREAN AIRLINES CO, LIMITED Van 'M 31 December 2012 2011 2011 Cor Heath Karton has just begun a career as an analyst and has been assigned to the airline sector. Heath's first task has been to input various airline financial statements into his firm's standard format (which is identical to the one used in this book). In doing this task, Heath is surprised at the variation in presentation, classification and accounting policies. He claims: 'Even the balance dates are different. In particular, Heath is considering the differences in depreciation policies for aircraft, engines and spares (see Exhibit 1). Heath is wondering if there are underlying Ceconomic or technical reasons why depreciation rates and residual values differ between airlines. 'If there are no underlying differences, Heath argues then comparability is compromised. Furthermore, the range depreciation rates within each class of assets, the estimation of salvage value and the method of allocation (straight line or diminishing value) would seem to provide management with considerable discretion.' 18059159995 74 505 64254 1009 35531 9.587 8630 5812231 8 209 6259 18751 175 850 18012976 1002515 7285521 5808 238 10547456 3154278 295 300 1206 302 Toalets 223 899 120 670 219 870 110 853 Aboumed con QUESTIONS 1 Estimate the depreciation expense to asset cost ratio using the information in Exhibit 2. Does the variation in this ratio support the variation in accounting indicated by the written accounting policies? 2 What possible underlying differences might account for the differences in depreciation accounting policy choices? 3 How would you go about investigating whether the accounting choices were opportunistic 4 To increase comparability, Heath thinks he might use either the average or most conservative expense to asset ratio' and restate the depreciation for each airline. Without going into detailed re-statement procedures, what general impact would this re statement have on retum on assets i.e. the ratio of earnings before interest (EBIT) and tax to total assets)? 5 On the other hand, Heath thinks he might just as well estimate retum on assets using EBITDA (earnings before interest, tax depreciation and amortisation). Do you agree with this approach? Source: Air China, Anrul Report, 2011, 2012 Depreciation AR NEW ZEALAND UMITED DOIT 12 162 11317 835789 80 878 20678036 2033 503 SM 2013 2012 Snura Airlin. C imited Aust 2011 2012 3932 3822 30 June Arcraft a nd mor Cosi A mind that Carrying amount Depreciation Impairment SOS MALAYSIAN AIRLINE SYSTEM DERHAD RA 31 December 2012 2011 24832605 319 220 precision ll CE Accumulated Carrying a Draction mpanten 943 454 921017 8922441 2899 4370 619 565 142 3815 477 263 147 264 136 120 Accum.ned heation Carrying amount Dernection 163 343 118 224089 Acarves EXHIBIT 2 Selected financial statement items (continued) QANTAS AIRWAYS LIMITED EXHIBIT 2 Selected financial statement items (continued) SINGAPORE AIRLINES LIMITED 310158 5612458 Talasses Acne Seuw. Ar Nuward . Arvioi, 2012, 2013 Carrygament Depreciation 387079 366 500 158 175 111 095 228 904 254445 4706014138 -189542 233 420 17 291 118 1219175 2013 2012 2013 2012 30 June Arcall and engines Cast Sare Malwari Syarma Anuar 2011, 2012 18 486 18799 7 411 7521 11 075 11 278 1 1751 123 19 144 B598 10 546 1 446 9.2 19 229 8205 11 024 1433 31-Mar Aircra Cost Accumulated depreciation Carrying amount Depreciation mpairment Aircraft spare angines Cost Accumulated Carrying amount Depreciation Aircraft spares 14.3 BAS Accumulated Carrying amount Depreciation Aicrall spare parts Cast Accumulated depreciation NBA Depreciation EBIT Total assets 875 468 433 305 417 442 54 -173 21 178 204 20 200 Cast 615 Source: Qantas Airways Limited, Annual Report 2012, 2013 Accumulated depreciation NBA 255 266 Depreciation EBIT Total assets 462 22 428 22043 EXHIBIT 2 Selected financial statement items ARCHINA LIMITED RMRN 31 December 2012 EXHIBIT 2 Selected francial statement terms (continued) KOREAN AIRLINES CO, LIMITED Van 'M 31 December 2012 2011 2011 Cor Heath Karton has just begun a career as an analyst and has been assigned to the airline sector. Heath's first task has been to input various airline financial statements into his firm's standard format (which is identical to the one used in this book). In doing this task, Heath is surprised at the variation in presentation, classification and accounting policies. He claims: 'Even the balance dates are different. In particular, Heath is considering the differences in depreciation policies for aircraft, engines and spares (see Exhibit 1). Heath is wondering if there are underlying Ceconomic or technical reasons why depreciation rates and residual values differ between airlines. 'If there are no underlying differences, Heath argues then comparability is compromised. Furthermore, the range depreciation rates within each class of assets, the estimation of salvage value and the method of allocation (straight line or diminishing value) would seem to provide management with considerable discretion.' 18059159995 74 505 64254 1009 35531 9.587 8630 5812231 8 209 6259 18751 175 850 18012976 1002515 7285521 5808 238 10547456 3154278 295 300 1206 302 Toalets 223 899 120 670 219 870 110 853 Aboumed con QUESTIONS 1 Estimate the depreciation expense to asset cost ratio using the information in Exhibit 2. Does the variation in this ratio support the variation in accounting indicated by the written accounting policies? 2 What possible underlying differences might account for the differences in depreciation accounting policy choices? 3 How would you go about investigating whether the accounting choices were opportunistic 4 To increase comparability, Heath thinks he might use either the average or most conservative expense to asset ratio' and restate the depreciation for each airline. Without going into detailed re-statement procedures, what general impact would this re statement have on retum on assets i.e. the ratio of earnings before interest (EBIT) and tax to total assets)? 5 On the other hand, Heath thinks he might just as well estimate retum on assets using EBITDA (earnings before interest, tax depreciation and amortisation). Do you agree with this approach? Source: Air China, Anrul Report, 2011, 2012 Depreciation AR NEW ZEALAND UMITED DOIT 12 162 11317 835789 80 878 20678036 2033 503 SM 2013 2012 Snura Airlin. C imited Aust 2011 2012 3932 3822 30 June Arcraft a nd mor Cosi A mind that Carrying amount Depreciation Impairment SOS MALAYSIAN AIRLINE SYSTEM DERHAD RA 31 December 2012 2011 24832605 319 220 precision ll CE Accumulated Carrying a Draction mpanten 943 454 921017 8922441 2899 4370 619 565 142 3815 477 263 147 264 136 120 Accum.ned heation Carrying amount Dernection 163 343 118 224089 Acarves EXHIBIT 2 Selected financial statement items (continued) QANTAS AIRWAYS LIMITED EXHIBIT 2 Selected financial statement items (continued) SINGAPORE AIRLINES LIMITED 310158 5612458 Talasses Acne Seuw. Ar Nuward . Arvioi, 2012, 2013 Carrygament Depreciation 387079 366 500 158 175 111 095 228 904 254445 4706014138 -189542 233 420 17 291 118 1219175 2013 2012 2013 2012 30 June Arcall and engines Cast Sare Malwari Syarma Anuar 2011, 2012 18 486 18799 7 411 7521 11 075 11 278 1 1751 123 19 144 B598 10 546 1 446 9.2 19 229 8205 11 024 1433 31-Mar Aircra Cost Accumulated depreciation Carrying amount Depreciation mpairment Aircraft spare angines Cost Accumulated Carrying amount Depreciation Aircraft spares 14.3 BAS Accumulated Carrying amount Depreciation Aicrall spare parts Cast Accumulated depreciation NBA Depreciation EBIT Total assets 875 468 433 305 417 442 54 -173 21 178 204 20 200 Cast 615 Source: Qantas Airways Limited, Annual Report 2012, 2013 Accumulated depreciation NBA 255 266 Depreciation EBIT Total assets 462 22 428 22043