Wear and tear definition

What is Wear and Tear?

Wear and tear is the normal degradation of an asset from ongoing usage, even when it is being properly maintained. Wear and tear gradually reduces the value of an asset. Wear and tear is not caused by unusual levels of neglect or abuse; when these conditions are present, an asset can be expected to decline in value at a much faster rate than normal. This could result in an impairment charge against the asset, thereby drastically reducing its remaining book value.

Examples of Wear and Tear

Here are several examples of wear and tear that can occur in different types of assets:

  • Vehicular wear and tear. Fading paintwork due to sun exposure, engine or transmission deterioration from regular driving, and tire tread wearing down from daily use.

  • Machinery and equipment wear and tear. Reduced efficiency of production machines due to continuous operation, worn-out belts or gears in conveyor systems, and corrosion or rust on equipment exposed to moisture.

  • Office furniture wear and tear. Scratches or dents on desks and tables, sagging cushions on chairs from prolonged use, filing cabinet drawers becoming loose over time.

  • Building wear and tear. Faded paint or wallpaper from exposure to weather conditions, cracks in walls or floors due to structural settling, and worn carpets or tiles in high-traffic areas.

  • Technology wear and tear. Computers becoming slower due to outdated hardware, printer parts wearing out with frequent printing, and batteries in laptops or mobile phones losing their capacity over time.

  • Tools wear and tear. Blades of cutting tools becoming dull from repeated use, and the handles of hammers or wrenches showing signs of wear.

How to Account for Wear and Tear

The decline in value associated with wear and tear is represented in the accounting records by the depreciation associated with an asset. An unusual amount of wear and tear can result in an impairment charge, where a large part (or all) of the remaining book value of an asset is charged to expense in the current period.

Wear and Tear in Warranty Contracts

The wear and tear concept is commonly included in warranty clauses in contracts, where the manufacturer declares that a loss in value due to normal wear and tear will not be covered. This clause is intended to minimize the number of warranty claims coming from customers, thereby reducing the costs of the manufacturer.

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