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The useful life of an asset.

Last month we discussed depreciation, an accounting method that allows a company to allocate the costs of an asset over its life.

In accounting, the period of time over which an asset is to be depreciated is referred to as its useful life i.e. the period of time over which the asset is expected to be in use. The determination of what constitutes an asset’s useful life depends on the outlook of the owner. For example, the owner of a computer may intend to use the computer until the computer itself is physically unable to function. Alternatively, the owner may intend to use the computer as long as it economically viable to do so from the point of view of technologically advances. As technologically changes and advances rapidly, the useful life of the computer will be shorter if the owner has the second outlook or intention with regards to the computer.

In the US, the Internal Revenue Service (“IRS”) has prepared a depreciation table covering almost every item and this list can be used to determine the useful life of an asset.