UK Accounting Glossary
1. uncountable The state of being obsolete—no longer in use; gone into disuse; disused or neglected.
2. countable The process of becoming obsolete, outmoded or out of date.
A significant decline in the competitiveness, usefulness, or value of an article or property.
Obsolescence occurs generally due to the availability of alternatives that perform better or are cheaper or both, or due to changes in user preferences, requirements, or styles. It is distinct from fall in value (depreciation) due to physical deterioration or normal wear and tear. Obsolescence is a major factor in operating risk and may a require write off of the value of the obsolete item against earnings to comply with the accounting principle of showing inventory at lower of cost or market value.
Insurance companies take obsolescence into account to reduce the amount of claim to be paid on a damaged or destroyed property.
It was proven that the unused floppy disks were an obsolescence when they couldn’t even be given away for free at the local car boot sale.
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This glossary post was last updated: 30th September 2019.