Useful Life
Category
General Concepts
Useful life is the estimated period over which an asset is expected to be usable by an entity. In lease accounting, the useful life of the underlying asset is compared to the lease term as one of the five ASC 842 classification criteria. if the lease term covers a major part of the useful life, the lease is classified as finance.
Why it matters
The useful life comparison is critical for lease classification. ASC 842 provides a 75% bright-line threshold as guidance (though not a mandatory test). If a 10-year lease covers an asset with a 12-year useful life (83%), the "major part" criterion is likely met, resulting in finance lease classification.
Lease accounting platforms apply the correct depreciation period based on whether ownership is expected to transfer, using the useful life when it does and the lease term when it does not.
How Arvexi handles this
Arvexi captures the underlying asset's useful life during lease setup and automatically evaluates it against the lease term as part of the five-criteria classification test. Borderline cases are flagged for review.
Explore how Arvexi automates this: Lease Accounting · Lease Review