I. Difficulty of ascertaining working life : It is really difficult to summarise the exact
working life of an asset. Where the duration of the benefits of the asset is time-bound,
like those of a leasehold asset, no problem arises. But in other cases it becomes a guess
work which takes into consideration— (a) the nature of the asset; (b) the quality of the
asset; (c) expert’s opinions and (d) previous experience. These are all conjectures found
to vary. Thus an asset may become incapable of rendering service before its anticipated
expiry date. On the other hand, its effectiveness may remain alive much after such date.
2. Estimation of residual value : Under conservative approach, the residual value is taken
below the expected value at the end of the useful life of an asset. This, at best, helps to
avoid unforeseen losses. But residual value also depends upon market conditions, technological
advancements, etc. So, its correct estimation often proves itself misleading.
3. Unwarranted happenings : Change of law, technological development, innovations. etc.,
may cause a drastic reduction or writing off of an asset. These external factors suddenly
affect the pre-determined quantum of depreciation. On the other hand, over-use or
underuse of an asset may also tell upon the amount of depreciation.
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