A component is expected to require replacement before the structure’s analyzed remaining horizon. How is it treated in this breakdown?
Correct Answer
D) As a short-lived component with separately supported loss.
In the stated breakdown, components with an expected replacement horizon shorter than the building’s remaining horizon need distinct treatment. This is not automatically functional obsolescence, exclusion from value or a claim that every component’s life equals the building’s.
Why This Is the Correct Answer
Option D is correct because a component whose remaining useful life is shorter than the remaining economic life of the building is a short-lived component. Physical deterioration is calculated separately for short-lived and long-lived components to avoid double depreciation of the short-lived items.
Why the Other Options Are Wrong
Option A: As functional obsolescence, since it has a replacement date.
Option A calls it functional obsolescence because it has a replacement date. Having a shorter replacement horizon is a matter of physical wear and component life, not a design or utility deficiency, so it is not functional obsolescence for that reason.
Option B: As a long-lived component, since it is inside the structure.
Option B calls it a long-lived component because it is inside the structure. Location inside the building does not decide the category; a component that needs replacement before the building's remaining life ends is short-lived.
Option C: As excluded from the depreciation analysis of the structure.
Option C excludes it from the depreciation analysis. Short-lived components are part of the structure's physical deterioration and are measured separately, not left out.
Wears out first, measured first
If an item will wear out before the building does, it is short-lived and gets its own depreciation line.
How to use: Use this test to classify a component as short-lived or long-lived.
Exam Tip
Compare the component's remaining life with the building's remaining economic life; shorter means short-lived.
Common Mistakes to Avoid
- -Labeling a short-lived component as functional obsolescence
- -Classifying components by location rather than by remaining life
- -Depreciating short-lived items both separately and within the overall structure
Concept Deep Dive
Analysis
This question tests the distinction between short-lived and long-lived components in a breakdown of physical deterioration. A component expected to need replacement before the building's remaining economic life ends is short-lived and needs its own depreciation measure. Treating it separately avoids depreciating it twice.
Background Knowledge
In the breakdown method, short-lived components such as roof covering, paint, floor covering, water heaters and furnaces have remaining useful lives shorter than the building's remaining economic life. Their deterioration is measured separately from the long-lived components, which are expected to last as long as the building.
Real-World Application
An appraiser notes that a house's roof covering has about five years of life left while the structure has decades remaining. The roof is depreciated as a short-lived item based on its own age and life, and the long-lived structural components are depreciated separately.
More Cost Approach Questions
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