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In 2007 Lufthi, the Denmark national airline, reported that it depreciated its aircraft Over 15...

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Finance

In 2007 Lufthi, the Denmark national airline, reported that it depreciated its aircraft Over 15 years on straight-line basis, with an estimated residual value 12 percent of initial cost. Lufthi reported in its 2007 Annual Report The Total Cost its aircraft at the beginning of 2007 as 17,918 m, and accumulated depreciation was 10,547 m. Marginal tax rate 25%. Air German-FKL reported that its aircraft depreciation was also estimated using the straight-line method, but assuming an average life 20 years and no residual value.

In analyst opinion, there do not appear to be operating differences that explain the differences in the two firms. The analyst may well decide that is necessary to adjust the depreciation rates for one or both firms to ensure that their performance is comparable. What adjustments would be required for Lufthis aircraft depreciation? Show complete steps to make adjustment to the December 31, 2006 balance sheet

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