A depreciable asset may suffer obsolescence due to:a)Passage of timeb)...
Depreciable Asset and Obsolescence
A depreciable asset is an asset that has a limited useful life and is expected to decline in value over time. Depreciation is the process of allocating the cost of the asset over its useful life. The useful life of an asset is determined by the company and is based on various factors such as wear and tear, technological changes, and other factors.
Obsolescence and its Reasons
Obsolescence is a situation in which an asset becomes outdated or less useful over time. There are various reasons for obsolescence such as:
1. Technological Changes: As technology advances, older assets become less useful or even obsolete. For example, a computer that is five years old may no longer be able to run the latest software.
2. Changes in Consumer Preferences: Consumer preferences can change over time, and products that were once popular may become less desirable. For example, a product that was once popular may be replaced by a newer, more advanced product.
3. Environmental Factors: Environmental factors such as changes in laws and regulations can also lead to obsolescence. For example, a product that is no longer compliant with environmental regulations may become obsolete.
Conclusion
In conclusion, obsolescence is a common issue that affects depreciable assets. Technological changes are one of the main reasons for obsolescence. As technology advances, older assets become less useful or even obsolete. Companies need to anticipate obsolescence and plan for the replacement of assets that are no longer useful or cost-effective. This will help companies to remain competitive and profitable in the long run.