What is the economic life?

What is Economic Life? Economic life is the expected period of time during which an asset remains useful to the average owner. When an asset is no longer useful to its owner, then it is said to be past its economic life. The economic life of an asset could be different than its actual physical life.

Also, What is the economic service life?

The “economic service life” is the useful life of a defender, or a challenger, that results in the minimum equivalent annual cost of owning & operating the asset.

Hereof, What is the difference between economic life and useful life?

Useful life is how long the tool will do what it is intended to do, life measured in time or in number of uses. For instance, how long a dump truck will haul and dump dirt. Economic life is how long the tool or equipment will do what it is intended to do at a cost that is comparable to alternatives.

Also to know What is the economic life of a vehicle? Economic life is the period over which an entity expects to be able to use an asset, assuming a normal level of usage and preventive maintenance. Economic life can also refer to the number of units produced; for example, the economic life of a vehicle may be 100,000 miles, rather than three years.

What is the balance economic life of the building?

Economic life refers to the amount of time an element is in service before its replacement is more advantageous economically than the continued maintenance that will be required to keep it in service.

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How is EUAC calculated?


How to Calculate the EUAC

  1. Raise 1 + Interest Rate to the Power of n. …
  2. Subtract 1 from the Result. …
  3. Divide the Result. …
  4. Multiply the Result by the Interest Rate. …
  5. Calculate the EUAC. …
  6. Calculate Annualized Salvage Value. …
  7. Calculate Updated EUAC.

What is the economic life of a car?

The principal findings of this study are that passenger cars used in business fleets have an adjusted equivalent economic life of 2.8 years, and that non-fleet business-use passenger cars have an adjusted equivalent economic life of 4.5 years.

How do you calculate useful life?

Subtract the estimated salvage value (the estimated resale value of an asset at the end of its useful life) of the asset. It easiest to use standard use of life for each class of assets. Determine the estimated useful life of the asset. It is easiest to use a standard useful life for each class of assets.

What is useful life in accounting?

The useful life of an asset is an accounting estimate of the number of years it is likely to remain in service for the purpose of cost-effective revenue generation. The Internal Revenue Service (IRS) employs useful life estimates to determine the amount of time during which an asset can be depreciated.

What are the examples of economic activities?

Primary economic activities include agricultural activities (both commercial and subsistence), forestry, mining, grazing, quarrying, fishing, hunting as well as gathering. Processing raw material and their packaging are also included under this sector.

What is meant by evolution of economic life?

What Is Evolutionary Economics? Evolutionary economics is a theory proposing that economic processes evolve and that economic behavior is determined both by individuals and society as a whole. The term was first coined by Thorstein Veblen (1857-1929), an American economist and sociologist.

What is the formula of payback period?

To calculate the payback period you can use the mathematical formula: Payback Period = Initial investment / Cash flow per year For example, you have invested Rs 1,00,000 with an annual payback of Rs 20,000. Payback Period = 1,00,000/20,000 = 5 years. … For example, you have invested Rs 2,00,000 in a project.

What is cash flow formula?

Cash flow formula:

Free Cash Flow = Net income + Depreciation/Amortization – Change in Working Capital – Capital Expenditure. Operating Cash Flow = Operating Income + Depreciation – Taxes + Change in Working Capital. Cash Flow Forecast = Beginning Cash + Projected Inflows – Projected Outflows = Ending Cash.

How is annual Uniform cost calculated?


How to Calculate the Equivalent Annual Cost

  1. Take the asset price or cost and multiply it by the discount rate.
  2. The discount rate is also called the cost of capital, which is the required return necessary to make a capital budgeting project, such as building a new factory, worthwhile.

What are the 3 methods of depreciation?

Your intermediate accounting textbook discusses a few different methods of depreciation. Three are based on time: straight-line, declining-balance, and sum-of-the-years’ digits. The last, units-of-production, is based on actual physical usage of the fixed asset.

What is straight line method?

Straight line basis is a method of calculating depreciation and amortization, the process of expensing an asset over a longer period of time than when it was purchased. It is calculated by dividing the difference between an asset’s cost and its expected salvage value by the number of years it is expected to be used.

How do you calculate scrap value?


Calculate Scrap Value of an Asset -SLM/WDV

  1. To Calculate Scrap Value of an Asset = Cost of Asset – Total Depreciation.
  2. Related Topic – More Assets Related Questions and Answers.
  3. Written Down or Diminishing Balance Method.

What is the useful life of equipment?

The useful life is defined as the period of time over which the equipment will depreciate. If the useful life for your equipment is known to be different than the general useful life applied, please let the Capital Asset Accounting team know on the tag report.

What is depreciable amount?

Depreciable amount is the cost of an asset, or other amount substituted for cost, less its residual value.

How is depreciation rate calculated?


Straight-Line Method

  1. Subtract the asset’s salvage value from its cost to determine the amount that can be depreciated.
  2. Divide this amount by the number of years in the asset’s useful lifespan.
  3. Divide by 12 to tell you the monthly depreciation for the asset.

What are 5 examples of economic activities?

Activities associated with primary economic activity include agriculture (both subsistence and commercial), mining, forestry, grazing, hunting and gathering, fishing, and quarrying. The packaging and processing of raw materials are also considered to be part of this sector.

What are 10 economic activities?

Economic activities:

Transportation,Mining,Manufacturing,Production,Banking,Distribution,Consumption,Farming,Cultivation,Livestock keeping.

What are 5 economic activities?


Five Categories of Economic Activity

  • Raw Materials and Primary Sector Jobs. Physical resources that are coaxed or extracted from the earth provide the basis for the primary sphere of economic activity. …
  • Manufacturing and Industry. …
  • The Service Industry. …
  • The Intellectual Sector. …
  • The Quinary Sector.

How is useful life calculated?

Subtract the estimated salvage value (the estimated resale value of an asset at the end of its useful life) of the asset. It easiest to use standard use of life for each class of assets. Determine the estimated useful life of the asset. It is easiest to use a standard useful life for each class of assets.

How do you calculate useful life?

How to determine the useful life of an asset. Most commonly, the depreciation of assets is calculated by dividing the cost of the asset by the estimated number of years in its life.