Remaining Useful Life

In the determination of remaining or residual useful life, on must consider the following fundamental factors:

physical deterioration, which is the wear from use of the asset during its operating life
functional obsolescence which is obsolescence due to technological factors, inadequacy, inefficiency and/or excessive operating costs

Depreciation attributable to physical deterioration or functional obsolescence can be divided into two categories, curable and incurable. Curable depreciation is depreciation that can be reversed or "cured" by corrective intervention. Incurable depreciation is depreciation due to technological advances based on external factors that cannot be corrected or "cured" in a cost-effective manner.

In the final analysis, if a reasonable remaining lifetime for the current products and production machinery or if the machinery cannot be converted to production of alternate products, corrective action must be taken.

Remaining useful life (or the remaining possibility of use) represents that portion of the normal useful life of an asset that is defined as the period of time expressed in years, running from the date of appraisal to the end of economic use of the asset. This period is conditioned on various factors such as age, conditions of service, physical characteristics of the asset, state of repair, technological advance and the materials from which the asset is constructed.

Normal useful life of an asset is the period of time, expressed in years, running from the date at which the asset is first put into use to the time when the asset is no longer able to be economically productive for its intended use.

Proper determination of that portion of the useful life that is remaining is not a matter of simple arithmetic calculation. One must consider the entire maintenance history of the asset, such as major overhauls, upgrades, etc. done over the years that can increase the remaining useful life of the asset.

Therefore, the limits of the normal useful life of an asset can be influenced by type and timing of major maintenance that has been performed.

To arrive at remaining useful life of production equipment by an analytical approach, one can determine its value in current use considering the following factors:

cost of reconstruction new
obsolescence tied to age and technology
use of the equipment

The relationship between value in current use and value of new equipment indicates the fraction of the normal useful life that is remaining, i.e. the remaining useful life. When determined in this manner, the value determined must be subjected to a final adjustment that takes into account factors not strictly amenable to numeric calculation.

REMAINING USEFUL LIFE