A 45-year-old building has a supported effective-age estimate below 45 years after current condition-and-utility analysis. Under a 65-year total-life age-life model, which relationship follows?
Correct Answer
B) Effective age is below chronology and remaining life is greater than 20 years.
If supported condition-and-utility evidence establishes effective age below 45 years, then under the stated 65-year linear model remaining life is 65 minus that effective age, which exceeds 20 years. Effective age is not fixed at chronological age, and renovations reduce rather than add to effective age when they improve condition and utility. USPAP SR 1-4(c) requires supported depreciation analysis but does not supply a fixed effective-age schedule.
Why This Is the Correct Answer
Option B is correct because effective age is supported to be below the 45-year chronological age. Under the 65-year model, remaining life is 65 minus that effective age, so it is greater than 20 years.
Why the Other Options Are Wrong
Option A: Effective age must equal 45 and remaining life 20.
Option A, effective age must equal 45 and remaining life 20, is wrong because effective age is not fixed at chronological age. The stem says supported effective age is below 45, so remaining life is more than 20 years.
Option C: Effective age must exceed 45 because the renovations add wear to the structure over time.
Option C, effective age must exceed 45 because renovations add wear, is wrong because renovations that improve condition and utility reduce effective age rather than increase it. The stem also states the supported effective age is below 45.
Option D: Effective age must equal 65 and remaining life zero.
Option D, effective age must equal 65 and remaining life zero, is wrong because that would mean the building has reached the end of its economic life. Nothing in the stem supports that, and the supported effective age is below 45.
Younger acting, longer left
When effective age drops below actual age, remaining life grows by the same amount.
How to use: Use this when comparing effective age to chronological age in remaining-life questions.
Exam Tip
Effective age can differ from actual age in either direction; let the stated condition evidence decide. Then apply total life minus effective age.
Common Mistakes to Avoid
- -Assuming effective age equals actual age
- -Thinking renovations raise effective age
- -Forgetting that a lower effective age lengthens remaining life
Concept Deep Dive
Analysis
This question tests the relationship between actual age, effective age and remaining life in an age-life model. The building is 45 years old, but supported analysis shows an effective age below 45. With a 65-year total life, remaining life is 65 minus effective age, which must then exceed 65 - 45 = 20 years.
Background Knowledge
Effective age is based on the condition and utility of an improvement and can be higher or lower than its actual age. Because effective age plus remaining economic life equals total economic life, a lower effective age means a longer remaining life.
Real-World Application
An appraiser inspects a 45-year-old house that has had a new roof, systems and kitchen. Based on its condition, the appraiser estimates a lower effective age, which leaves more remaining economic life than the actual age alone would suggest.
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