The Incidence of Abandonment Losses.

When fixed assets are scrapped there is a possible loss to the owners in that costs unrecovered through depreciation charges made during the life of the asset plus cost of demolition may be greater than the salvage value. In order that there may be as few factors as possible with which to deal, it will be assumed in this study that salvage values exceed the cost of demolition, with the result that abandonment losses may be regarded, for all practical purposes, as arising from the excess of unrecovered costs over net scrap value. The causes of abandonment may be classified into three groups, 1. physical factors, or wear and tear; 2. accidents; and 3. functional factors, or obsolescence and inadequacy. These causes of abandonment must be kept in mind when considering the incidence of abandonment losses. This study will be limited to such losses as they apply to fixed tangible assets. Machinery and buildings will be taken as representative of this group. In most cases the principal factor entering into an abandonment loss would be the item of unrecovered cost of the old building or machine.