When do airline companies capitalize airplanes

Do they capitalize it when they buy even though they dont expect it to be delivered for 3 years

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Do airline companies captilalise the asset of an airplane when they buy the plane even if they do not expect it to be delivered for 3-5 years

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By Try_to_help
23rd Jun 2019 14:34

It will depend on the contract for purchase.
The point at which title transfers to the airline (and 'risks & rewards of ownership') would be a key factor.
However, the purchase of a new aircraft would likely involve a deposit being paid and stage payments as the aircraft is being built. In this case the payments would be capitalised as 'assets under construction' (or some similar name) but not depreciated until the aircraft goes into service.
Many aircraft are actually financed under finance leases (GE Capital being a major player in this field). In this case the aircraft is likely to be capitalised upon delivery, at which time the liability under the lease would be recorded as a creditor - but again it will depend on the way that the lease agreement is structured.

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Replying to Try_to_help:
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By wholmes333
23rd Jun 2019 17:47

If the payment was a lump sum out front, would they capitalize it under assets in construction until they receive it?
Im specifically looking at this article and trying to figure out how British airways would recognize the asset of the plans and how it would be different with the unknown around when the plans would be ready. Would they capitalize the asset in the begining and carry it over on their balance sheets until it is ready for use?
https://www.ft.com/content/e8e017f4-91d5-11e9-aea1-2b1d33ac3271
I appreciate all the help I can get!

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Replying to wholmes333:
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By wholmes333
23rd Jun 2019 20:09

any help is appreciated

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By WhichTyler
23rd Jun 2019 16:43

Have a look at the relevant airline company's accounts and see what their accounting policies say?

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By airgeadagam
23rd Jun 2019 17:42

They would only do that in America.

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Replying to airgeadagam:
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By wholmes333
23rd Jun 2019 17:48

How would they do it overseas? Under IFRS15

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Replying to wholmes333:
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By airgeadagam
23rd Jun 2019 18:06

I'm pulling your leg. Over here it would be capitalise and aeroplane.

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RLI
By lionofludesch
23rd Jun 2019 18:01

Is this another homework question ?

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Replying to lionofludesch:
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By wholmes333
23rd Jun 2019 18:13

no, im just curios how BA purchase of 200 Boeing 737 max will affect Financial statements

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Replying to wholmes333:
paddle steamer
By DJKL
23rd Jun 2019 21:22

Probably in a similar way to the 2018 accounts, payments actually made (which I presume is stage invoices) appear to be denoted within the fixed asset note as "progress payments" and capital commitments are disclosed (no double entry for this one) as a note ,such as this in 2018 re IAG, notes 12 and 13 (pages 141-142)

"13 Capital expenditure commitments
Capital expenditure authorised and contracted for but not provided for in the accounts amounts to €10,831 million (December 31,2017: €12,137 million). The majority of capital expenditure commitments are denominated in US dollars, and as such are subject to
changes in exchange rates.The outstanding commitments include €10,716 million for the acquisition of 71 Airbus A320s (from 2019 to 2022), 21 Airbus A321s
(from 2019 to 2020), 4 Airbus A330s (in 2019), 41 Airbus A350s (from 2019 to 2022), 4 Boeing 777-300s (in 2020) and 12 Boeing787s (from 2020 to 2023)."

You need to read the last accounts.

https://www.iairgroup.com/~/media/Files/I/IAG/documents/annual-report-an...

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By sculptureofman
24th Jun 2019 10:29

Do airlines own any aircraft? I thought they all leased them

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Replying to sculptureofman:
RLI
By lionofludesch
24th Jun 2019 10:36

You don't need to own an asset to capitalise it any more.

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By Vile Nortin Naipaan
24th Jun 2019 10:50

To be honest, I think most airlines just wing it.

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By Ian Bee
24th Jun 2019 11:44

I may be well out of date here but some years ago I can recall the setters of accounting standards trying to word the leasing rules so that airlines would have to capitalize the aircraft. Up till then they had avoided doing so even though the planes were under a finance lease.

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By Vile Nortin Naipaan
24th Jun 2019 13:57

Incidentally, aren't Boeing 737 Max's revenue, rather than capital. I thought there was going to be a UITF, but maybe the ASB kept their noses down, or it just didn't take off.

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Pile of Stones
By Beach Accountancy
27th Jun 2019 15:27

Given the problems with the 737 Max's, will we be seeing write-downs in the fixed assets? Somehow I doubt it.

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