obsolescence

Somebody in your family still has that first generation Android phone in a drawer somewhere. It switches on, it makes calls, nothing is broken. But nobody wants it, not even for spare parts, because the world has moved past it. That drawer is basically a small museum of obsolescence.

In business, obsolescence is what happens when an asset loses its usefulness or value, and not since it has worn out, but because something newer or better has come along, or because demand for what it does has simply dried up. A machine can be in perfect working condition and still be obsolete if it produces something nobody buys anymore.

Take a Lagos printing press that owns industrial machines for producing newspapers. The machines are oiled, maintained, running smoothly. But readers have moved to phones and news apps, print orders keep shrinking, and the machines that once justified a big loan now sit there eating up space and electricity for little return. That is obsolescence eating into the books, calmly reducing what those machines are really worth to the business, whatever the accounts still say.

In the United Kingdom, a factory that made parts for petrol car engines can watch its specialised tooling become obsolete as manufacturers switch hard towards electric vehicles. The equipment has not aged a day in engineering terms, but the market it served has moved on, and that is the more dangerous kind of obsolescence because no amount of servicing fixes it.

This matters for anyone reading a company's accounts, because obsolescence is one reason depreciation and asset values need regular honest review. A non current asset carried at a high figure on paper can be worth far less in the real world once its usefulness has faded, and pretending otherwise only flatters the numbers, not the truth.