 In this discussion we will discuss the discussion question of describe factors that make it difficult to estimate useful life So if we see an essay question like this, we probably want to first think about okay What is useful life related to useful life in and of itself? Doesn't mean much unless we apply it to something that's something being property planting equipment So when we think of useful life in the context here We're talking about property planting equipment and then we might want to define what property planting equipment is and the context of the useful life So property planting equipment is going to be something that we're going to have it It's going to be something tangible something we can touch feel something that usually has a useful life over a year So meaning we're going to use it for an extended period of time in order to help generate revenue in the future Therefore when we purchase it, we're going to put it on the books as an asset Rather than expending it at the point in time of purchase So we're going to put it on the books as an asset then allocate that cost of that asset over It's useful life and that's in accordance with the matching principle. So what we're doing with the useful life is trying to say Here's the cost of this equipment. How are we going to allocate it in some way? Whether it be straight line or some accelerated method How are we going to allocate that cost to the time periods that it's used in order to generate revenue in accordance with the matching principle So that the useful life then is one estimate within the calculations of The depreciation calculation depreciation calculation is an estimate The useful life is a huge component in that estimate And when you think about depreciation, you may be asking yourself, well, how would someone come up with the useful life? Isn't that pretty arbitrary to to get the useful life? I mean, can't you have a pretty big difference in terms of of what you're going to be allocated in terms of net income Based on what you decide the useful life to be and the answer is yeah, you can it can change things a lot So notice if you're talking about like the tax code, they'll actually have some pretty stringent regulations in terms of what qualifies as a useful life, but Um Those tax codes aren't geared towards the best financial reporting They're they have they have other motives other than just good financial reporting for good financial reporting We want to find the best useful life that makes the most sense the one that's the most accurate What we think is our best estimate we're going to try to make our best estimate of how long something's going to last Now when we think about that, uh, there's a couple factors that would go into consideration One would be just deterioration How much is this going to deteriorate in value decline in its productivity? Uh, and therefore how should we allocate just the normal decline In value just through the usage There's some other factors though one one could be just the inadequacy of the equipment as we grow meaning We may be behind a machine that suits our needs now, but the capacity is not there Once we grow to a certain degree and we may not know whether we're going to grow To a certain degree we may for example if we make a if we bought a printer that prints so many pages Uh, per second or whatever like that and if we bought if we got bigger We might need uh, we might need the printer to be able to print more pages per second or produce faster And so it might be sufficient for our needs now but as the company grows and uh, it might not to be sufficient and it's very difficult of course to Calculate what the company is going to do in terms of the capacity and needs of this particular piece of equipment It's also possible that there could be obsolescence that we it's difficult to know especially in today's Time where we could buy a piece of equipment that uh pretty soon Gets outdated new piece of equipment comes out That's a lot more efficient and a lot better making the old piece a lot obsolete And if that happens, it's going to be difficult for us to calculate Well, when when is that going to happen when's this new technology going to take place and make the piece of equipment obsolete? So there's a there's a couple components They're just note that when we when we use an estimate it is just an estimate But we have to use the estimate in order to make our financial statements As good as they can as best guess is we can't we know the cost of it, but we have to estimate in some way Uh, the decline in the value we have to estimate the the allocation of the cost to expense in some way And we all we can do is do our best with that one way one Estimated part one big estimate in that calculation is of course The useful life