Difference between useful and economic life

The difference between useful and economic life lies in the period of time to which each of the concepts refers.

If we visit our economic dictionary , we can find the following definitions:

  • The economic lifeof an asset is the period during which an asset has the capacity to produce returns for the company.
  • The useful lifeis the period in which the asset is expected to be used by the company and, in turn, the time during which the amortization occurs .

Thus, economic life tells us the time during which an asset is efficient. Meanwhile, the useful life tells us the period of time during which an asset serves a company.

Duration of useful and economic life

Presumably, the economic life is usually longer than the useful life. It doesn’t have to be that way, but it usually is. That is, an asset can be efficient for a longer time and still the company get rid of it.

Suppose, for example, a fleet of cars. A company has a fleet of cars that it renews every year. Therefore, the useful life of these vehicles for the company is 1 year. However, the economic life of a car is almost always greater than one year.

Unless it breaks or has a breakdown, a car can last performing its function well for several years.

by Abdullah Sam
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