ASC 360-908
Airlines
360 Property, Plant, and Equipment
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ASC 360-908 governs property, plant, and equipment accounting unique to airlines: unit versus group depreciation, rotable parts, airframe modifications, and airframe/engine overhauls. Its core rules are that modifications enhancing an aircraft's usefulness must be capitalized and depreciated over the shorter of the aircraft's or the modification's useful life, and that overhauls must be accounted for under one of three permitted methods—direct expensing, built-in overhaul, or deferral—with the accrue-in-advance (accrual) method prohibited.
Key points (7)
- A depreciation method may be applied to a single asset (unit method, typically aircraft and engines with large unit costs) or to a homogeneous pool (group method, typically rotable parts and assemblies), with ease of application being the basis of selection (360-908-35-1).
- Rotable parts and assemblies of significant value are classified with flight equipment as fixed assets (360-908-45-1) and are normally depreciated over their useful or service lives under a group method (360-908-35-2).
- Costs of interior configuration modifications that enhance the usefulness of the aircraft shall be capitalized (360-908-25-1) and depreciated over the estimated useful life of the aircraft or of the modification, whichever is less (360-908-35-3).
- Air carriers must adopt a method that recognizes overhaul expense in the appropriate period; permitted methods are direct expensing (908-720-25-3), the built-in overhaul method, and the deferral method, and the accrue-in-advance method is prohibited in annual and interim periods (360-908-25-2; 360-10-25-5).
- Under the built-in overhaul method, aggregate aircraft cost is segregated into components depreciated over the aircraft's useful life and an overhaul component that is set up separately and amortized to the date of the initial overhaul; each subsequent overhaul cost is then capitalized and amortized to the next overhaul (360-908-30-2; 360-908-35-5).
- Under the deferral method, the actual cost of each overhaul is capitalized and amortized to the next overhaul (360-908-30-3; 360-908-35-6).
- On replacement, the cost of the replaced asset net of accumulated depreciation and anticipated recovery value is charged to income in the current period, using estimates where detailed records are inadequate (360-908-40-1); manufacturer purchase incentive credits are accounted for under 705-20-25-1 through 25-5, or as a lease incentive under Topic 842 if the aircraft is leased (360-908-55-1).
For students. Airlines are the classic example of component depreciation and of the prohibition on accruing maintenance before it occurs; the most common error is assuming an airline may build a reserve for future overhauls—the accrue-in-advance method is banned, and only direct expensing, built-in overhaul, or deferral is permitted (and the chosen method must be applied consistently in interim and annual periods).
unit depreciationgroup depreciationrotable partsairframe modificationsbuilt-in overhaul methoddeferral methodplanned major maintenance activitiesmanufacturer purchase incentives
Machine-generated study aid for ASC 360-908. Check the source paragraphs below.
360-908-00Status
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360-908-00-1
The following table identifies the changes made to this Subtopic.
| Paragraph | Action | Accounting Standards Update | Date |
| Cash Consideration | Superseded | Accounting Standards Update No. 2014-09 | 05/28/2014 |
| 908-360-55-1 | Amended | Accounting Standards Update No. 2016-02 | 02/25/2016 |
| 908-360-55-1 | Amended | Accounting Standards Update No. 2014-09 | 05/28/2014 |
360-908-05Overview and Background
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360-908-05-1
This Subtopic provides guidance for accounting for certain property, plant, and equipment assets for entities in the airline industry. It includes guidance on:
- aThe use of unit and group depreciation methods.
- bRotable parts. Rotable parts relate to flight equipment.
- cAirframe modifications. Airlines have undertaken major programs to modify interior configurations of certain aircraft types—including the reconfiguration and replacement of seats, galley equipment, and storage space—in response to market forces and passenger demands. Since deregulation, such changes have been more frequent.
- dAirframe and engine overhauls. As a result of overhaul requirements established by the Federal Aviation Administration, aircraft airframes and engines must be overhauled within specific intervals. The value and usefulness of an aircraft can be heavily dependent on its stage of overhaul. For accounting purposes, airframe and aircraft engine overhauls encompass all inspections or replacements of major components, which the civil air regulations require at specific maximum periodic intervals to recertify that the frame or engine is completely airworthy.
Purchase Incentives
360-908-05-2
Airlines frequently negotiate purchase incentives with aircraft manufacturers whereby, as an inducement to purchase a particular manufacturer's aircraft, the manufacturer will issue credits, which can be used for the purchase of spare parts but may not be applied as part of the purchase price of aircraft. Examples of other incentives are guaranteed trade-in values and purchase credits for flight crew training equipment (for example, flight simulators).
360-908-15Scope and Scope Exceptions
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Overall Guidance
360-908-15-1
This Subtopic provides guidance relating to certain property, plant, and equipment assets for entities in the airline industry.
Transactions
360-908-15-2
The guidance in this Subtopic does not apply to the following transactions and activities:
- aThe cost of routine replacement of minor parts and servicing or inspection of airframes and aircraft engines
- bCosts accounted for as restoration of assets, such as extraordinary costs associated with the renewal of major structural parts beyond the scope of normal periodic overhauls
- cOther costs with a life span similar to the depreciable service life of the related airframe or aircraft engine.
360-908-25Recognition
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Airframe Modifications
360-908-25-1
If the modifications of interior configurations of certain aircraft types enhance the usefulness of the aircraft, the costs associated with the changes shall be capitalized.
Overhaul Costs
360-908-25-2
Air carriers shall adopt an accounting method that recognizes overhaul expenses in the appropriate period. This may result in different methods for different aircraft, as well as different methods for airframe overhauls and engine overhauls. The method chosen shall recognize, among other things, the carrier's operating practices with respect to airframe and engine overhauls. The following accounting methods are permitted:
- aThe direct expensing method, addressed in Subtopic 908-720 (see paragraph 908-720-25-3)
- bThe built-in overhaul method, addressed in this Subtopic
- cThe deferral method, addressed in this Subtopic.
360-908-30Initial Measurement
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Overhaul Costs
360-908-30-1
This guidance addresses the following methods of accounting for overhaul expenses:
- aBuilt-in overhaul method
- bDeferral method.
360-908-30-2
The built-in overhaul method is based on segregation of the aggregate aircraft costs into those components that shall be depreciated over the useful life of the aircraft and those that require overhaul at periodic intervals. Thus, the estimated cost of the overhaul component included in the purchase price shall be set up separately from the cost of the airframe and engines.
360-908-30-3
Under the deferral method, the actual cost of each overhaul shall be capitalized.
360-908-35Subsequent Measurement
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Depreciation Methods
360-908-35-1
A depreciation method may be applied to a single asset (unit depreciation) or to a group or pool of assets that are similar in nature (group depreciation). An air carrier can use unit or group depreciation methods on different groups of assets. The ease of application is the basis of selection between the two methods.
- aUnit method. Under the unit method, the airline depreciates the cost of the individual items of property and equipment. Unit depreciation is generally used for fixed assets, such as aircraft and engines, that have large unit costs and are comparatively few in number.
- bGroup method. Under the group method, the airline depreciates the aggregate cost of a group of equipment that is fairly homogeneous, despite differences in the service lives of individual items. Group depreciation usually is applied to groups of assets that are significant in number but have relatively small unit values, such as rotable parts and assemblies.
Rotable Parts
360-908-35-2
Rotable parts and assemblies are normally depreciated over their useful lives or service lives according to a group method of depreciation.
Airframe Modifications
360-908-35-3
Airframe modifications shall be depreciated over the estimated useful life of the aircraft or the modifications, whichever is less.
Overhaul Costs
360-908-35-4
This guidance addresses the following methods of accounting for overhaul expenses:
- aBuilt-in overhaul method
- bDeferral method.
360-908-35-5
The estimated cost of the overhaul component included in the aircraft purchase price shall be amortized to the date of the initial overhaul. The cost of the initial overhaul shall then be capitalized and amortized to the next overhaul, at which time the process shall be repeated.
360-908-35-6
Under the deferral method, the actual cost of each overhaul shall be amortized to the next overhaul.
360-908-40Derecognition
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Airframe Modifications
360-908-40-1
The cost of the replaced asset net of accumulated depreciation and anticipated recovery value shall be charged to income in the current period. However, detailed records may often be inadequate to permit identification of the cost of the replaced asset; therefore, estimates may be required.
360-908-45Other Presentation Matters
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Rotable Parts
360-908-45-1
Rotable parts and assemblies of significant value are classified along with flight equipment as fixed assets.
Overhaul Costs and Planned Major Maintenance Activities
360-908-45-2
As indicated in paragraph 360-10-45-1, an entity shall apply the same method of accounting for planned major maintenance activities in annual and interim financial reporting periods.
360-908-55Implementation Guidance and Illustrations
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Implementation Guidance
360-908-55-1
Credit received as a purchase incentive from an aircraft manufacturer to induce a purchase of that manufacturer's aircraft should be accounted for in accordance with paragraphs for the aircraft or, if the aircraft is leased, as a lease incentive in accordance with Topic 842.