Legal Definitions - economic life

ECONOMIC LIFE

Economic life refers to the period of time during which an asset generates income or is profitable. This period is usually shorter than the physical life of the asset.

• A car may have a physical life of 10 years, but its economic life may only be 5 years because after that time, the cost of maintenance and repairs may outweigh the income generated by using the car.
• A computer may have a physical life of 7 years, but its economic life may only be 3 years because after that time, it may become outdated and unable to keep up with newer technology.

These examples illustrate how an asset's economic life can be shorter than its physical life. Even though a car or a computer may still be physically functional after a certain period of time, it may no longer be profitable to continue using it due to the cost of maintenance or the inability to keep up with newer technology.