The accounting treatment for other assets associated with the aircraft purchased should also be considered such as
spare parts, rotables and repairables. Sometimes these can include ‘other assets’ received from suppliers at no charge
such as additional spares provided as part of the original purchase deal. A cost needs to be allocated to these additional
spares, this may be done by dividing part of the purchase price between other assets and the spares.
What is the accounting treatment for ‘other assets’?
The main consideration for the accounting treatment of these assets, which include spare parts, rotables and
repairables, is whether these meet the criteria for capitalisation as equipment or whether they should be treated as
inventory. The principal difference is normally whether the items are consumed within the following period or will
generate sales or cash directly for the business, in which case this would suggest they are classed as inventory, while
items which will be used over more than one period and meet the criteria of IAS 16 would be considered fixed assets.
How are costs relating to modifications to aircraft recognised?
Modifications to aircraft subsequent to purchase may be capitalised if they meet the recognition criteria of IAS 16: it is
probable that future benefits associated with the item will flow to the entity and the cost of the item can be measured
reliably; otherwise the costs are deemed as relating to routine maintenance and are recognised in the income
statement as they are incurred.
Examples of modifications that could qualify for recognition as assets include:
• In-Flight Entertainment (IFE)
• Retro-fitting of Wi-Fi or other technology on existing aircraft
• Cabin refurbishment
• Enhancements to airframe or engine
• Retro-fitting of winglets and sharklets
The existing assets being replaced or upgraded should be reviewed to ensure that they are either written off or their
useful lives revised or maintained at current values depending on the underlying facts.
3. Recognition of other associated assets
Aircraft and engine spares acquired on the introduction
or expansion of a fleet, as well as rotable spares
purchased separately, are carried as property, plant and
equipment and generally depreciated in line with the
fleet to which they relate.
Major overhaul expenditure, including replacement
spares and labour costs, is capitalised and amortised
over the average expected life between major
overhauls. All other replacement spares and other costs
relating to maintenance of fleet assets (including
maintenance provided under ‘pay-as-you-go’ contracts)
are charged to the Income Statement on consumption
or as incurred respectively.
Example disclosure:
International Airlines Group 2014 Annual Report
Repairable spare parts for aircraft are held at continually
adjusted prices based on average acquisition costs. For
measurement purposes, spare parts are assigned to
individual aircraft models and depreciated on a straight-
line basis depending on the life phase of the fleet
models for which they can be used.
Example disclosure:
Lufthansa Group 2014 Annual Report
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