Definition of Economic life:
Estimating the economic life of an asset is important for businesses so that they can determine when it's worthwhile to invest in new equipment, allocating appropriate funds to purchase replacements once the equipment's useful life is met.
Period over which an asset (machine, property, computer system, etc) is expected to be usable, with normal repairs and maintenance, for the purpose it was acquired, rented, or leased. Expressed usually in number of years, process cycles, or units produced, it is usually less than the assets physical life, and is the period over which the assets depreciation is charged. Also called average life, service life, effective life, mean life, or useful 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. Thus, an asset can be in optimal physical condition but may not be economically useful. For example, technology products often become obsolete when their technology becomes obsolete. The obsolescence of flip phones occurred due to the advent of smartphones and not because they ran out of utility.
How to use Economic life in a sentence?
- Financial considerations required for calculating the economic life on asset include its cost at the time of purchase, the amount of time an asset is used in production, and existing regulations pertaining to it.
- The economic life of an asset is the period of time during which it remains useful to its owner.
- There may be interdependencies in the economic life of two assets in which the life of one depends on the lifespan of another.
Meaning of Economic life & Economic life Definition