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Cost ApproachMEDIUM13.6% of exam

Cost new of the improvements is $360,000 and their depreciated contribution is $270,000. What percentage have the improvements depreciated?

Correct Answer

D) 25%

Why this is correct: depreciation is measured against cost new, which is what has been lost from. Calculation: ($360,000 - $270,000) / $360,000 = 25%. Why the other choices are wrong: 33.3% divides the loss by the depreciated figure rather than by cost new, which overstates it; 75% is the percentage good, the part that remains; 20% follows from neither figure.

Answer Options
A
20%
B
75%
C
33.3%
D
25%

Why This Is the Correct Answer

Why this is correct: depreciation is measured against cost new, which is what has been lost from. Calculation: ($360,000 - $270,000) / $360,000 = 25%. Why the other choices are wrong: 33.3% divides the loss by the depreciated figure rather than by cost new, which overstates it; 75% is the percentage good, the part that remains; 20% follows from neither figure.

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