Useful life
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1. Financial reporting.
The length of time an asset is in use.
The asset should be depreciated over its useful life.
Under IFRS, IAS 16, factors relevant to determining a useful life include:
- (a) Expected usage,
- (b) Expected wear and tear,
- (c) Technical or commercial obsolescence,
- (d) Legal or regulatory limits on use (IAS 16, para 56).
It is for the management of the reporting company to evaluate these factors and make their determination, subject to audit if the company's accounts are audited.
Industry norms would certainly be relevant as well.
Tax rules generally differ from the accounting rules, with the tax rules being much more prescriptive.
Useful life is also sometimes known as useful economic life.
- Estimation of useful life for IAS 16 financial reporting is a matter of judgement
- "The useful life of an asset is defined in terms of the asset’s expected utility to the entity.
- The asset management policy of the entity may involve the disposal of assets after a specified time or after consumption of a specified proportion of the future economic benefits embodied in the asset.
- Therefore, the useful life of an asset may be shorter than its economic life.
- The estimation of the useful life of the asset is a matter of judgement based on the experience of the entity with similar assets."
- IAS 16 - Property, plant and equipment - paragraph 57.
2. Treasury - capital management - asset management.
Similar concepts in wider economic, business and operational contexts.
See also
- Accounting
- Amortisation
- Asset management
- Audit
- Business
- Capital management
- Depreciating asset
- Depreciation
- Economic life
- Economics
- Financial reporting
- IAS 16 (Tangible assets - Property, plant and equipment)
- IAS 38 (Intangible assets)
- Impairment
- Intangible assets
- International Financial Reporting Standards (IFRS)
- Judgement
- Life
- Operations
- Property, plant and equipment
- Reporting entity
- Short life asset
- Tangible
- Tax depreciation
- Treasury
- Useful economic life
- Utility
