Useful Life Definition

Useful Life is the expected lifespan of a depreciable Asset.

Useful Life is a term referred to the estimated lifespan of an Asset, it is the number of years an Asset is expected to be functional and fit for company purpose. Alternative names given to Useful Life can be Service Life or Economic Life. An Assets Useful Life is a crucial factor in calculating the rate of its depreciation.

Depreciation is a way of reducing the monetary value of a Tangible Asset expected to last more than tweleve months, by doing so a company does not assign the entire cost of an Asset to one accounting period but rather spreads the cost accross many. This allows us to systematically allocate the cost of an Asset over its useful life and so its value will correlate to the level of its consumption or remainder lifespan.

There are many factors which will affect the Useful Life of an Asset, for example:
Wear and Tear
Technological Advancements

When a company estimates the useful life of an Asset will be based on the amount of time the Asset will be of use to the company rather than the entire lifespand. This can also be susceptible to change, for example a change in company circumstances or an advancement in technology may render an Asset obsolete years prior to its estimated Useful Life.

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