A building has a total economic life of 65 years and a remaining economic life of 40 years. What is its effective age?
Correct Answer
A) 25 years
65−40 = 25 years effective age. Common errors: adding remaining life to total life instead of subtracting gives 105 years; reporting the remaining life instead of the effective age gives 40 years; reporting the total economic life gives 65 years.
Why This Is the Correct Answer
Option A is correct because effective age equals total economic life minus remaining economic life: 65 - 40 = 25 years. Checking, 25 + 40 = 65, which matches the stated total.
Why the Other Options Are Wrong
Option B: 40 years
Option B, 40 years, is the remaining economic life, not the effective age. Effective age is 65 - 40 = 25 years.
Option C: 65 years
Option C, 65 years, is the total economic life. Effective age is only the used portion, 65 - 40 = 25 years.
Option D: 105 years
Option D, 105 years, adds remaining life to total life: 65 + 40 = 105. Effective age is found by subtracting, 65 - 40 = 25 years.
Whole minus left equals used
Total life minus the life left equals the life used, which is effective age.
How to use: Use whole minus left equals used to solve for effective age.
Exam Tip
Effective age cannot exceed total economic life in this identity, so an answer larger than the total is a sign of adding instead of subtracting.
Common Mistakes to Avoid
- -Adding total and remaining life
- -Reporting remaining life as effective age
- -Reporting total life as effective age
Concept Deep Dive
Analysis
This question tests rearranging the economic-life identity to solve for effective age. Since effective age plus remaining life equals total life, effective age equals total life minus remaining life.
Background Knowledge
In the age-life model, total economic life is split into the portion already used, effective age, and the portion still ahead, remaining economic life. Knowing any two of these lets you find the third. Effective age reflects condition and utility rather than the calendar.
Real-World Application
An appraiser estimates a building's total economic life at 65 years and judges that it can contribute value for about 40 more years. She concludes an effective age of 25 years and uses it to compute age-life depreciation.
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