What is Economic Life: The economic life of an asset is a measure or prediction of the remaining time it can be used economically. This may be shorter than its actual service life because it may reach the point where its operating cost exceeds its productivity.
What Is Economic life Principles
The principle of economic life is the same as that of depreciation, although these two figures may differ due to legal accounting restrictions.
The economic life of an asset is a measure of the remaining time it can be used economically or the concept of predicting the economic life of an asset is familiar to anyone because it is scrapped for reasons other than wanting a new model or giving up driving As the car ages and needs more repairs, the number of cars will increase.
Increase Taxes Or Increase Insurance
It may also increase taxes or increase insurance premiums. At the same time, if the car must travel at a slower speed or take more time to repair, then it may not be so useful. Ultimately, the driver will decide that the benefits he or she derives from owning the car do not justify the running costs.
A company will look at physical assets in the same way. In theory, a machine can still be used for several years at its operating cost after stopping production to prove its rationality.
A computer can still work, but it may have slowed down so that its productivity is not enough to justify the time employees spend using it. Economic life is just a prediction, based on a general and predictable recession. Based on the model, unpredictable factors may affect the economic life of an asset.
If the market price of small parts plummets, a small part manufacturing machine may become unusable overnight. Alternatively, the government may make it illegal to use small parts to make machines unless the dominant part is replaced by steel.
What Is Economic Life Factors Types
These types of factors are not always included in the economic life forecast, but there are some exceptions.
For example, when an economist evaluates the economic life of an injection mold used to make a soda can and an injection mold used to make a specific mobile phone, he may predict that the latter will have a shorter economic life.
This is because even if the price of mobile phones is higher, each model of the product is more likely to experience a decline in sales due to aging or even obsolescence, making this type of mold useless. The soda beverage market may remain relatively stable, and even if the popularity of individual brand changes, such molds may still be available.
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