an asset that has managed to remain on the company's balance sheet for a prolonged period; it has since become useless, or almost all of its original value has been lost.
Legacy Asset Details
Legacy assets stand a chance of becoming a liability of the company that holds them. It is both a loss in the context that there is no worth in the acquisition, and the item may also require some storage or maintenance costs. Additionally, it is common that the longer an item is held, the less value it has over time until it is worthless in the eyes of financial accounting. Legacy assets do have the potential to add value to a company in different periods or economies. Outdated items can become collector's items because of their nostalgic qualities or rarity. Shifts in commerce, lifestyle, etc., can also cause outdated liabilities to make money for the holding company once again.
Money can also be considered a legacy asset. Some major banks have legacy assets in the form of long-term savings. These investments have lost their actual worth, or they could be loans that the bank will not collect; these losses are also known as bad debts.
Legacy assets became a popular issue during the 2008 economic crisis. Many struggling banks had them on their balance sheets. They had problems finding the capital required to survive in business. The Troubled Asset Relief Program (TARP) and the Public-Private Investment Program for Legacy Assets (PPIPLA) program intended to help banks attract capital by reducing and removing legacy assets in trouble. In many cases, the United States Treasury acquired troubled assets. In others, it offered guarantees and reduced financing to private buyers interested in purchasing some legacy assets from struggling banks.
Examples of Legacy Assets
- Information Technology: Corporation Keo produces computer systems. Keo retains 25 computers of every model it produces each year. The company keeps computers for its corporate museum, public relations, or teaching events. Keo has been collecting their computers since its launch in 1979. As a result, Keo has a few dozen computers in its custody. They're recorded on its balance sheet; however, these assets are outdated and hardly worth anything in the resale market. As a result, they are regarded as legacy assets. The only value is in nostalgia for the company itself.
- Music: Trent Music has been in the industry since the 1920s. Trent has always kept additional recording and music playing instruments in its storage facility, but old gramophones, turntables, and 8-track players have not kept their value through the decades. The balance sheet of Tent Music reflects these items as legacy assets. Trent Music will occasionally donate an instrument to a museum or local theater company for productions. When vinyl records made a comeback, the company saw an uptick in demand for vintage turntables. Trent was able to market a number of their assets due to a change in consumer tastes. Due to the shift in the market, Trent Music was able to do turn devalued assets into money-making assets.