Difference between Expected and Unexpected Obsolescence

The basic difference between expected and unexpected obsolescence is the reason due to which the fixed assets turned out to be obsolete. Here, the expected obsolescence includes the reason as a change in technology and demand. In the contrast, unexpected obsolescence includes the reason as natural calamities and economic recession.

To know the difference between these two, we must clear the meaning of these terms:

Meaning of Expected Obsolescence:-

Expected obsolescence refers to the loss of fixed assets when these become obsolete due to:

  1. Innovation or Upgradation in technology

  2. Change in demand

For example, When old back and white televisions become obsolete due to the introduction of colored t.v.’s, it is said to be expected obsolescence owing to change in technology.

On the other hand, when the demand for existing assets falls down due to a change in production methods. Thus, it is said to be obsolescence owing to a change in demand. 

Meaning of Unexpected obsolescence:-

Expected obsolescence refers to the loss of fixed assets when these become obsolete due to:

  1. Natural Calamities like earthquakes, floods or fire, etc.

  2. Fall in the market value of assets as a result of economic recession.

Here, it is important to note that the loss of value of fixed assets owing to unexpected obsolescence, is known as a capital loss. Thus, this loss is not considered as a part of the depreciation or depreciation reserve fund. Therefore, it implies that only expected obsolescence is considered for estimation of depreciation, not unexpected obsolescence. In contrast, it is managed through the insurance of fixed assets.

Chart of Difference between Expected and Unexpected obsolescence:

Basis of DifferenceExpected ObsolescenceUnexpected Obsolesescne
Meaning

It refers to the fall in the value of fixed assets due to a change in technology or demand.

It refers to the fall in the value of fixed assets due to natural calamities and economic recession.
ReasonsFor this, Change in technology and demand are the main reasons.For this, Natural calamities and economic recession result in this obsolescence.

Part of depreciation

Considering this loss, It is regarded as a part of depreciation.In this respect, It is not regarded as a part of depreciation.

Capital loss

Here, The loss due to this is added as consumption of fixed assets.Here, The loss due to this is added to a capital loss.

Management

It is managed through a depreciation reserve fund.It is managed through the insurance of fixed assets.

Prediction

In this regard, the producers can predict the loss through their experience and knowledge.In this respect, the loss cannot be predicted before.

Conclusion:

Thus, this loss in the value of fixed assets is unavoidable. Hence, prior management can help in reducing the loss whether from expected or unexpected obsolescence.

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