Two separately measured, nonoverlapping curable physical-loss allowances are $8,400 for roofing and $2,600 for painting, both supported on the stated cost-to-cure basis. What total allowance results?
Correct Answer
D) $11,000
8400+2600 = 11000. Common errors: leaving out the painting allowance gives $8,400; leaving out the roofing allowance gives $2,600; subtracting the painting allowance instead of adding it gives $5,800.
Why This Is the Correct Answer
Option D is correct because the two nonoverlapping curable allowances add together: $8,400 + $2,600 = $11,000. In a breakdown analysis, individual depreciation estimates are summed.
Why the Other Options Are Wrong
Option A: $2,600
Option A, $2,600, includes only the painting allowance and leaves out the $8,400 roofing allowance. Adding both gives $11,000.
Option B: $5,800
Option B, $5,800, subtracts the painting allowance instead of adding it: $8,400 - $2,600 = $5,800. Both are losses, so they add to $11,000.
Option C: $8,400
Option C, $8,400, includes only the roofing allowance and leaves out the $2,600 painting allowance. Adding both gives $11,000.
Losses stack up
Separate, nonoverlapping losses stack on top of each other, so you add them.
How to use: Use this whenever a question lists several separate curable items.
Exam Tip
Confirm the items do not overlap, then add each listed allowance.
Common Mistakes to Avoid
- -Reporting only one of several curable items
- -Subtracting one loss from another
- -Adding overlapping items twice
Concept Deep Dive
Analysis
This question tests adding separately measured curable physical deterioration items. Each allowance is measured on a cost-to-cure basis and they do not overlap, so they are simply added. Total depreciation in a breakdown analysis is the sum of the individual estimates.
Background Knowledge
Physical deterioration is considered curable when the cost to correct it is less than the value it adds. Curable items are often measured by cost to cure, and in the breakdown method the individual estimates are added together to reach total depreciation.
Real-World Application
An appraiser observes a worn roof and peeling exterior paint, gets supported cost-to-cure estimates for each, and adds them to report total curable physical deterioration.
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Direct and indirect costs of the improvements total $350,000, which excludes a separate incentive equal to 10% of that amount. Total depreciation is estimated at 20% of the full cost including the incentive, and the site value is $180,000. What is the indicated value by the cost approach?