Written report: Depreciation expense is an allocation of the cost of an asset over the asset's useful life. Entities assess the useful life of their...

Aircraft spare parts

15-20 years

0-20 per cent residual value

Source: Qantas Airways Ltd 2017, annual report, p. 95.

Required:

(a)  Define depreciation and outline the current reporting requirements. Refer to accounting standards.

(b)  Describe two (2) common depreciation methods that are commonly used.

(c)  Analyse Qantas Airways Ltd and Virgin Australia Ltd 2017 Annual Reports to help support and illustrate your answer. Your answer should include a brief overview of each company and details of how and where depreciation and impairment is reported in their annual report.

(d) Comment on the effect of these differing depreciation rates on the profit of Virgin Ltd and Qantas Airways Ltd.

(e)  Can you suggest any reasons why the choice of useful lives would differ across the entities?

(f)  Debate whether you believe entities should have discretion to choose the depreciation method and useful lives applicable to various asset classes.

(g)