Introduction to the useful life of the asset
A tangible non-current asset comprises both a physical life and an economic life. The physical life will be used up by the influences of wear and tear and/or the passage of time. Though, it is feasible for the physical life to be comprehensive considerably by careful maintenance, enhancements and so on. The economic life is decided through the influences of technological progress and through changes in demand. Soon, the advantages of using the asset might be less than the costs included. This might be since the asset is unable to compete with newer assets, or due to it is no longer relevant to the requirements of the business. The economic life of a non-current tangible asset might be much shorter than its physical life. For instance, a computer might have a physical life of eight years and an economic life of three years.
Residual value (disposal value)
While a business disposes of a tangible non-current asset which may still be of value to others, some payment might be received. This payment will present the residual value, or disposal value, of the asset. To compute the total amount to be depreciated, the residual value have to be subtracted from the cost (or fair value) of the asset. The possible amount to be received on disposal can again be hard to predict. The best guide is frequently past experience of identical assets sold.
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