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What Is a Legacy Asset ?
A bequest asset is an asset that has remained on a caller ‘s proportion sheet for a long period of meter and has since become disused or has lost about all of its initial value. In fact, bequest assets run the risk of becoming a liability for the company holding them, as they may incur storehouse, compensate, or maintenance costs .
Key Takeaways
- A legacy asset is an obsolete asset that has been kept on a firm’s books for an extended period of time and runs the risk of becoming a liability.
- Financial companies may have legacy assets in the form of investments that have lost most or all of their value, or loans that will never be collected.
- Legacy assets often have little to no economic value to the company and will often have been written down for a loss.
Reading: Legacy Asset Definition
Understanding Legacy Asset
The terminus “ bequest ” literally means something that has existed for a long period of fourth dimension. The term “ bequest asset ” has been coined to refer to an asset that is outdated or disused. A bequest asset is an asset that has been on the company ‘s books for a long menstruation of time and has broadly decreased in respect, likely due to obsolescence, to the target where it is now a loss for the party. It is a personnel casualty both in the sense that there is no prize in selling the asset, but besides it may require some expenditures for repositing or alimony as it can take up ledge quad, better occupied by current inventory, or it may require annual tune-ups despite being in neglect .
fiscal companies may have bequest assets in the shape of investments that have lost their value or loans that will not be collected and have therefore been characterized as bad debt. Legacy assets much have no measure to the company and will have been written down for a loss. however, at times it is possible that they may have modern value in a unlike time or economy. Items that are erstwhile can become collector ‘s items and be assigned respect for their nostalgic qualities or because they are rare.
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Legacy Asset Example
For exemplar, suppose that XYZ Music Corp. has been in business since the 1920s and has always kept extra recording and music play equipment in its warehouse. Old gramophones, turntables, and 8-track players have n’t quite held onto their rate throughout the ages, but since they are silent held on XYZ ‘s proportion sheet they are booked as bequest assets .
occasionally, XYZ Music will donate an old piece of equipment to a museum or local field company for a production. When vinyl came back into fashion around 2010, they saw an uptick in the requirement for vintage turntables and were able to sell a number of their bequest assets due to the shift in consumer tastes, turning potential money drains into profits .