A co-owned airplane should list the net aircraft value on the balance sheet . The initial value is usually the acquisition price or market value; which is determined when a buyer and seller come to agreement on a transaction. That price is usually adjusted on the balance sheet for depreciation.
Depreciation is a non-cash expense. It reflects declining value for items like the engine and prop; which incur normal wear and tear with usage. After some number of hours they will have to be replaced. Tracking depreciation helps to identify the remaining economic useful life.
You should create a schedule to calculate depreciation for the above items. Engine and prop depreciation would be determined based on the number of hours flown. For example, if the engine exchange value is $45,000 and has a 2,000 TBO then depreciation is about $22.5 per hour ($45,000 / 2,000 hours = $22.5). The amount of depreciation would vary each month based on usage.
Some aircraft parts are life limited components with an expiration date regardless of the hours flown. The Cirrus Airframe Parachute System (CAPS) is an example.
If you were tracking life-limited components, such as, CAPS the depreciation would be straight line or a fixed amount each month regardless of usage. For example, if CAPS replacement is $14,000 then the depreciation would be $117 per month ($14,000 / 120 months = $117).
How do you show net aircraft value on the balance sheet?
Depreciation is subtracted from the acquisition cost to determine the airplane’s net value as of the balance sheet date.
Example of balance sheet entry for Net Aircraft Value
|Net Aircraft Value||230,600|
|Aircraft: Cirrus SR22||250,000|
|Depreciation (BRS Ballistic Recovery System)||(2,400)|
|Depreciation (TBO: engine, prop overhaul)||(17,000)|
A co-owner can review the balance sheet and compare depreciation to funded reserves. These two values are important numbers for planning and budgeting purposes. Ideally, the accumulation of funded reserves (cash) should closely track depreciation.
The balance sheet airplane value is usually adjusted for depreciation but not “marked to market.” The market value might reset when a buyer and seller come to agreement on a transaction. For example, when a co-ownership interest or the airplane is sold.
Copyright 2016 wikiWings, LLC, All rights reserved