Determine useful Life of an Asset | IAS-16 | Property, Plant & Equipment | Accounting Standards

In this video, we will discuss how you can determine the useful life of an asset.

It is important to be able to decide the duration over which the property, plant, and equipment are useful. It is on this basis that the yearly depreciation is decided. Accruing this expense accurately is essential to show an accurate depiction of the expenses for the period and in extension the resulting profit.
It is also important to follow the relevant accounting standards in order to make sure that the financials are comparable.

The standard IAS 16 states that the useful life of an asset is determined based on the expected utility of that asset to an entity.
The useful life is either :
1) The period over which an asset is expected to be available for use by an entity. Example - the management of a company expects that all vehicles purchased will be available for use 6 years and will no longer have any utility, therefore the useful life of the asset will be 6 years and will have to be depreciated over this period, or
2) The number of production or similar units expected to be obtained by that entity.
Example - A toy manufacturing company may own a machine that assembles the toys, and this machine can assemble 20,000 units over its life, after which it begins to have major maintenance problems, deeming it useless. Therefore the useful life of this machine is for as long as it assembles 20,000 units, and will be depreciated every year based on how many units it produces.
So, the useful life is specific to the individual asset and individual entity.

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[rp]

Realy useful video Thank you so much, sir.
sir I am Indian CA Final Student recently planning to shift to Dubai, can you please reply to me here in the comment section on the Important IAS most used in UAE ( Dubai ) business so that Accordingly I can prepared for Interviw ( like IAS 2, 7, 16, 23, IFRS 15 / 16 )

thank you