Types of depreciation: Functional depreciation of equipment primarily measures loss of value due to __________.

Introduction / Context:
Depreciation can be categorized by its underlying cause. For chemical plant equipment, value declines due to physical deterioration, time, accidents, or loss of usefulness because technology or process requirements have changed. Knowing the type helps in replacement planning and economic analysis.

Given Data / Assumptions:

• Equipment is still physically intact and operable.
• Newer technology or regulatory changes make existing equipment less useful or economically inferior.
• Market value is impacted by these external changes.

Concept / Approach:
Functional depreciation refers to a loss of value arising from functional inadequacy or obsolescence. Even if the asset is in good physical condition, changes in capacity requirements, process integration, energy efficiency standards, or environmental limits can render it less valuable. This contrasts with physical depreciation (wear and tear, corrosion) and sudden losses (accident).

Step-by-Step Solution:

Verification / Alternative check:
Plant revamps often scrap functionally obsolete assets long before they are fully worn out, confirming functional depreciation’s practical importance.

Why Other Options Are Wrong:

Common Pitfalls:
Assuming maintenance eliminates depreciation entirely; it can slow physical depreciation but not functional obsolescence driven by external factors.

Final Answer:
obsolescence