Equipment obsolescence

A piece of equipment can be fully depreciated and still working, and a buyer relying on the balance sheet alone might assume it has some residual value. Obsolescence asks a different question: not what it is worth on paper, but how much longer it can actually do the job, and what it costs to replace when it can’t.

Common signs

• The manufacturer no longer supports it, and parts are sourced secondhand or improvised
• Newer equipment does the same job with meaningfully less labour or downtime
• It no longer meets a current code, standard or customer specification
• Repairs are becoming more frequent and more expensive relative to what a replacement would cost

What it means for the deal

An equipment appraisal that looks past book value to actual condition and remaining useful life is the usual way this gets tested before closing. Where obsolescence is confirmed, it becomes a negotiating point — either the price reflects the coming replacement cost, or the timeline and responsibility for replacing it gets addressed explicitly in the agreement.