What is Service Life?

Service life is the time period over which an asset is expected to be used. It is the basis for the depreciation of an asset, since depreciation only spans the service life of an asset. If there is a chance that an asset will become obsolete or fall into disuse later in its life, then its physical life may prove to be longer than its service life.

If an asset exceeds its service life, the manufacturer may refuse to support it. This situation arises because the manufacturer has not planned to retain service parts for such an extended period of time. Also, the proportion of units requiring more extensive maintenance tends to increase sharply, once their service life has been exceeded.

The concept of service life is especially important when conducting capital budgeting, since managers need to know when the support for their fixed assets will stop. At this point, it makes sense to replace assets with new ones that will be fully supported by the manufacturer.

Service Life Best Practices

A common accounting policy is to assign a standard service life to an asset, based on the asset class to which it is assigned. This standardizes the service lives being used for all assets, unless they are so unique that they cannot reasonably be assigned to any asset class.