A component with a 20-year life is 5 years old and costs $12,000 new. Its accrued depreciation is:
Correct Answer
B) $3,000
Why this is correct: Accrued depreciation = (Effective Age ÷ Total Economic Life) × Cost New. Here, (5 years ÷ 20 years) × $12,000 = 0.25 × $12,000 = $3,000. Why the other choices are wrong: "$9,000, the remaining life portion" is wrong; that would be remaining value, not depreciation. "$2,400, at one-fifth per year" is wrong; that uses 1/5 of cost ($2,400) but not based on age-life ratio. "$12,000, its full replacement cost" is wrong; that is the cost new, not depreciation. Exam tip: For age-life depreciation, use: (Effective Age / Total Life) × Cost.
Why This Is the Correct Answer
Why this is correct: Accrued depreciation = (Effective Age ÷ Total Economic Life) × Cost New. Here, (5 years ÷ 20 years) × $12,000 = 0.25 × $12,000 = $3,000. Why the other choices are wrong: "$9,000, the remaining life portion" is wrong; that would be remaining value, not depreciation. "$2,400, at one-fifth per year" is wrong; that uses 1/5 of cost ($2,400) but not based on age-life ratio. "$12,000, its full replacement cost" is wrong; that is the cost new, not depreciation. Exam tip: For age-life depreciation, use: (Effective Age / Total Life) × Cost.
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Previous Question
An appraiser observes that a 25-year-old retail strip center has been consistently upgraded with modern HVAC, LED lighting, and façade renovations, and remains fully leased at market rents despite nearby competition. The appraiser estimates its total economic life as 50 years. Which statement best supports assigning an effective age of 12 years?
Next Question
A 12-unit apartment building has a single, centrally located laundry room serving all units — a design common in 1960s construction. Current market norms require in-unit washer/dryer hookups or at minimum, one laundry room per 6 units. Adding five additional laundry rooms (one per two floors) would cost $185,000 and is physically feasible. However, local rent surveys show no premium for buildings with more laundry access, and tenants consistently accept the existing arrangement. What is the appropriate treatment of this feature under the cost approach?