What is useful life?
Useful life is an estimate of how long an asset will benefit the business, not necessarily how long it will physically last. A laptop might work for eight years, but a business that replaces laptops every three years should use a three-year useful life.
Factors in estimating useful life
- Expected usage and wear and tear
- Technological or commercial obsolescence
- Legal or contractual limits, such as lease terms or licence periods
- Maintenance and repair policy
- Past experience with similar assets
Typical useful lives (guidelines only)
- Computers and phones: 3 to 5 years
- Office furniture: 5 to 10 years
- Vehicles: 4 to 8 years
- Machinery: 5 to 15 years
- Buildings: 20 to 50 years
- Land: not depreciated
Reviewing useful life
IAS 16 requires the useful life and residual value to be reviewed at least at each year-end. A change is treated as a change in estimate and applied going forward, not backdated.
Example
A machine costing $60,000 was expected to last 10 years ($6,000 a year). After four years, with a [book value](/glossary/book-value) of $36,000, the business expects only three more years of use. Depreciation rises to $12,000 a year from year five.
Accounting vs tax lives
Tax rules often prescribe their own lives or rates, which may differ from accounting estimates.