A buyer pays for a house’s doors and plumbing fixtures, which will be removed from the premises for use in another building. The price expected for such items is best described as:
Correct Answer
C) Salvage value
Salvage value is the estimated market value of an entire property or of parts of it, such as plumbing fixtures or doors, that are removed from the premises for use elsewhere. Going-concern value concerns an operating business, insurable value concerns insurance coverage, and book value is an accounting figure.
Why This Is the Correct Answer
Option C is correct because salvage value is the estimated market value of an entire property or of parts of it, such as plumbing fixtures or doors, that are removed from the premises for use elsewhere. The buyer here is paying for items to be taken out and reused in another building.
Why the Other Options Are Wrong
Option A: Going-concern value
Option A, going-concern value, is the value of an operating business together with its real property. It has nothing to do with selling doors and fixtures for removal.
Option B: Insurable value
Option B, insurable value, relates to the portion of a property covered by an insurance policy. It does not describe the price for components being removed for reuse.
Option D: Book value
Option D, book value, is an accounting figure based on cost less recorded depreciation. It is not a market price for items removed from a building.
Salvage gets saved elsewhere
Salvaged items are saved from the building and used somewhere else, so their price is salvage value.
How to use: Use this link when a question describes parts removed from a property for reuse.
Exam Tip
Match the scenario's key clue, removal for use elsewhere, to the value definition rather than choosing a familiar accounting or insurance term.
Common Mistakes to Avoid
- -Confusing salvage value with book value
- -Confusing salvage value with scrap value
- -Choosing insurable value because components are being priced
Concept Deep Dive
Analysis
This question tests the definition of salvage value. The key clue is that parts of a house, such as doors and plumbing fixtures, are being removed for use elsewhere. That matches salvage value rather than other types of value tied to businesses, insurance or accounting.
Background Knowledge
Salvage value is the value of property at the end of its economic life in its present use, or the market value of a property or its parts removed for use elsewhere. It differs from scrap value, which reflects raw material worth. Appraisers distinguish many types of value so that the defined value matches the assignment.
Real-World Application
Before a house is demolished for a new development, a contractor buys its solid wood doors and vintage fixtures for a restoration project. The price paid for those items reflects salvage value.
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