A building's actual age is 25 years, effective age 18, and total economic life 55. Age-life depreciation is:
Correct Answer
C) 32.7 percent of cost new
Why this is correct: In the age-life method, depreciation is calculated as Effective Age divided by Total Economic Life. Here, effective age (18 years) divided by total economic life (55 years) equals 0.327, or 32.7% of the cost new. Why the other choices are wrong: "Cannot be computed without actual age" is false because effective age, not actual age, is used. "45.5 percent of cost new" incorrectly uses actual age (25/55). "18 percent of cost new" mistakenly uses effective age as a direct percentage without dividing by total life. Exam tip: For age-life depreciation, use: (Effective Age / Total Economic Life) x Cost New. Ignore actual age for the calculation.
Why This Is the Correct Answer
Why this is correct: In the age-life method, depreciation is calculated as Effective Age divided by Total Economic Life. Here, effective age (18 years) divided by total economic life (55 years) equals 0.327, or 32.7% of the cost new. Why the other choices are wrong: "Cannot be computed without actual age" is false because effective age, not actual age, is used. "45.5 percent of cost new" incorrectly uses actual age (25/55). "18 percent of cost new" mistakenly uses effective age as a direct percentage without dividing by total life. Exam tip: For age-life depreciation, use: (Effective Age / Total Economic Life) x Cost New. Ignore actual age for the calculation.
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In a breakdown analysis, why are short-lived items removed from the cost basis before applying the long-lived age-life ratio?
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An appraiser writes that a 40-year-old house has an effective age of 10 but describes original wiring, original kitchen and a 25-year-old roof. The report's problem is: