What is Economic Life?
What is depreciation rate?
What changes in industry standards or regulations may also be involved?
What are the financial considerations of the economic life of an asset?
Why is it important to know the economic life of an asset?
Who is Ebony Howard?
Is the economic life of one asset tied to the useful life of another?
See 4 more
About this website
How is economic life calculated?
The economic life of an asset is the period of time during which it remains useful to its owner. 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.
How do you calculate economic life of a machine?
The time that would do that is known as its economic service life (also called its minimum cost life) and it is found by calculating the asset's annual worth over various time periods and selecting the time that corresponds with the lowest AW value.
How many years is the economic life of a building?
Commercial and residential building assets can be depreciated either over 39-year straight-line for commercial property, or a 27.5-year straight line for residential property as dictated by the current U.S. Tax Code.
What is the economic life of a project?
Economic life refers to the length of time an asset is expected to be useful to the owner. It is also called useful life or depreciable life. The measure of an asset's usefulness is how profitable it is to keep – in other words, how long an asset generates more income than it costs to maintain and operate.
What are the examples of economic life?
Economic life may also be defined as “the time after which money is saved by abandoning and replacing an asset.” An asset's economic life might be measured in years or other units. For example, the economic life of a bus or truck might be 300,000 miles.
What is another name for economic life?
Synonyms for economic life in English economic life; trade and industry; business. economic life; industrial life; trade and industry.
What is total economic life on an appraisal?
Economic life is the length of time during which a piece of property may be put to profitable use, usually less than its physical life.
What is the average economic life of a house?
Ideally, the average lifespan of any concrete structure is 75-100 years.
What is difference between economic life and useful life?
Economic life refers to the length of time an asset is expected to be useful to the owner. It is also called useful life or depreciable life. The measure of an asset's usefulness is how profitable it is to keep – in other words, how long an asset generates more income than it costs to maintain and operate.
What is the basic question of economic life?
In order to meet the needs of its people, every society must answer three basic economic questions: What should we produce? How should we produce it? For whom should we produce it?
What are the three phases of economic life?
Stages of Economic Growth and Economic Development Still, most development economists agree that the key stages of development are related to three different transitions: a) a structural transformation of the economy, b) a demographic transition, and c) a process of urbanization.
What is meant by economic useful life of a machine?
Economic useful life is a metric that helps answer questions like, “How long will this equipment be used for?” or “When does it stop making sense to continue to use the equipment?” Simply put, economic useful life calculates how well your equipment will maintain its effectiveness during the time you are leasing it.
How do you calculate the average useful life of equipment?
The average life can be calculated by dividing accumulated depreciation by the current year's depreciation expense. Thus, $300,000 divided by depreciation expense is 15 years.
What is the economics of machine?
The economics of precision machining can be understood with four factors: machining cost, material cost, tool cost, and cost of non-productive time (setup costs). The line labeled “machining cost” (made up of labor and overhead cost of time per piece) reduces with increasing speed by reducing operating (cycle) times.
What is the economy of machine?
The M2M, or machine-to-machine, economy is one where the smart, autonomous, networked and economically independent machines or devices act as the participants, carrying on the necessary activities of production, distribution, and allocation with little to no human intervention.
Effective Age vs Economic Life | Real Estate Exam - PrepAgent.com
Effective age is the age of a property based upon its condition, not its actual age. If an appraiser examines a building that is 25 years old, but because of superior upkeep has the condition of an 11-year-old building, the appraiser may use the 11-year-old age as the effective age of the property.
What is difference between economic life and useful life? - Quora
Answer (1 of 3): Update: I missed the point of the question. Surely it refers to tools and equipment and I entirely missed that. Useful life is how long the tool will do what it is intended to do, life measured in time or in number of uses. For instance, how long a dump truck will haul and dump ...
Difference between Economic Life and Physical Life - LetsLearnFinance
When a company buys an asset it takes into consideration many things like cost of the asset, use of the asset, life of an asset but out of all things, the life of an asset is the most important aspect as far as business is concerned.
Economic life Definition & Meaning - Merriam-Webster
economic life: [noun] the period during which an economic good retains its utility.
What is the difference between REL and effective age?
The REL is the difference between the estimated total economic life and the estimated effective age. A well-maintained property has a low effective age and a high REL, whereas a property in disrepair will have a high effective age and a low REL. In short, it is a quick and easy way to estimate straight-line physical depreciation.
What is the useful life of a building?
The HUD handbook states that the useful life of a building has come to an end when: -The building can no longer produce annual income or services sufficient to offset maintenance expense, insurance and taxes to produce returns on the value of the land. -Rehabilitation is not feasible.
Does UWM waive mortgage insurance?
UWM rolled out a new purchase product that will waive mortgage insurance payments if a borrower opts for a 10% down payment. But the catch appears to be higher interest rates. HW+ Premium Content
When does a structure reach the end of its economic life?
As such, a structure that is sound and in good physical condition with many years of physical life remaining may reach the end of its economic life if its remaining years of physical usefulness are not profitable.
Who wrote the book The Reverse Review?
Written by Bill Waltenbaugh, as originally published in The Reverse Review.
What is Economic 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.
What is depreciation rate?
Depreciation refers to the rate at which an asset deteriorates over time. The depreciation rate is used to estimate the effects of aging, daily use, and wear and tear on the asset. When related to technology, depreciation can also include the risk of obsolescence .
What changes in industry standards or regulations may also be involved?
Changes in industry standards or regulations may also be involved. New regulations may render current equipment obsolete or raise the required industry standards for an asset beyond the specifications of a business's existing assets. Further, the economic life on one asset may be tied to the useful life of another.
What are the financial considerations of the economic life of an asset?
Financial considerations regarding the economic life of an asset include the cost at the time of purchase, the amount of time the asset can be used in production, the time at which it will need to be replaced, and the cost of maintenance or replacement.
Why is it important to know the economic life of an asset?
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.
Who is Ebony Howard?
Ebony Howard is a certified public accountant and a QuickBooks ProAdvisor tax expert. She has been in the accounting, audit, and tax profession for more than 13 years, working with individuals and a variety of companies in the health care, banking, and accounting industries.
Is the economic life of one asset tied to the useful life of another?
Further, the economic life on one asset may be tied to the useful life of another. In cases where two separate assets are required to complete a task, the loss of one asset may render the second asset useless until the first asset is repaired or replaced.
What is depreciated cost technique?
The Depreciated Cost technique is based upon knowing the percentage of cost new being paid by the market. In the URAR, this percentage is the same as the ratio of Remaining Economic Life to Economic Life. Also in the URAR:
What is the term for the ratio between the effective age of a building and its total economic life?
“ A method of estimating depreciation in which the ratio between the effective age of a building and its total economic life is applied to the curent cost of the improvements to obtain a lump-sum deduction; also known as the economic age-life method ”
What is loss in property value?
“ a loss in property value from any cause; the difference between the cost of an improvement on the effective date of the appraisal and the market value of an improvement on the same date ”
What is AH 581?
As addressed throughout this training, AH 581 contains index, percent good, and valuation factor tables for various types of equipment that are used by California county assessors in valuing personal property and fixtures for property tax purposes. Table 4 for percent good factors (discussed in Lesson 3) requires selection of a service life in order to utilize the table. The California Assessors’ Association (CAA) publishes an extensive list of economic lives for equipment by category, which is used by assessors in selecting the appropriate percent good factor from Table 4 of AH 581. Further information on the CAA publication ( Business Assessment Factors) is discussed later in this lesson.
How is average service life calculated?
Average service life, or economic life, can be estimated by an appraiser based on a mortality study of individual acquisitions and retirements, historical usage of property, useful life expectancy as reflected by the applicable industry, or other information as available. (Refer to Assessors' Handbook Section 504, chapter 4, for further discussion on lives and percent good factors.)
What is a fixation property?
Fixture: an item of tangible property, the nature of which was originally personal property, but which is classified as real property for property tax purposes because it is physically or constructively annexed to real property with the intent that it remain so indefinitely. (Property Tax Rule 122.5)
Is there an economic life for equipment?
NOTE: Just as there is no economic life for equipment in general, there is also no economic life for fixtures in general. The CAA tables recommend economic lives by categories of equipment and fixtures (i.e., automotive repair-service, beauty salon, bank fixtures, etc.).
What does the cost approach mean in appraisal?
If you’re reading through an appraisal report, and you make it to the Cost Approach, which is where appraisers report either the reproduction or replacement cost of the home they are appraising, you will see a little field that says, “ Remaining Economic Life “.
What data sources do appraisers use to determine the replacement cost of a home?
The three I use are Marshall & Swift Residential Cost Handbook, Craftsman National Building Costs, and DwellingCosts.com. These are just a few. They all have done their studies and have provided their analysis of what their data reflects the total economic life of a home to be based upon its quality of construction.
What is Section 223 E?
It refers to HUD “permitting the use of FHA mortgage insurance in older, declining urban areas where there is a need for affordable housing. A mortgage may be insured pursuant to Section 223 (e) for the repair, rehabilitation, construction or purchase of properties in older, declining urban areas.”
How much has a home depreciated in the past 10 years?
Let’s say that the home we are using in this example, is ten years old. That means that this home has depreciated approx. 1.75% per year over the past ten years. (17.5% divided by 10) Now, divide 100 (which reflects 100% contribution) by 1.75, and that gives us a total estimated economic life of 57 years.
What should be comparable to the property we are appraising?
To start with, we will need at least a few generally recent sales, that are comparable to the property we are appraising. Ideally, they should be comparable in terms of age condition, quality of construction, market appeal, and we must also ensure that these properties have no functional or external obsolescence because these things can impact the rate of depreciation of a property.
What happens if an appraiser's opinion of the land value and/or replacement or reproduction costs are not realistic?
It should also be noted that if the appraiser’s opinion of the land value and/or replacement or reproduction costs are not realistic, it will skew the results. Therefore, an appraiser needs to have access to reliable replacement and/or reproduction cost data and be able to develop a supportable opinion of the value of the land.
Does Fannie Mae require appraisals?
Fannie Mae’s appraisal report forms are designed to meet the needs of several different user groups; consequently, the report forms address the remaining economic life for the property being appraised. However, appraisers are not required to report this information. If appraisers report this information, lenders do not need to consider remaining economic life because any related property deficiencies will be discussed in the sections of the appraisal report that address the improvements analysis and comments on the condition of the property.”
What is Economic 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.
What is depreciation rate?
Depreciation refers to the rate at which an asset deteriorates over time. The depreciation rate is used to estimate the effects of aging, daily use, and wear and tear on the asset. When related to technology, depreciation can also include the risk of obsolescence .
What changes in industry standards or regulations may also be involved?
Changes in industry standards or regulations may also be involved. New regulations may render current equipment obsolete or raise the required industry standards for an asset beyond the specifications of a business's existing assets. Further, the economic life on one asset may be tied to the useful life of another.
What are the financial considerations of the economic life of an asset?
Financial considerations regarding the economic life of an asset include the cost at the time of purchase, the amount of time the asset can be used in production, the time at which it will need to be replaced, and the cost of maintenance or replacement.
Why is it important to know the economic life of an asset?
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.
Who is Ebony Howard?
Ebony Howard is a certified public accountant and a QuickBooks ProAdvisor tax expert. She has been in the accounting, audit, and tax profession for more than 13 years, working with individuals and a variety of companies in the health care, banking, and accounting industries.
Is the economic life of one asset tied to the useful life of another?
Further, the economic life on one asset may be tied to the useful life of another. In cases where two separate assets are required to complete a task, the loss of one asset may render the second asset useless until the first asset is repaired or replaced.
What Is Economic 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 econo...
Understanding Economic Life
- The economic life of an asset under the Generally Accepted Accounting Principles(GAAP) requires a reasonable estimate of the time involved. Businesses can shift their measurements based on the anticipated daily usage and other factors. The concept of economic life is also connected to depreciation schedules. Accounting standard setting bodies usually set generally a…
Finance and Economic Life
- Financial considerations regarding the economic life of an asset include the cost at the time of purchase, the amount of time the asset can be used in production, the time at which it will need to be replaced, and the cost of maintenance or replacement. Changes in industry standards or regulations may also be involved. New regulations may render current equipment obsolete or rai…
Economic Life and Depreciation
- Depreciation refers to the rate at which an asset deteriorates over time. The depreciation rate is used to estimate the effects of aging, daily use, and wear and tear on the asset. When related to technology, depreciation can also include the risk of obsolescence. In theory, businesses recognize depreciation expenses on a schedule that approximates the rate at which economic lif…