To maintain and renew its aircraft fleet the company carried out a number of activities. Discuss the key drivers of the company’s capital expenditure.

1. Prepare a brief report about the company’s business and strategy (max. 250

2. To maintain and renew its aircraft fleet the company carried out a number of
activities. Discuss the key drivers of the company’s capital expenditure.
a. What is the total cost of flight equipment acquisitions in 2013?
b. How did the company finance the acquisitions of flight equipment?
c. What was the sale value of the old flight equipment? (Assume that fixtures
were sold by its net book value)?
d. The company estimates that the residual value of the aircraft’s and major
spare parts is 10% of original cost (see statement of accounting policies).
Discuss the effect in the income statement and in the balance sheet of a
change in the residual value estimate for 15% of original cost.

3. In April 2013 Irish Government commenced High Court proceedings against Aer
Lingus seeking the repayment of 8 in taxes per passenger which amounts to
approximately 4m in total.
a. Explain how this event has been dealt with by Aer Lingus and whether it has
been reflected in the financial statements.
b. Do you agree with the way the company represented the potential repayment
of taxes in the financial statements? Suggest an alternative accounting
treatment and discuss its effect in the financial statements.

4. In the Financial Risk management note the company states: Profits are reduced
by stronger US dollar and/or weaker sterling. Briefly explain why the
strengthening (weakening) of the dollar (sterling) affected positively the profit.

5. In the same note as above the company states: Acquisition costs are also
increased by stronger dollar. Briefly explain how the strengthening of the dollar
can affect the depreciation of new aircrafts purchased.

6. Aer Lingus is considering a new line of business: renting jets for private and
corporate flights. The new project requires the acquisition of two Airbus planes
with a total cost of 100,000. The company intends to lease the planes for a
period of 10 years, with annual payments of 12,950.46 (effective interest rate of
5%). Maintenance costs are expected to be 2,000 per year
a. Show the accounting movements for next year assuming that the contract is a
finance lease.
b. Show the same accounting movements assuming an operating lease
c. If Aer Lingus wants to boost its profit in the near future which type of lease
would you recommend?

7. Aer Lingus states the following with regards to their revenue recognition
policy: Amounts in respect of transportation of passengers and cargo (and
related recoverable charges and fees) are deferred and are not recognised as
revenue until the point at which the passenger or cargo has flown.
Estimate how much cash Aer Lingus collected approximately with respect to
ticket sales (passengers and cargo) during 2013? Show your workings clearly
and explain the assumptions you make

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