SAP Financial Accounting (SAP FI) Practice Exam

What does the useful life of an asset indicate?

1. The period an asset can be used for depreciation

2. The financial value of the asset

3. The legal ownership period of the asset

4. The expected revenue generated from the asset

The correct answer is: The period an asset can be used for depreciation

The useful life of an asset indicates the duration over which the asset is expected to be economically usable for its intended purpose. This concept is crucial for determining the depreciation schedule for the asset. Depreciation is the systematic allocation of the cost of an asset over its useful life, reflecting the asset's consumption, wear and tear, or obsolescence. By establishing the useful life, companies can accurately track the reduction in the asset's value on their financial statements, ensuring that expenses are matched with the income generated from the asset appropriately over time. This helps maintain a clear and accurate representation of financial performance. The other options relate to different aspects of financial management. The financial value pertains to how much the asset is worth, which is not directly about its useful life. The legal ownership period concerns the rights to the asset rather than its depreciation. Lastly, expected revenue relates to the income generated from the asset, which is separate from determining how long the asset will remain useful for depreciation purposes.