Legacy asset is used to describe a category of assets that has been in the possession of an organization for so long that its value has reduced to such a degree that it may soon become a liability for the company rather than an asset. This decrease in value of the legacy asset may be precipitated by any number of variables, such as a general weathering and degradation of physical properties that occur over time, which is a decline in value that may be the consequence of changing tastes and other external factors that may apply in a particular situation. Sometimes, if the organization holds onto that asset in certain situations, the possession of the legacy asset by the organization at that time will result in a loss.
As mentioned, the legacy asset may be affected by certain external or internal factors rather than a deficiency in the assets itself. An illustration of a legacy asset can be seen in a case where a company has several houses that are included in the list of its assets. In a situation where there is a crash in the housing market, there will be a decline in the value of the houses. An example would be if the company that owns the title to the homes is a bank, and the houses have been used as collateral for loans of specified amounts and were valued at a certain amount based on their value during the height of a boom in the housing market. The houses would then become a liability to the banks when there is a crash in the housing market, because the value of the houses would have depreciated — a situation that may be worsened if such homes never regain the predetermined value at the time of the boom in the market.
Most times, organizations that are saddled with a legacy asset might decide to cut their losses and dispose of such assets before they turn to liabilities. At other times, the organization might decide to retain the legacy asset, regardless of any decline or potential loss with a view to converting the apparent loss to a profit at opportune time. This could occur when trends reverse and such assets come back into fashion, leading to an increase in their value and the possibility of making a tidy profit by selling the assets at that time.