Remaining Life
Remaining life is directly affected by the factors that affect standard economic life. To determine the remaining life, once the standard economic life has been determined, reference can be made to the asset age or asset condition.
The remaining life is often determined by subtracting the asset age from the SEL.
This approach is simple to apply and based on the inherent assumption that the current age represents a relevant portion of the SEL.
Where the records on asset installation dates are lacking, estimations of likely ages are required. For example, it may be acceptable to estimate the ages of distribution mains based on staff knowledge provided that the ages are consistent with the development histories in the areas the assets are located.
The appropriate method depends on availability of data, calculation complexity, and the materiality of the valuation result. For instance, when considering large numbers of low cost assets, the age and cost can be averaged for the asset group. Care must be taken to ensure that the “average” used for a group of assets is a reasonable estimate of the true age distribution .
Assessing the remaining life of the asset based on the asset’s current condition should provide a better theoretical measure than deducting the age from the SEL.
The condition of an asset reflects the wear and tear associated with the use of that asset, which may not be reflected by the passing of time. The remaining life will typically depend on the operational and environmental conditions encountered by the asset.
However, practically it is not feasible to assess all assets, including those below ground. It may be possible to undertake condition checks of a sample of assets. The results from these samples could be extrapolated to appropriate asset categories.
If an inspection determines that the remaining life is greater than the aged based calculation (SEL minus age) then the asset’s remaining life is reset to that determined by the inspection. In no circumstance should the remaining life be greater than the standard economic life.
The outcomes of condition assessments may also be used to refine or reinforce technical life assessments of the assets established by other means.