An asset’s useful life is the period it’s planned to be used – normally longer than 12 months for it to be part of property, plant and equipment.

When you purchase an asset and you’ve initially accounted for it (the asset and the respective liability), there are numerous things you ought to determine for the asset to account for it subsequently. 

One of the things you must determine is the assets useful life – the period during which the asset is believed to bring economical benefits to the company (i.e. be part of the business to generate revenue or reduce cost). This is the period the company plans to use the asset until it’s to be utilized.

Determining the asset’s useful life encompasses a few things:

• Understanding the asset in general and it’s commonly known useful life (i.e. you cannot expect to use a computer for 10 years nowadays);
• Knowing the needs of your business, i.e. when it’s time and need for a reinvestment or renovating your business (and whether this asset will be replaced as a part of it or not);
• Knowing your financial possibilities for a new investment to find a replacement for the asset – as it happens, it’s not always to have the newest equipment just because you want to have it. Sometimes the financial abilities, funds for the investment are limited and as such you may be required to use the asset for a longer period (yet still not exceeding it’s maximum life) than you initially vision.

When determining the asset’s useful life, take into consideration all of those factors and what’s more, in the exact same order. If you don’t know your business’ exact needs for reinvestment, just take into account the first and the last factor and so on. Most important thing is to not exceed the assets maximum usage period (as we made an example above about computers).