Under a simple linear age-life model, what fraction estimates accrued depreciation?
Correct Answer
A) Effective age divided by total economic life.
For the stipulated simple zero-salvage linear age-life model, the consumed proportion is effective age divided by total economic life. Effective age reflects supported condition/utility rather than merely construction age. Other depreciation models need not follow that linear relationship.
Why This Is the Correct Answer
Option A is correct because in the age-life method, depreciation is estimated by dividing the effective age of the improvement by its estimated economic life. For example, 10 years of effective age over a 50-year life gives 20% depreciation.
Why the Other Options Are Wrong
Option B: Actual age divided by remaining economic life.
Option B divides actual age by remaining economic life. The age-life ratio uses effective age over total economic life; using actual age ignores condition, and using remaining life as the denominator distorts the percentage.
Option C: Remaining life divided by effective age.
Option C divides remaining life by effective age. That inverts the relationship and does not produce the share of life consumed, so it does not estimate accrued depreciation.
Option D: Total economic life divided by actual age.
Option D divides total economic life by actual age. That is an inverted ratio using actual age, and it produces a number greater than one for most buildings rather than a depreciation percentage.
Used Over Whole
Depreciation is the part used up over the whole life: effective age over total economic life. Like slices eaten over slices in the pie.
How to use: Use this fraction to test any age-life formula choice.
Exam Tip
The correct ratio has effective age on top and total economic life on the bottom. Choices with remaining life or actual age in the formula are suspect.
Common Mistakes to Avoid
- -Using remaining economic life as the denominator
- -Using actual age instead of effective age
- -Inverting the ratio
Concept Deep Dive
Analysis
This question tests the basic age-life ratio. Under a simple linear model, the proportion of value lost equals effective age divided by total economic life. The other choices swap terms or use actual age or remaining life incorrectly.
Background Knowledge
Total economic life equals effective age plus remaining economic life. The age-life method treats depreciation as the share of total economic life already consumed, measured by effective age rather than chronological age.
Real-World Application
An appraiser estimates a home's effective age at 15 years and its total economic life at 60 years. She applies 25 percent depreciation to cost new in 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?
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Previous Question
Building cost new is $480,000, with total building depreciation $90,000. Separate site improvements are already as-is $40,000 and not included in the building or land figures. Supported vacant-site value is $125,000. What total indication results?
Next Question
Improvement cost new is $280,000 and a supported 72% good factor represents the entire remaining improvement proportion after all loss. Add supported site $95,000. What total results?