Total economic life is 65 years and remaining economic life is 40. The implied effective age is:
Correct Answer
D) 25 years — the difference
Why this is correct: The fundamental age-life relationship is: Total Economic Life = Effective Age + Remaining Economic Life. Given Total (65) and Remaining (40), Effective Age = 65 - 40 = 25 years. Why the other choices are wrong: "40 years of consumed life" incorrectly equates remaining life with consumed life. "65 years less the renovations" misapplies the formula by subtracting an undefined renovation factor. "105 years combined" erroneously adds the two given numbers instead of finding their difference. Exam tip: Remember the simple triangle: Total = Effective Age + Remaining. Given any two, solve for the third.
Why This Is the Correct Answer
Why this is correct: The fundamental age-life relationship is: Total Economic Life = Effective Age + Remaining Economic Life. Given Total (65) and Remaining (40), Effective Age = 65 - 40 = 25 years. Why the other choices are wrong: "40 years of consumed life" incorrectly equates remaining life with consumed life. "65 years less the renovations" misapplies the formula by subtracting an undefined renovation factor. "105 years combined" erroneously adds the two given numbers instead of finding their difference. Exam tip: Remember the simple triangle: Total = Effective Age + Remaining. Given any two, solve for the third.
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A building has cost new of $520,000, an effective age of 22 and total economic life of 55. Depreciated improvement value is: