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Functional obsolescence caused by an outdated design or inadequate technology is best characterized as: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

Functional obsolescence stems from deficiencies or superadequacies inherent to the asset itself, such as outdated design, insufficient capacity, or excess features.

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

Excess energy consumption relative to modern alternatives is a functional deficiency that reduces the asset's competitive value compared to current-generation equipment.

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

External obsolescence arises from factors in the broader market or environment that the asset owner cannot remedy, making it inherently incurable from the owner's perspective.

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

The capitalized income loss method quantifies functional obsolescence by converting the ongoing operating cost disadvantage into a lump-sum present value loss.

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

Superadequacy occurs when an asset possesses more capacity or features than the market demands, causing a form of functional obsolescence because the excess goes uncompensated in value.

(BCA) Business Certified Appraiser Practice Test

(BCA) Business Certified Appraiser Practice Test

BCA Depreciation & Obsolescence Analysis 2