Useful life is defined as the number of years depreciable business property is expected to be productive and in use. In comparison to other types of equipment, the useful life of the equipment we appraise - high-technology, medical, computer, telecommunications and scientific equipment - is relatively short. This type of equipment is subject to a higher degree of functional, technological and economic obsolescence due to rapid technological developments experienced by these industries.
The ongoing use of aged equipment can have an adverse effect on the quality of services, especially in the case of medical equipment. These assets will have to be replaced or upgraded at some point in time, usually more frequently than others. Thus, it is more important to identify the life expectancy of each asset than to just keep an eye on its physical condition.
Following is a list of factors that can influence the equipment's life expectancy in general:
Remaining useful life
represents the portion of the expected useful life of an asset, running
from the date of the appraisal to the end of the economic use of the asset.
Considered to be the major variable for arriving at a reasonable current
value of the equipment, the remaining useful life is determined by looking
at two fundamental factors, physical deterioration and functional obsolescence.
Physical deterioration is the wear from use of the asset during its operating
life, and functional obsolescence is obsolescence due to technological factors,
inadequacy, inefficiency and/or excessive operating costs.
Life expectancy is normally established prior to purchase based on the manufacturer's information, in-house and external product knowledge and technical expertise. It is a highly variable factor determined by the type of use the equipment will receive, and is always a critical factor in supporting any business case for large capital purchases.
