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CFA Level I Exam · Analysis of Long-Term Assets

Estimate Average Age and Remaining Useful Life of Assets

Updated 7 October 2026 · Fact-checked

Analysts use PP&E disclosures to judge asset quality. Average age = accumulated depreciation ÷ depreciation expense. Total useful life = gross investment ÷ depreciation expense. Remaining life = net PP&E ÷ depreciation expense. Fixed asset turnover = revenue ÷ average net fixed assets. Compare results across firms with the same method.

Understand Financial Statement Presentation and Analysis of Asset Disclosures

A balance sheet shows long-term assets at carrying amount, which is cost less accumulated depreciation and impairment. The notes add detail: gross cost, accumulated depreciation, depreciation expense, useful lives and methods. These let you ask how old the assets are and how much life they have left.

A firm with old assets may need heavy capital spending soon. A firm with young assets may have higher depreciation but lower near-term capex needs. The age estimate is only an approximation. It assumes straight-line depreciation, no impairments or revaluations, and no big recent additions or disposals.

Land needs care. Land is not depreciated, so it adds to gross and net PP&E but not to depreciation expense. Leaving it in lengthens the estimated total and remaining life and understates the average age. Where the notes let you, strip land out before you estimate.

Asset turnover measures how much revenue each unit of assets produces. Fixed asset turnover uses net PP&E. A higher figure suggests assets are used efficiently, but an old, heavily depreciated asset base also lifts turnover because the denominator is small. So always read turnover together with average age.

Comparability matters. Depreciation method, useful life estimates and IFRS choices (cost model vs revaluation model) differ by firm. A firm with longer assumed lives reports lower depreciation, higher net PP&E and higher profit in the current period, and its estimated remaining life is longer. Do not assume its average age comes out lower, because accumulated depreciation is also lower. Under IFRS, revaluation raises carrying amounts, which lowers turnover. Adjust or at least note these differences before comparing firms.

Key formulas to remember

Average age of assets (years)
Accumulated depreciation ÷ Depreciation expense
Estimates how long assets have been in use on average. Assumes straight-line depreciation.
Total useful life (years)
Gross PP&E ÷ Depreciation expense
Estimated life of the whole asset base.
Remaining useful life (years)
Net PP&E ÷ Depreciation expense
Equals total useful life minus average age.
Fixed asset turnover
Revenue ÷ Average net fixed assets
Average = (beginning + ending net PP&E) ÷ 2. Use net PP&E.
Total asset turnover
Revenue ÷ Average total assets
Broader efficiency measure.
Net PP&E
Gross PP&E − Accumulated depreciation
Carrying amount before any impairment adjustments noted separately.

How to solve Financial Statement Presentation and Analysis of Asset Disclosures questions

Use this order for any question on asset disclosures.

  1. 1Identify what is asked: age, total life, remaining life, or turnover.
  2. 2Pull the right inputs: gross PP&E, accumulated depreciation, net PP&E, depreciation expense, revenue.
  3. 3Check whether the question gives beginning and ending balances. Turnover needs the average.
  4. 4Apply the matching formula and keep units in years or times.
  5. 5Cross-check: average age + remaining life should equal total useful life.
  6. 6Interpret: old age, low remaining life or high turnover from depreciated assets signal future capex needs.
  7. 7For comparisons, note differences in depreciation method, useful life estimates and cost vs revaluation model.

Quickest way: Divide by depreciation expense

When to use it: For any age or life estimate when depreciation expense is given.

  1. Remember the three balances all divide by the same depreciation expense.
  2. Accumulated depreciation gives age, gross gives total life, net gives remaining life.
  3. Test with age + remaining = total.
  4. For turnover, average the net PP&E first, then divide revenue by it.
  5. Eliminate options that use year-end instead of average, or gross instead of net.

Common mistakes in Financial Statement Presentation and Analysis of Asset Disclosures

  • Using gross PP&E for fixed asset turnover

    Students mix it up with the total useful life formula.

    Fix: Turnover uses net fixed assets. Gross is for total life only.

  • Using ending balance instead of average

    The question gives two years and students grab one.

    Fix: Average beginning and ending net PP&E unless told to use year-end.

  • Dividing by the wrong expense

    Capex or total expenses appear in the data.

    Fix: Use depreciation expense only for age and life estimates.

  • Treating a high turnover as always good

    Higher efficiency sounds positive.

    Fix: A high ratio can come from old, mostly depreciated assets. Check average age.

  • Ignoring land

    Land is in PP&E but is not depreciated.

    Fix: Land adds to gross and net PP&E but not to depreciation, so it lengthens the estimated total and remaining life and understates the average age. Exclude it where you can.

  • Comparing firms without checking policies

    Ratios look comparable on the surface.

    Fix: Check depreciation method, useful lives and cost vs revaluation model before concluding.

Worked examples

Example 1

A company reports gross PP&E of €800 million, accumulated depreciation of €320 million and depreciation expense of €64 million. Estimate the average age, total useful life and remaining useful life. Options for remaining life: A) 5.0 years, B) 7.5 years, C) 12.5 years.

Show the solution
  1. Net PP&E = 800 − 320 = €480 million.
  2. Average age = 320 ÷ 64 = 5.0 years.
  3. Total useful life = 800 ÷ 64 = 12.5 years.
  4. Remaining life = 480 ÷ 64 = 7.5 years.
  5. Check: 5.0 + 7.5 = 12.5.

Answer: Average age 5.0 years, total life 12.5 years, remaining life 7.5 years. Option B.

Example 2

A firm has revenue of $900 million. Net PP&E was $280 million at the start of the year and $320 million at the end. Calculate fixed asset turnover. Options: A) 2.81, B) 3.00, C) 3.21.

Show the solution
  1. Average net PP&E = (280 + 320) ÷ 2 = $300 million.
  2. Turnover = 900 ÷ 300 = 3.00.
  3. Check traps: 900 ÷ 320 = 2.81 uses ending balance; 900 ÷ 280 = 3.21 uses beginning balance.

Answer: 3.00 times. Option B.

Exam tips

  • Write the three age and life formulas side by side. Each differs only in the numerator.
  • If options include year-end and average versions, the average is usually intended for turnover.
  • Read vignettes for hints such as straight-line depreciation or revaluation, which affect interpretation.
  • With 90 seconds per question, do the division once and test with age + remaining = total.
  • For comparison questions, pick the option that considers depreciation policy differences.

Practice questions from Analysis of Long-Term Assets

Financial Statement Presentation and Analysis of Asset Disclosures: frequently asked questions

How do I estimate average age of PP&E?

Divide accumulated depreciation by depreciation expense. The result is in years. It assumes straight-line depreciation and no major impairments or disposals.

What is the difference between fixed asset turnover and total asset turnover?

Fixed asset turnover divides revenue by average net PP&E. Total asset turnover divides revenue by average total assets. The first focuses on how well long-term operating assets generate sales.

Does a high fixed asset turnover always mean efficiency?

No. It can reflect old assets with low carrying amounts, or underinvestment. Check average age and remaining life before judging.

How does the revaluation model affect these ratios?

Under IFRS, revaluing assets upward raises carrying amounts. That lowers fixed asset turnover and changes the age estimates versus a firm using the cost model.