Business Glossary

major factor in depreciation, resulting from technological or market changes. Wear and tear from use and natural deteriorationthrough interaction of the elements are other factors that cause depreciation in assets. It is also a big factor in inventory risk.

decrease in value of property as the result of technological advancement and/or changing social mores. This factor is used to measure the amount of depreciation in determining the actual cash value of damaged or destroyed property protected by property insurance coverage .

process by which property becomes useless, not because of physical deterioration, but because of changes outside the property, notably scientific or technological advances.

See also economic depreciation

a loss in value due to reduced desirability and usefulness of a structure because its design and construction have become obsolete; loss due to a structure's becoming old-fashioned, not in keeping with modern needs, with consequent loss of income.

Example: An old house may suffer from the following examples of obsolescence:

• rooms of improper size
• features no longer useful, such as a coal chute with a gas-fired furnace
• out-of-date plumbing, heating, and electrical fixtures and systems
• inadequate insulation
• unsuitable architectural style
• construction materials that require excessive maintenance
• undesirable location

See also functional obsolescence , economic obsolescence