Which of the following statements is true about the Economical Useful Life?

• A. It is affected by usage, technology, and deterioration and is independent of lease term.
• B. It equals the lease term.
• C. It is always the asset's physical life.
• D. It is determined solely by tax rules.

Answer: (A)

Economical Useful Life is the period during which an asset remains economically usable in operation, taking into account how it is used, technology changes, and wear or deterioration. This life is not tied to the lease term, so the lease duration can be shorter or longer than the asset’s economic usefulness. It isn’t fixed to the physical life of the asset, since obsolescence or reduced performance can end economic usefulness before the asset physically wears out. It also isn’t determined solely by tax rules, as tax depreciation lives are set by tax authorities and may not reflect when the asset stops being economically productive. That combination makes the statement true.