ACCA Strategic Business Reporting (SBR) Practice Exam

What factors determine the useful life of an asset?

1. The extent to which the entity can support the brand

2. The last known maintenance cost of the asset

3. Existing market trends and regulations

4. The historical performance of similar assets

The correct answer is: The extent to which the entity can support the brand

The useful life of an asset is primarily determined by how well it can contribute to the economic benefits expected by the entity over time. When considering the factors that influence this, the ability of the entity to support its brand plays a crucial role. If a company can effectively manage and promote its brand, it can enhance the asset's longevity and the benefits derived from it. A strong brand can also lead to increased customer loyalty and potentially extend the period over which the asset generates revenue. The historical performance of similar assets can be informative, as it may provide insight into how long those assets have successfully operated and generated value. However, the ability to support a brand directly influences an asset's utilization and value in the marketplace, which is why it serves as a more critical factor in determining useful life. Overall, while various elements can impact the useful life of an asset, the brand's support is integral in influencing how long the asset remains valuable and useful to the entity. Thus, this understanding provides a foundation for making more informed decisions regarding asset management and financial reporting within the context of strategic business reporting.