Useful Life

The useful life of an asset is the period of time over which it is expected to be used by a company. This is an important factor in determining the depreciation expense that will be recorded each year.

There are two main methods for calculating useful life:

* The straight-line method: This method assumes that the asset will be used evenly over its useful life. The depreciation expense is calculated by dividing the cost of the asset by its useful life.
* The declining-balance method: This method assumes that the asset will be used more heavily in the early years of its life. The depreciation expense is calculated by multiplying the book value of the asset by a depreciation rate. The depreciation rate is usually a fixed percentage, such as 20% or 15%.

The useful life of an asset can be affected by a number of factors, including:

* The type of asset: Some assets, such as buildings, have a longer useful life than others, such as computers.
* The way the asset is used: An asset that is used heavily will have a shorter useful life than an asset that is used less heavily.
* The expected technological obsolescence of the asset: An asset that is likely to become obsolete quickly will have a shorter useful life than an asset that is not likely to become obsolete as quickly.

The useful life of an asset is an important factor in financial reporting. It is used to determine the depreciation expense that will be recorded each year. The depreciation expense affects the company's net income and its cash flow.