Significant decline in the competitiveness, usefulness, or value of an article or property. Obsolescence occurs generally due to the availability of alternatives that perform better or are cheaper or both, or due to changes in user preferences, requirements, or styles. It is distinct from fall in value (depreciation) due to physical deterioration or normal wear and tear. Obsolescence is a major factor in operating risk, and may require write off of the value of the obsolete item against earnings to comply with the accounting principle of showing inventory at lower of cost or market value. Insurance companies take obsolescence into account to reduce the amount of claim to be paid on damaged or destroyed property. See also planned obsolescence.
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