Cost Approach and Depreciation Flashcards
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Read the first 7 Cost Approach and Depreciation flashcards as text
The age-life (straight-line) method estimates the depreciation rate as:
Answer: Effective age divided by total economic life
The straight-line ratio is effective age over total economic life, applied to cost new.
A building has a cost new of $200,000, effective age of 10 years, and total economic life of 50 years. Accrued depreciation equals:
Answer: $40,000
10/50 = 20% of $200,000 = $40,000 of accrued depreciation.
Effective age differs from actual age because effective age reflects:
Answer: The condition and utility relative to similar properties
Effective age is based on observed condition and may be more or less than the chronological actual age.
Remaining economic life is calculated as:
Answer: Total economic life minus effective age
Remaining economic life equals total economic life minus effective age.
Renovations that lower a building's effective age will:
Answer: Decrease accrued depreciation and raise value
Lowering effective age reduces the depreciation percentage, increasing the depreciated improvement value.
The market extraction method derives depreciation by:
Answer: Analyzing sales to isolate the depreciated value of improvements
Market extraction isolates depreciation from comparable sales by subtracting land value and depreciated cost.
The breakdown method of estimating depreciation:
Answer: Analyzes each type of depreciation separately
The breakdown method estimates physical, functional, and external depreciation individually, then totals them.