What does functional depreciation specifically refer to?

Functional depreciation specifically refers to a decrease in an asset's value due to outdated features or design, which may result from changes in technology, preferences, or standards within the industry. This concept highlights how an asset may become less useful or less desirable even if it is still physically intact. For example, a building designed with outdated architectural styles or a piece of machinery that lacks modern efficiencies may contribute to lower market value despite its current physical condition. This categorization of depreciation is focused on obsolescence tied to functionality, separate from wear and tear or external economic factors, which are considered in other types of depreciation.