Improvement cost new is $485,000. Separately supported improvement depreciation deductions of $97,000 are expressly nonoverlapping and not already excluded from cost new. Add supported site value of $155,000, already reflecting any site losses. What total indicated value results?
Correct Answer
B) $543,000
485000−(97000)+155000 = 543000. Common errors: leaving out the site value gives $388,000; not deducting the depreciation gives $640,000; adding the depreciation instead of deducting it gives $737,000.
Why This Is the Correct Answer
Option B is correct because $485,000 less $97,000 of depreciation leaves $388,000 of depreciated improvements. Adding the $155,000 site value gives $543,000.
Why the Other Options Are Wrong
Option A: $388,000
Option A, $388,000, leaves out the site value: $485,000 - $97,000 = $388,000. Adding the $155,000 site gives $543,000.
Option C: $640,000
Option C, $640,000, does not deduct the depreciation: $485,000 + $155,000 = $640,000. Deducting the $97,000 gives $543,000.
Option D: $737,000
Option D, $737,000, adds the depreciation instead of deducting it: $485,000 + $97,000 + $155,000 = $737,000. The correct calculation is $485,000 - $97,000 + $155,000 = $543,000.
Minus Wear, Plus Land
In the summation, depreciation carries a minus sign and land carries a plus sign. Check the signs before the arithmetic.
How to use: Use this sign check on any cost summation.
Exam Tip
Distractors often reverse the sign of depreciation or drop the site. Check both before you choose.
Common Mistakes to Avoid
- -Adding depreciation instead of subtracting it
- -Forgetting to add the site value
- -Deducting site losses again when the site value already reflects them
Concept Deep Dive
Analysis
This question tests a straightforward cost summation. Deduct the supported depreciation from cost new and add the site value, which already reflects any site losses.
Background Knowledge
The cost approach adds site value to the depreciated cost of improvements. When site value already reflects site-related losses, no further site deduction is made.
Real-World Application
An appraiser values a ten-year-old home. She deducts supported physical depreciation from the current cost new and adds a site value drawn from lot sales in the subdivision.
More Cost Approach Questions
Why can equivalent-utility replacement cost be useful for an obsolete improvement?
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What best supports a claimed loss from a bathroom-layout deficiency?
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Previous Question
Direct and indirect improvement costs total $340,000, excluding entrepreneurial incentive. The separately supported incentive is 12% of that stated base and is not included elsewhere. What total improvement cost new results?
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Building cost new is $410,000 and total building depreciation $90,000. Separate site improvements are already valued as-is at $35,000 and are not in the building figures. Add supported vacant-site value $100,000, which excludes those improvements. What total results?