Estimated Useful Life
Length of service that a business expects to get from an asset. May be expressed in years, units of output, miles, or other measures
Estimated useful life is the term used to describe the number of years or the amount of time an asset is expected to be useful before it becomes obsolete or no longer viable. It is a key concept in accounting, finance, and business valuation.
The estimated useful life of an asset depends on various factors such as the nature of the asset, economic conditions, maintenance, and repairs, technological innovation, and the level of usage. For instance, machinery and equipment have a shorter useful life due to wear and tear and technological advancements. On the other hand, building and land have a longer useful life due to their durability and limited exposure to obsolescence.
In determining the estimated useful life of an asset, various methods can be used, including the straight-line depreciation method, the declining balance depreciation method, and the sum-of-the-year’s digits depreciation method.
It is important to note that the estimated useful life is an estimation, and the actual useful life may vary depending on unforeseeable factors such as changes in market conditions or consumer preferences. Therefore, regular reviews of the useful life estimates are crucial to ensure that they remain relevant and accurate.
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