Question

React: Since the allowable depreciable life on an apartment building is 27.5 years, versus 39 years for a shopping center, an apartment complex must have substantially lower annual capital expenditure requirements than a shopping center.

Answer 1

Answer

The capital expenditure of an asset is likely depended on the overall useful life of the asset. In this case study, the apartment building has a substantially low depreciable life in comparison to that of the shopping center. When the useful life of an asset is higher, it indicates some of the significant instances such as the increase in capital expenditure, revenue expenditure including the maintenance of the same. But on a positive note it can be interpreted that revenue generated from both the building and the shopping center is comparatively higher and the reason behind that is the useful life of the shopping center is high.

But in this case, as the useful life of the shopping center is quite higher than that of the apartment building, this means that the capital expenditure of shopping center is higher than the apartment. As the useful life of the shopping center is higher it will provide potential longevity of revenue-generating capacity and will further help to enhance the business of the shopping center in the coming years. This is one of the main advantages of having a higher useful life than a standard depreciable life of an asset as it also creates a value of the organization as a whole.