A building has a cost new of $800,000, an effective age of 15 years and an estimated total economic life of 60 years. Using the simplified age-life method, what is accrued depreciation?
Correct Answer
D) $200,000
Why this is correct: The age-life method estimates depreciation as a fraction of cost based on age. Formula: (Effective Age / Total Economic Life) × Cost. Here: (15 years / 60 years) × $800,000 = 0.25 × $800,000 = $200,000. Why the other choices are wrong: $600,000 incorrectly uses remaining life (45/60). $25,000 is not supported by the calculation. $53,333 might come from misapplying the formula. Exam tip: For straight-line age-life: Depreciation = (Age / Total Life) × Cost. Ensure age and life are in the same units (years).
Why This Is the Correct Answer
The effective-age fraction is 15 ÷ 60 = 25%. Applying that fraction to $800,000 cost new gives $200,000 accrued depreciation.
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A commercial property with $240,000 annual gross income sold for $2,000,000 three years ago. Assume market evidence supports applying the same annual gross income multiplier to a comparable property now generating $180,000 annual gross income. What value is indicated?
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