Question

what are some of the variables that make a plant asset useful life difficult to predict?

Answer 1

Some of the Variables that make a plant asset useful life difficult to predict are as follows:-

a) Wear and tear

b) Inadequacy

c) Obsolescence

A Brief explanation about the above are given below.

Wear and tear:- Any damage or any condition of a machine which occurs due to ordinary use during the life of an asset is called as wear and tear of the Plant asset. In general even we put to use a machine or left ideal for some years the machine may lose its capacity to work. But it cannot be estimated or valued perfectly or scientifically. These all are based on some assumptions or based on previous experiences.

Inadequacy:- In general meaning adequate means, the quantity or quality of assets we have is enough to run the business. where inadequacy means the plants or machines which we have with our factory are not enough to run our business. For example if we are running a small business with a machinery of medium size capacity and we are going to expand our business to meet demand for our product and the same old Medium size capacity machine will become inadequate to meet our demand levels.

Obsolescence:- It means becoming outdated or the machine or procedure is no longer used in present days. If a plant or machinery becomes old model or the technology used in production became out dated because of entry of new advanced technology in the market then the old plant which is being used up to now is said to be obsolete.

The above three situations are not identifiable and at the same time we cannot estimate when the situation occurs. It completely depends upon the forces of external business environment that greatly effects the one's business organization. So, these variables make a plant useful life more difficult to predict