Three independently supported, nonoverlapping improvement loss allowances are physical $54,000, functional $21,000 and external $33,000. What total accrued improvement depreciation results? Cost new and land are not requested.
Correct Answer
D) $108,000
54000+21000+33000 = 108000. Common errors: leaving out the external loss gives $75,000; leaving out the functional loss gives $87,000; reporting only the physical loss gives $54,000.
Why This Is the Correct Answer
Option D is correct because total depreciation under the breakdown method is found by adding the individual estimates. Adding physical $54,000, functional $21,000 and external $33,000 gives $108,000.
Why the Other Options Are Wrong
Option A: $54,000
Option A, $54,000, is wrong because it reports only the physical loss and omits the $21,000 functional and $33,000 external losses. The total is $108,000.
Option B: $75,000
Option B, $75,000, is wrong because it adds physical and functional losses ($54,000 + $21,000) but leaves out the $33,000 external loss. The total is $108,000.
Option C: $87,000
Option C, $87,000, is wrong because it adds physical and external losses ($54,000 + $33,000) but leaves out the $21,000 functional loss. The total is $108,000.
P plus F plus E
Total depreciation equals Physical plus Functional plus External, each counted once.
How to use: Use this whenever a question lists separate depreciation categories and asks for the total.
Exam Tip
When the stem says the losses are nonoverlapping, add all of them. Answers that omit one category are the common traps.
Common Mistakes to Avoid
- -Omitting external obsolescence because it is outside the property
- -Reporting only physical deterioration as total depreciation
- -Counting the same loss under two categories
Concept Deep Dive
Analysis
This question tests the breakdown method: total accrued depreciation is the sum of the separate physical, functional and external estimates. Because the three allowances are independently supported and nonoverlapping, they are added: $54,000 + $21,000 + $33,000 = $108,000.
Background Knowledge
The three categories of accrued depreciation are physical deterioration, functional obsolescence and external obsolescence. In the breakdown method each is measured separately and the results are summed, taking care not to count the same loss twice.
Real-World Application
An appraiser measures roof and paint wear, a poor floor plan, and a loss from nearby traffic noise as separate items. After confirming there is no double counting, the appraiser sums them to get total depreciation for the cost approach.
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?
Improvement cost new is $595,000. Separately supported improvement depreciation deductions of $48,000, $27,000 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?
What best supports a claimed loss from a bathroom-layout deficiency?
Improvement cost new is $1,850,000. Separately supported improvement depreciation deductions of $310,000, $620,000 are expressly nonoverlapping and not already excluded from cost new. No site is included. What depreciated improvement amount results?
Which scenario most strongly supports giving the cost approach substantial weight?
A cost total $650,000 explicitly includes $40,000 of non-realty FF&E outside the appraised real-property interest. Exclude it. Supported realty-only total depreciation is $55,000. Add site $200,000, with no overlap. What real-property cost indication results?
A 2,200-sf dwelling costs $200 per square foot, and a separate 400-sf garage costs $75 per square foot. These costs are complete and do not overlap. Both have an effective age of 15 years and a total life of 50 years, with straight-line depreciation and no salvage value. No site value or other loss is involved. What is the combined depreciated cost of the dwelling and garage?
A new feature in the improvements has a current cost of $45,000 and a market contribution of $18,000. The entire difference is due to superadequacy, with no physical or external loss and no overlap. What is the loss from the superadequacy?
An external influence causes an annual net income loss of $9,600. The capitalization rate for the loss is 8%, and no other economic factors change. What is the indicated loss in value of the whole property, before allocation between site and improvements?
People Also Study
Real Estate Market
13.6% of exam
Property Description
11.8% of exam
Land or Site Valuation
4.5% of exam
Sales Comparison Approach
16.4% of exam
Income Approach
8.2% of exam
Previous Question
An improvement with an effective age of 20 years has 20% total depreciation, all on a straight-line basis. What average annual percentage of original cost does that represent?
Next Question
A new feature in the improvements has a current cost of $45,000 and a market contribution of $18,000. The entire difference is due to superadequacy, with no physical or external loss and no overlap. What is the loss from the superadequacy?