CIA Financial Analysis & Reporting 3

Question 1

An appraiser is determining the replacement cost of a building destroyed by fire. The original cost was $800,000, accumulated depreciation is $200,000, and the current replacement cost new is $1,100,000. What is the Actual Cash Value (ACV)?

Accepted Answer

$825,000

Answer

ACV = Replacement Cost New × (1 − Depreciation %) = $1,100,000 × (1 − 200/800) = $1,100,000 × 0.75 = $825,000.

Question 2

A retailer's gross profit margin dropped from 42% to 35% after a flood damaged inventory. Which financial analysis technique best isolates the impact of the flood on profitability?

Accepted Answer

Trend analysis using prior three years' data

Answer

Trend analysis using multiple prior years normalizes seasonal variation and establishes a baseline, best isolating the flood's discrete impact on profitability.

Question 3

For a business interruption claim, the 'period of restoration' is most accurately defined as:

Accepted Answer

The time required to repair or replace damaged property with reasonable speed

Answer

The period of restoration covers the time needed to repair or replace property with due diligence and dispatch, limiting the insurer's exposure to a reasonable recovery timeline.

Question 4

An appraiser calculating extra expense coverage should include which of the following costs incurred after a covered loss?

Accepted Answer

Temporary relocation costs necessary to continue business operations

Answer

Extra expense coverage reimburses necessary temporary costs, such as relocation, that allow the business to continue operations during the restoration period.

Question 5

Which depreciation method results in the highest book value of assets in the early years of an asset's life?

Accepted Answer

Straight-line

Answer

Straight-line depreciation spreads cost evenly, resulting in the highest book value in early years compared to accelerated methods that front-load depreciation.

(CIA) Certified Insurance Appraiser Practice Test

(CIA) Certified Insurance Appraiser Practice Test

CIA Financial Analysis & Reporting 3