How to Reduce the Depreciable Life of an Asset
All physical assets, and some tangible assets, have a limited life. This limitation is known as depreciation, which in turn is expressed as an annual fall in value of a given asset. Depreciation is broken down into deterioration and obsolescence. Both of these factors, however, can be limited, and the method of limiting these depreciating factors depends on the asset in question.
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Instructions
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List the range of conditions your assets are susceptible from. Depreciation may be broken down into two factors: deterioration and obsolescence. Deterioration is the gradual disintegration of assets that is beyond normal repair. A building's structural decay is the obvious example of this. Obsolescence can be broken down into a number of factors, including technological obsolescence, functional obsolescence, economic obsolescence, social obsolescence and legal obsolescence.
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Assess the depreciable life of the asset by first assessing its rate of deterioration. Deterioration is often restricted to physical assets such as machinery and buildings. Intellectual property will not suffer from such forms of depreciation. The services of a building inspector is needed for such assessments.
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Assess the rate of obsolescence for your asset. A surveyor or an accountant is necessary for this step. Outdated assets suffer from technological obsolescence, which may include old-fashioned machinery. Assets that suffer from functional obsolescence have a limited function in today's use. Fax machines being replaced by email is one example. Economic obsolescence affects assets that do not perform on a cost-effective basis as they age. Social obsolescence may relate to assets that no longer have use in society, such as unfashionable housing. Legal obsolescence affects assets that may become obsolete as a result of a change in legal structure, such as intellectual property rights.
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Reduce the depreciable life of the asset by targeting the factors listed in steps 2 and 3. If the asset is a building, you may reduce deterioration by constantly maintaining the property. Regular renovations will reduce social obsolescence, and keeping up to date with safety protocols will limit legal obsolescence. Some forms of depreciation are unavoidable, such as functional obsolescence. One example of this is the fall in consumer demand for offices in a certain area.
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