Useful life
Useful life is the period (or expected output) during which an asset is likely to be used and bring benefits to your business. It’s a management estimate used to spread the asset’s cost over time through depreciation (for equipment and vehicles) or amortisation (for intangible assets). The useful life can be set in years or based on units of use, such as hours run or items produced.
Simple example
Buy a delivery van and expect to use it for five years; you spread its cost, minus any estimated resale value, over those five years. If usage is based on mileage, you could depreciate per mile instead.
Useful life is an estimate, not the same as a warranty or legal limit. Review it regularly; if your plans or usage change, adjust depreciation for future periods. If an asset becomes obsolete or is damaged sooner than expected, you may need to write it down separately from normal depreciation.
When deciding the useful life, think about:
- How much and how intensively the asset will be used.
- Wear and tear, maintenance, and storage conditions.
- Technological change and the risk of obsolescence.
- Legal or contractual limits on use.
- Your replacement policy and likely residual value.
