Depreciation of construction equipment because of new machine in the market which is more efficient than the existing one is called
- AWear and tear
- BDeferred maintenance and neglect
- CPhysical decay
- DObsolescenceCorrect
Solution
Concept
Concept and definition of obsolescence in depreciation
Formula
NONE
Step-by-step solution
1. The question describes loss of equipment value due to the arrival of newer, more efficient machines in the market. 2. Physical deterioration resulting from usage is wear and tear. 3. Loss of economic value due to modern technological inventions and higher efficiency alternatives is defined as obsolescence. 4. Therefore, option D (Obsolescence) is the correct term. Answer: D
Explanation
Obsolescence is the depreciation or decline in the monetary value and usefulness of a machine or building caused by technological advancements, emergence of superior or more efficient machines in the market, or shifts in design and demand, rather than physical wear and tear.
Why the other options are wrong
A) Wear and tear refers to physical damage and friction loss from normal operation. B) Deferred maintenance refers to postposed upkeep causing accelerated physical decline. C) Physical decay refers to natural material deterioration from atmospheric exposure.
Shortcut
New superior technology replaces old machine = Obsolescence; physical decay = Wear and tear.
Common mistake
Selecting wear and tear, which represents mechanical abrasion and physical deterioration, not technological inadequacy.
Correct answer: D) Obsolescence