Accounting Dictionary

Obsolescence

Obsolescence is a reduction of value due to the existence of cheaper alternatives or changes in consumer preferences.

HJG Car Rental Company bought 10 full sized cars with no GPS system. The owner had to reduce the value of these cars on his balance sheet due to obsolescence. There was nothing wrong with the cars; they were in perfect condition. But customers renting a car in an unfamiliar city wanted GPS systems and cars with low gas mileage. The company couldn’t rent the cars so for this company they were obsolete.

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