BCA Depreciation & Obsolescence Analysis

Question 1

What are the three main types of depreciation recognized in business appraisal?

Accepted Answer

Physical deterioration, functional obsolescence, and external obsolescence

Answer

In appraisal practice, the three recognized forms of depreciation are physical deterioration, functional obsolescence, and external (economic) obsolescence.

Question 2

Which type of depreciation results primarily from wear, tear, and physical damage to a business asset?

Accepted Answer

Physical deterioration

Answer

Physical deterioration refers to the loss in value due to wear, age, or physical damage that accumulates through normal use of the asset.

Question 3

In the cost approach to business valuation, depreciation is best defined as:

Accepted Answer

The total loss in value from any cause, measured from the asset's reproduction or replacement cost new

Answer

In the cost approach, accrued depreciation represents the total loss in value from all causes measured against the cost to reproduce or replace the asset as new.

Question 4

What is 'curable' depreciation in the context of business appraisal?

Accepted Answer

Depreciation where the cost to remedy the deficiency is justified by the resulting increase in value

Answer

Curable depreciation exists when repairing or correcting the deficiency is economically feasible because the cost to cure is offset by the resulting gain in value.

Question 5

An appraiser estimating the 'effective age' of a business asset is determining:

Accepted Answer

The age the asset appears to be based on its condition, regardless of its actual chronological age

Answer

Effective age reflects how old an asset appears to be based on its physical condition and utility, which may be greater or less than its actual chronological age.

(BCA) Business Certified Appraiser Practice Test

(BCA) Business Certified Appraiser Practice Test

BCA Depreciation & Obsolescence Analysis