Obsolescence definition
/What is Obsolescence in Accounting?
Obsolescence is a notable reduction in the utility of an inventory item or fixed asset. The determination of obsolescence typically results in a write-down of the inventory item or asset to reflect its reduced value. Obsolescence can arise when there are less expensive alternatives in the marketplace, or when customer preferences change.
Obsolescence vs. Depreciation
Obsolescence differs from the ongoing decline in the value of assets that is caused by normal usage, resulting in wear and tear. Normal usage is accounted for with ongoing charges to depreciation, which reduce the carrying amount of an asset by a consistent amount over time. Conversely, obsolescence can result in the immediate and total write-off of the carrying amount of an asset.