Q.Distinguish between 'wear and tear' and 'obsolescence' as causes of depreciation, with an example of each.

Wear and tear is physical deterioration from actual use; obsolescence is an asset becoming outdated even though it may still work perfectly well.

Wear and tear refers to the physical deterioration of an asset that results directly from its actual USE in the business — moving parts of a machine gradually loosen and wear down, tyres of a delivery van wear thin, the cutting edge of a tool blunts with repeated use. The MORE an asset is used, generally, the faster wear and tear proceeds.

Obsolescence, by contrast, has nothing to do with an asset's physical condition at all — it refers to an asset becoming economically outdated because a newer technology, design, or method has come along that makes continuing to use the OLD asset a poor business decision, even if that old asset still works perfectly well. Example: a computer that still functions flawlessly may nonetheless be replaced because a far faster, more capable model is now available at a similar price; a printing press that still prints correctly may become obsolete once digital printing technology takes over the market. …

Students sometimes think obsolescence only applies to technology-heavy assets like computers — it applies to any asset made outdated by a better alternative, including mac …