You are auditing the financial statements of Air Service Inc., an airplane whole

Question

You are auditing the financial statements of Air Service Inc., an airplane wholesaler that purchases various types of corporate jets for sale to different companies or individuals. Prior to the sale of an airplane, Air Service utilizes the jet for charter service. In reviewing the financial statements, you noticed that Air Service reports these jets before selling them as part of fixed assets and depreciates such planes. The engagement partner questions such accounting and requests that you research this issue as to the proper treatment for these jets used in the chartering service.

using Fasb and ASU database

Explanation / Answer

The jets have been used to generate income other than sale. This would be treated as income generated through lease for which adjacent notes or statements can be provided and the income can be included in the overall income of the organization. However, depreciating the jets are not allowed as they purchased with an intention to sell not to use for service.

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