Determining the useful life of an asset has its place in the  Standards of GRAP on Property, Plant and Equipment, Intangibles Assets, Investment Property, Living and Non-Living Resources and Heritage Assets, and affects the subsequent measurement of these assets.

Useful life as defined in GRAP 17 is:
(a) the period over which an asset is expected to be available for use by an entity; or
(b) the number of production or similar units expected to be obtained from the asset by an entity.
From this we can deduce that the useful life of an asset is the asset’s expected utility to an entity. The expected utility of an asset is entity specific and is usually set out in an entity’s asset management policy. Because useful lives are entity specific and can differ between entities, it will most likely be different from its economic life or its design life.
 
The estimation of the useful life of an asset is a matter of judgement based on the experience of an entity with similar assets. An entity must consider all facts and circumstances in estimating the useful lives of assets, which includes the consideration of financial and technical factors. The asset’s economic life and design life can be used as a ‘sense-check’ when determining the useful life.
 
Each significant part of an asset can have a different useful life. The significant part is depreciated separately according to its allocated useful life.
 
Useful lives of assets must be assessed at each reporting date to determine whether there is any indication that an entity’s expected useful life has changed since the preceding period. This assessment should be documented. GRAP 17.57 includes a non-exhaustive list of indicators that an entity should consider. If an entity applied the principles of useful lives in GRAP appropriately - in both current and prior years - and concludes that an asset’s useful life should be revised, the entity treats this change as a change in accounting estimate in terms of GRAP 3. If the principles of useful lives in GRAP have not been applied appropriately, the entity may have a prior period error that requires correction. Similar considerations are required for fully depreciated assets still in use. When deciding whether any adjustments are required to fully depreciated still in use, an entity considers whether this results from a change in estimate or an error. See also the Frequently Asked Questions 3.2 on Fully depreciated assets.
 
The determination of useful lives are particularly important for intangible assets as the useful life of an intangible asset drives it accounting treatment. The useful life of an intangible asset is either finite or indefinite. An intangible asset has an indefinite useful life when there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for, or provide service potential to, an entity. Intangible assets with finite useful lives are amortised while intangible assets with indefinite useful lives are not. The useful life of an intangible asset that is not amortised must be reviewed at each reporting period to determine whether events and circumstances continue to support an indefinite useful life assessment for that asset. If they do not, the change in the useful life assessment from indefinite to finite should be accounted for as a change in accounting estimate in accordance with GRAP 3.

The relationship between depreciation and the different asset classifications

	Property, Plant and Equipment		Intangible Assets*		Investment Property		Living Resources		Heritage Assets
Model	Cost	Revaluation	Cost	Revaluation	Cost	Fair value	Cost	Revaluation	Cost	Revaluation
Depreciate/ Amortise	X	X	X	X	X		X	X
Do not depreciate/ amortise						X			X	X

*The table provides for intangible assets with finite useful lives. Note that intangible assets with indefinite useful lives are not amortised.