What are the factors that influence the estimation of service life for depreciable assets?
2007-11-14 00:50:06 · 4 answers · asked by ameri0903 3 in Business & Finance ➔ Other - Business & Finance
Determining the service life of an asset is an essential first step in calculating the amount of depreciation attributable to a specific period. Several factors must be considered:
Physical deterioration -- "Wear and tear" will eventually cause most assets to simply wear out and become useless. Thus, physical deterioration serves to establish an outer limit on the service life of an asset. A machine that is worked 3 shifts will naturally wear out faster than an identical one which is worked 1 shift.
Obsolescence -- The shortening of service life due to technological advances that cause an asset to become out of date and less desirable.
Inadequacy -- An economic determinant of service life which is relevant when an asset is no longer fast enough or large enough to fill the competitive and productive needs of a company.
Factors such as the above must be considered in determining the service life of a particular asset. In some cases, all three factors must be considered. In other cases, one factor alone may control the determination of service life. Importantly, you should observe that service life can be completely different from physical life. For example, how many computers have you owned, and why did you replace an old one? In all likelihood, its service life to you had been exhausted even though it was still physically functional.
Recognize that some assets have an indefinite (or permanent) life. One prominent example is land. Accordingly, it is not considered to be a depreciable asset.
2007-11-14 01:53:16 · answer #1 · answered by Sandy 7 · 0⤊ 0⤋
The sorts of factors taht would influence the estimation of useful life would be wear and tear, through physical use, technical obsolescence or commercial obsolescence.
2007-11-14 02:32:41 · answer #2 · answered by missyme66 2 · 0⤊ 0⤋
Most of the time you will go by what the IRS outlines as usable service life. (see IRS Pub. 946). Vehicles and hi-tech equipment are normally 5 years, office furniture 7 years and so on.
2007-11-14 00:56:55 · answer #3 · answered by Anonymous · 0⤊ 0⤋
the emergence of new technologies
2007-11-14 00:53:01 · answer #4 · answered by yusdz 6 · 0⤊ 0⤋