Economic Lives & Depreciation

Asset depreciation under the optimized deprival value approach focuses on two key aspects:

• Determination of asset life details
• Application of the appropriate depreciation method.

A critical factor in the calculation of the optimized deprival value is the assessment of asset lives. Asset lives will affect the calculation of depreciation that can have a very significant impact on the overall valuation result.

The determination of asset life is complicated by the following key issues:

• Wide ranges of engineering assessments of the lives of assets
• Assets not being available for inspection. A high degree of reliance is necessarily placed on limited samples or the water organization’s view of asset conditions
• A general lack of empirical evidence on aspects such as effective life, maintenance history, special operating conditions, and age
• Differing interpretations of how economic factors may affect asset life.