Total accrued depreciation includes:
Correct Answer
D) Physical deterioration, functional and external obsolescence
Why this is correct: Total accrued depreciation in the cost approach is the sum of all losses in value from three causes: physical deterioration (wear and tear), functional obsolescence (design flaws), and external obsolescence (outside factors). Why the other choices are wrong: The difference between cost new and the current assessed value is wrong because assessed value is for tax purposes and may not reflect market value or proper depreciation measurement. Physical deterioration only is wrong because it omits functional and external obsolescence. Only losses the owner can economically cure is wrong because it excludes incurable depreciation, which is still deducted. Exam tip: Remember the three Ds: Deterioration, Design, and external (locational) Disadvantages.
Why This Is the Correct Answer
Why this is correct: Total accrued depreciation in the cost approach is the sum of all losses in value from three causes: physical deterioration (wear and tear), functional obsolescence (design flaws), and external obsolescence (outside factors). Why the other choices are wrong: The difference between cost new and the current assessed value is wrong because assessed value is for tax purposes and may not reflect market value or proper depreciation measurement. Physical deterioration only is wrong because it omits functional and external obsolescence. Only losses the owner can economically cure is wrong because it excludes incurable depreciation, which is still deducted. Exam tip: Remember the three Ds: Deterioration, Design, and external (locational) Disadvantages.
More Cost Approach Questions
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Functional obsolescence caused by a deficiency is measured as curable when:
Curable physical deterioration is measured at cost to cure because:
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An appraiser estimates a commercial office building's total economic life as 60 years and determines its effective age to be 24 years based on physical condition, functional utility, and external influences. What is the building's remaining economic life?
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A 3,000 square foot warehouse costs $62 per square foot with $45,000 of site improvements. Cost new is: