BCA Depreciation & Obsolescence Analysis 2

Question 1

Functional obsolescence caused by an outdated design or inadequate technology is best characterized as:

Accepted Answer

A superadequacy or deficiency within the asset itself that impairs its utility

Answer

An external market force reducing the asset's competitive position

Answer

Physical wear from daily production operations

Answer

A regulatory change affecting permissible use of the asset

Question 2

A factory that consumes significantly more energy per unit of output than modern equivalent facilities is experiencing:

Accepted Answer

Functional obsolescence due to a deficiency in operational efficiency

Answer

External obsolescence due to rising energy costs

Answer

Physical deterioration of its mechanical systems

Answer

Curable physical deterioration requiring immediate repair

Question 3

External (economic) obsolescence is typically classified as incurable because:

Accepted Answer

It results from forces outside the owner's control that cannot be remedied by the owner

Answer

It would cost more to cure than the asset is worth

Answer

Appraisal standards prohibit curing external factors

Answer

The loss is too small to measure and correct

Question 4

Which method estimates functional obsolescence by capitalizing the difference in operating costs between the subject asset and a modern equivalent?

Accepted Answer

Capitalized income loss method

Answer

Sales comparison method

Answer

Market extraction method

Answer

Straight-line depreciation method

Question 5

'Superadequacy' in a business asset refers to:

Accepted Answer

Excess capacity, features, or quality beyond what the market requires or will pay for

Answer

An above-average physical condition resulting from superior maintenance

Answer

Equipment that exceeds all applicable environmental compliance standards

Answer

An asset that has outlasted its originally projected useful life

Question 6

A commercial property's value declines because the surrounding neighborhood has experienced significant economic deterioration. This is an example of:

Accepted Answer

External (economic) obsolescence

Answer

Functional obsolescence due to a design deficiency

Answer

Physical deterioration from deferred maintenance

Answer

Curable functional obsolescence

Question 7

The 'observed condition' method of estimating physical depreciation requires the appraiser to:

Accepted Answer

Physically inspect the asset and estimate the percentage of depreciation for each component based on its actual condition

Answer

Apply a standardized depreciation percentage based solely on the asset's age

Answer

Calculate replacement cost and subtract the current book value

Answer

Review maintenance records and insurance claims without a site visit