Wasting Asset
Key Highlights
- A wasting asset is a depreciable asset with a limited useful life, expected to be used for fewer than 80% of its total lifespan. Examples include machines, vehicles, and equipment.
- Wasting assets can enhance business efficiency, reduce storage costs, and provide opportunities for profit through inventory write-offs or liquidating surplus items.
- Mismanagement of wasting assets can lead to increased operational costs, reduced profits, and damage to reputation due to short-term cost-saving decisions that ignore long-term impacts.
What is wasting asset?
A wasting asset is a type of depreciable asset that has a limited useful life and is expected to be used for fewer than 80 percent of the total number of days in its depreciable life. This type of asset typically loses value over time.
Examples of wasting assets include machines, vehicles, buildings, equipment, and tools that are used for business operations. It should be noted that although most wasting assets eventually become worthless over time, there may still be residual or salvage value at the end of their useful lives.
Advantages of Wasting Asset
Wasting assets can have advantages, especially in business. It can be a strategic move to increase the efficiency and effectiveness of operations. For instance, companies may write off or count cycles to get an improved sense of stock usage. Furthermore, companies may sell their excess or slow-moving stocks from their warehouses, eliminating the cost of storage as well as making a profit on items that were formerly non-value-adding assets.
Disadvantages of Wasting Asset
A vital point about asset management is to balance how much one should use in managing tasks to ensure they do not overuse or misbehave with the available resources. Asset misuses raise the operational cost besides decreasing profits. In addition, it also affects the reputation if decisions are solely driven by the need to cut down short-term costs and have not accounted for long-term effects or invested elsewhere.
