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CSEET · Fundamentals of Accounting · Depreciation and Amortization

Mehta Printers buys a press that has a lease-bound site: the factory premises lease expires after 8 years, and the press can be used only on that site, though it could physically last 15 years. Under AS 10 factors, which statement is correct?

Useful life should be about 8 years. AS 10 lists legal or similar limits on use, such as the expiry of related leases, as a factor. As the press can be used only on the leased site for 8 years, that limit governs rather than its 15-year physical life.

  1. AUseful life is 15 years because physical life governs
  2. BUseful life should consider the legal limit from the lease expiry, so about 8 yearsCorrect
  3. CUseful life is the average of 8 and 15, that is 11.5 years
  4. DLease expiry is irrelevant and only obsolescence matters

Explanation

AS 10 includes legal or similar limits on use, such as expiry dates of related leases, among the factors for useful life. Since the press can be used only on the leased site for 8 years, the useful life is limited to about 8 years. Using physical life of 15 years ignores this legal limit.

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