A 30-year-old building received a replacement roof 2 years ago. What should breakdown depreciation reflect?
Correct Answer
A) The roof’s own supported condition, effective age and remaining life.
A replaced roof is analyzed as its own component using supported effective age, condition and remaining life in breakdown depreciation. Calendar age 2 may inform but does not automatically equal effective age. The whole building’s 30-year chronological age does not fix the roof’s loss.
Why This Is the Correct Answer
Option A is correct because effective age refers to the stage of an improvement's or component's economic life as reflected by its actual condition and utility. In breakdown depreciation, the replaced roof is analyzed as its own component with its supported condition, effective age and remaining life. Its 2 calendar years can inform, but do not automatically equal, its effective age.
Why the Other Options Are Wrong
Option B: No roof effect because the building date is unchanged.
Option B says there is no roof effect because the building date is unchanged. The building's 30-year chronological age does not fix the roof's depreciation; the new roof has its own condition and remaining life that change the physical depreciation estimate.
Option C: An increase to land value equal to the roof cost, with no depreciation change.
Option C says to increase land value by the roof cost with no depreciation change. A roof is part of the improvements, not the land, so its effect belongs in the improvement depreciation analysis.
Option D: Only external obsolescence regardless of roof condition.
Option D says to treat the roof as only external obsolescence regardless of condition. External obsolescence comes from outside influences, while a roof's condition is a physical matter analyzed under physical depreciation.
Each part has age
In the breakdown method, each component carries its own effective age. A new roof on an old house is a young roof.
How to use: Use this when a question describes a replaced component on an older building.
Exam Tip
Separate building age from component age; questions often test whether you let the building's age override a component's own condition.
Common Mistakes to Avoid
- -Applying the building's actual age to a replaced component
- -Treating calendar age of a component as its effective age without inspection
- -Classifying component condition as external obsolescence
Concept Deep Dive
Analysis
This question tests how the breakdown method treats a component replaced more recently than the building. Effective age can apply to a component as well as to the whole improvement, based on its actual condition and utility. A two-year-old roof on a 30-year-old building is analyzed on its own supported condition, effective age and remaining life.
Background Knowledge
The breakdown method measures physical, functional and external depreciation item by item. Short-lived components such as roofs are often analyzed separately from long-lived items. Each component's effective age plus remaining economic life equals its total economic life.
Real-World Application
An appraiser values a 30-year-old house with a two-year-old roof and a 30-year-old furnace. Using the breakdown method, the appraiser assigns little physical depreciation to the roof based on its condition and more to the original furnace.
More Cost Approach Questions
Why can equivalent-utility replacement cost be useful for an obsolete improvement?
An appraiser estimates the current replacement cost new of the improvements at $890,000, accrued depreciation from all causes at $170,000, and land value at $325,000. All necessary cost components and depreciation are included in those amounts. What is the indicated property value?
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