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Useful Life: Definition and Meaning
Definition
Useful life is the estimated period during which an asset is expected to be used in operations or provide economic benefit.
Why It Matters
Useful life is used in determining how a long-term asset’s cost is allocated through depreciation or amortization. It may be influenced by expected usage, wear and tear, maintenance practices, technology changes, legal rights, contract terms, and replacement plans.
Useful life for financial reporting may differ from tax recovery periods. Businesses should keep support for key assumptions and review them when circumstances change.
Example
A company estimates that a vehicle will be used in operations for five years. That five-year period may be its estimated useful life for book depreciation.
Related Terms
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