Question

What are factors to be considered in estimating the useful life of an intangible asset?

Short answer

The useful life of identical assets varies for each user and is determined by the asset’s age, frequency of usage, business climate, and asset repair strategy. Expected technology advancements, legislative changes, and economic changes are all variables that impact an asset’s useful life.

Step-by-step solution

Definition of Intangible asset

An identified non-monetary item with no physical substance is known as an intangible asset. It is identifiable when an asset is separable or comes from contractual or other legal rights.

Factors to be considered in estimating the useful life of an intangible asset

1.) The entity’s anticipated use of the asset.

2.) The predicted useful life of another asset or a group of assets could be linked to the intangible asset’s useful life.

3.) Any legal, regulatory, or contractual constraints that might limit the usable life of the item.

4.) Any legal, regulatory, or contractual arrangements that allow the asset’s legal, contractual life to be renewed or extended without incurring significant costs.

5.) Obsolescence, demand, competitiveness, and other economic considerations.

6.) The amount of maintenance necessary to get the asset’s estimated future cash flows.