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.

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.