A building with an effective age of 15 years and a total economic life of 50 years would have what percentage of accrued depreciation using the age-life method?
Correct Answer
B) 30%
Using the age-life method: Depreciation = (Effective Age ÷ Total Economic Life) × 100. (15 ÷ 50) × 100 = 30%.
Why This Is the Correct Answer
Option B (30%) is correct because the age-life method formula is: (Effective Age ÷ Total Economic Life) × 100. Substituting the given values: (15 years ÷ 50 years) × 100 = 0.30 × 100 = 30%. This means that 30% of the building's total economic life has been consumed, resulting in 30% accrued depreciation. The calculation is straightforward division followed by conversion to a percentage.
Why the Other Options Are Wrong
Option A: 15%
15% incorrectly represents just the effective age as a percentage without proper calculation, failing to divide by the total economic life
Option C: 35%
35% appears to be an arbitrary number that doesn't result from the proper age-life method calculation of 15÷50
Option D: 70%
70% represents the remaining economic life (35 years ÷ 50 years), which is the opposite of what the question asks for - this would be the remaining useful life percentage, not the accrued depreciation
EAT Formula
EAT: Effective Age over Total economic life = Depreciation percentage. Remember 'EAT your depreciation' - you consume (eat) the building's value over time.
How to use: When you see an age-life depreciation question, immediately think 'EAT' and set up the fraction: Effective Age on top, Total economic life on bottom, then convert to percentage
Exam Tip
Always double-check that you're dividing effective age by total economic life, not the reverse - a common error that leads to dramatically wrong answers
Common Mistakes to Avoid
- -Reversing the formula by dividing total economic life by effective age
- -Using chronological age instead of effective age in the calculation
- -Forgetting to convert the decimal result to a percentage by multiplying by 100
Concept Deep Dive
Analysis
The age-life method is a fundamental depreciation calculation technique used in the cost approach to real estate valuation. This method assumes that depreciation occurs at a steady, linear rate over the economic life of a building. The concept tests an appraiser's ability to calculate accrued depreciation by comparing how much of the building's useful life has already been consumed (effective age) against its total expected useful life (economic life). This straightforward mathematical relationship provides a percentage that represents the total depreciation that has occurred from all causes.
Background Knowledge
The age-life method assumes depreciation occurs linearly over time and is used when the appraiser has reliable estimates of both effective age and total economic life. Effective age reflects the apparent age based on condition and maintenance, while economic life represents the total period over which the building contributes value to the property.
Real-World Application
An appraiser evaluating a 15-year-old office building would use this method when comparable sales are limited, requiring the cost approach where depreciation must be estimated to determine the building's current contributory value to the overall property
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