What is a Wasting Asset?

A wasting asset is any asset that will decrease in value over time, and which has a specific useful life. The concept can be applied to fixed assets and natural resources, but is sometimes also applied to certain financial instruments. In most cases, a decline in value is reflected in a reporting entity’s accounting records by an ongoing depreciation or depletion charge. The depreciation or depletion period is intended to match the same time period over which the decline in valuation occurs.

Characteristics of Wasting Assets

There are several characteristics associated with wasting assets, which are as follows:

Limited lifespan. A wasting asset is assumed to only be able to provide economic benefits over a limited period of time. This short life span occurs because the asset is being used to support an organization’s operations or generate revenue.
Declining value. A wasting asset’s value will decline over time. Thus, a production machine will only be able to operate for a limited period of time, after which it will have worn out.
Carrying value reduction. A wasting asset will require an ongoing depreciation or depletion charge to reflect ongoing declines in its value over time.

Some fixed assets may increase in value over time, but are still depreciated. For example, the market value of a building may increase in accordance with changes in local market conditions.

Examples of Wasting Assets

Examples of wasting assets are essentially all fixed assets other than land (which is not depreciated, on the grounds that it is assumed to have perpetual value). Thus, computer equipment, buildings, leasehold improvements, furniture & fixtures, and vehicles can all be considered wasting assets.

The concept also applies to options of all types; their value drops to zero as of the expiration date of these instruments. The same concept applies to a term life insurance policy, since its value drops to zero once its termination date is reached.