Question

When determining the useful life of an asset, which of the following must one consider?

i. Expected usage of the asset.

ii. Expected physical wear and tear.

iii. Technical, or commercial obsolescence

iv. Legal, or similar, limits on the use of the asset

v. Interest rates.

Answer 1

The correct answer for the question is:-

Optoin ii - Expected physical wear and tear. The expected usage of the asset and its expected wear and tear are to be considered in determining the useful life.

Option iii - Technical, or commercial obsolescence. The technical or commercial obsolescence of the asset needs to be considered in arriving at the useful life of the asset.

Option iv - Legal, or similar, limits on the use of the asset . In different geographies around the world, there might be different provisions or statues with respect to the varying lives of the asset which should be considered in determining the useful life of the asset.

The following options are incorrect :-

Option i - Expected usage of the asset does not play a role in determining the useful life of the asset. The expected usage of the asset is subjective and hence cannot be considered in determining the useful life of the asset.

Option v - Interest rates are incorrect way in determining the useful life of the asset.  

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