After curable items are removed, the long-lived components have a cost new of $240,000. The effective age is 12 years against a total economic life of 60 years. What is the incurable physical deterioration?
Correct Answer
A) $48,000
Why this is correct: the age-life ratio is applied to the cost of the components that remain. Calculation: 12 / 60 x $240,000 = $48,000. Why the other choices are wrong: $60,000 uses 25%, which is a 15-year effective age rather than the 12 given; $192,000 is the undepreciated remainder; $20,000 divides the cost by the effective age, which is not a ratio of life consumed.
Why This Is the Correct Answer
Why this is correct: the age-life ratio is applied to the cost of the components that remain. Calculation: 12 / 60 x $240,000 = $48,000. Why the other choices are wrong: $60,000 uses 25%, which is a 15-year effective age rather than the 12 given; $192,000 is the undepreciated remainder; $20,000 divides the cost by the effective age, which is not a ratio of life consumed.
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A worn furnace would cost $6,000 to replace but replacing it would add only $3,500 to the property's value. How is the deterioration treated?
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An appraiser applies 30% depreciation from age-life, then separately deducts a further 10% for the worn roof included in that ratio. The error is:
