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What's the difference between economic and useful life for long term assets ? And which is more appropriate to use to determine depreciation method?

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Question added by Mohamed Azmy , Finance Manager , Napata
Date Posted: 2016/02/28
Fathi Matbaq
by Fathi Matbaq , Senior Purchasing Officer , Alghanim Industries

As per IAS16 ; depreciation is the systematic allocation of the depreciable amount of an asset over its USEFUL LIFE. So, useful life is appropriate to use a depreciation method. Useful life is the period over which an asset is expected to be available for use by an entity, or the number of production or similar units expected to be obtained from the asset by an entity. Economic life can be defined as the time after which money is saved by abandoning the asset. To calculate economic life a financial analysis has to be made of profitability (cash flows) and market value of the asset in future years.

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