A building has an effective age of 15 years and a total economic life of 60 years. Its cost new is $380,000. What is the age-life depreciation?
Correct Answer
C) $95,000, using the 15/60 ratio
Why this is correct: Age-life depreciation uses the ratio of effective age to total economic life. The ratio is 15 years / 60 years = 0.25 or 25%. Depreciation amount is this ratio multiplied by the cost new: 0.25 * 380,000 = 95,000. Why the other choices are wrong: "$76,000, at one-fifth of cost" uses 1/5 (20%) incorrectly. "$57,000, at fifteen sixtieths" incorrectly calculates 15/60 of 380,000 as 57,000 (a math error; 15/60 of 380,000 is 95,000). "$63,300, on remaining life" incorrectly uses remaining life (45 years) in the calculation. Exam tip: Depreciation = (Effective Age / Total Economic Life) * Cost New. Double-check your arithmetic.
Why This Is the Correct Answer
Why this is correct: Age-life depreciation uses the ratio of effective age to total economic life. The ratio is 15 years / 60 years = 0.25 or 25%. Depreciation amount is this ratio multiplied by the cost new: 0.25 * 380,000 = 95,000. Why the other choices are wrong: "$76,000, at one-fifth of cost" uses 1/5 (20%) incorrectly. "$57,000, at fifteen sixtieths" incorrectly calculates 15/60 of 380,000 as 57,000 (a math error; 15/60 of 380,000 is 95,000). "$63,300, on remaining life" incorrectly uses remaining life (45 years) in the calculation. Exam tip: Depreciation = (Effective Age / Total Economic Life) * Cost New. Double-check your arithmetic.
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An appraiser observes that a 32-year-old medical office building has been consistently upgraded with state-of-the-art imaging equipment infrastructure, LED lighting, and seismic retrofitting. Local market participants indicate such buildings trade at premiums reflecting 12–15 years of effective age. The appraiser selects 13 years as the supported effective age. Which statement best explains why this effective age is defensible under USPAP?
Next Question
A 12,000-square-foot retail strip center was constructed in 2005 with four identical 3,000-sf tenant spaces, each featuring a dedicated 200-sf enclosed storage room. Market analysis reveals that today’s comparable centers allocate only 75 sf of storage per unit, and tenants consistently lease adjacent spaces or use off-site storage due to the excess on-site capacity. The appraiser estimates the incremental construction cost of the excess 125 sf per unit (500 sf total) was $8,500 at time of construction. Physical depreciation has reduced the building’s reproduction cost new by 22%. What is the most supportable measure of functional obsolescence caused by this superadequacy?