Market extraction of depreciation is limited by the fact that it:
Correct Answer
A) Produces a total without separating the causes
Why this is correct: Market extraction calculates total depreciation by comparing a comparable sale's price to its estimated cost new. Its key limitation is that it yields a lump-sum depreciation figure without breaking it down into physical, functional, and external causes. Why the other choices are wrong: Requires access to the comparable's tax records is wrong; extraction uses market data, not necessarily tax records. Cannot be applied to residential property is wrong; it can be used for any property type with adequate data. Always yields a lower figure than age-life is wrong; there is no such rule, as results vary. Exam tip: Extraction gives the 'what' (total depreciation), not the 'why' (the cause).
Why This Is the Correct Answer
Why this is correct: Market extraction calculates total depreciation by comparing a comparable sale's price to its estimated cost new. Its key limitation is that it yields a lump-sum depreciation figure without breaking it down into physical, functional, and external causes. Why the other choices are wrong: Requires access to the comparable's tax records is wrong; extraction uses market data, not necessarily tax records. Cannot be applied to residential property is wrong; it can be used for any property type with adequate data. Always yields a lower figure than age-life is wrong; there is no such rule, as results vary. Exam tip: Extraction gives the 'what' (total depreciation), not the 'why' (the cause).
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