How do you determine the useful life of an asset?

You have a few options when calculating the useful life of your industrial assets.

Easy Method – Consult the IRS

The simplest way, ironically, is to simply consult the IRS.

IRS Publication 946, Appendix B, lists useful life estimates by industry and application. These estimates can be used as a baseline for the useful life of your assets, and they’re typically used when calculating depreciation for tax purposes.

IRS estimates are also useful when making maintenance decisions—if you can no longer claim tax benefits from asset depreciation, it may be less worthwhile to repair it.

Manufacturer Specifications

Let’s say you want to get more precise, though. The manufacturer may supply data that can help you estimate an asset’s useful life.

Sometimes, it’s not as straightforward as “X” number of years. You might be given something in hours or number of cycles. That data is still useful, though. By knowing the expected number of uses, cycles, hours of operation, etc., you can make calculations based on your own daily usage.

Past History

If you have used similar pieces of equipment in the past, the average lifespans of those assets can further inform your useful life estimates. If certain machines tend to last longer in your operations than the manufacturer’s specifications would indicate, you’ll know to factor in a few extra years for similar equipment.

Annual Adjustments

As you operate your equipment, it will wear out, and you might have some failures. If the asset is poorly maintained, you’ll likely have a shorter useful life. Significant failures in the asset should be factored into your useful life estimates as they occur.

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Economic changes may be an issue as well. Your processes might grow or change focus, rendering a piece of equipment obsolete. New technologies may be developed that require upgrades.

Each of these calculation methods relies heavily on speculation and past data. As such, you will need to make sure you’re keeping tabs on all assets in your operations, such as with a CMMS. More than anything else, that will help you make precise useful life estimates.