Hi, this follow up question may come a bit too late from the original post, but still hope someone can help.
Specifically, this has to do with the airlines industry, where leased aircraft, and sometime purchased aircraft, have major future maintenance costs associated with them, for the life of the asset. These costs often are detailed in the lease agreements, or maintenance agreement in the case of purchased aircraft. The maintenance costs, therefore should be provisioned for.
But since the provision will be quite large, and are spread over a long period of time, I imagine we should not expense the whole amount upfront in year when the assets are acquired (leased or otherwise). How should I treat this provision in the first year, and how should I "expense" them when the cost are due. Should I book a corresponding asset account (pre-payment?) against the provision entry in the first year? Then as the aircraft as used (by hour flown), amortize that assets account against a reversal of the original provision? In this case, should I also book an expense against cash to recognize the actual maintenance expenses?
Thanks for your help!