California Real Estate SalespersonProperty Valuation and Financial AnalysisHard
An appraiser is calculating total accrued depreciation on a building with a reproduction cost new of $400,000. Two items are identified as curable physical deterioration: worn carpeting and interior paint, which together will cost $20,000 to cure. After removing this curable amount, the appraiser applies incurable physical deterioration to the remaining cost based on an effective age of 8 years and a total economic life of 40 years. What is the total accrued depreciation?
- A$76,000
- B$96,000
- C$116,000
- D$80,000
Show answer & explanationAnswer & explanation
Correct answer: B. $96,000
First subtract curable items from cost new: $400,000 − $20,000 = $380,000 remaining. Incurable depreciation rate = effective age ÷ economic life = 8 ÷ 40 = 20%. Incurable depreciation = $380,000 × 0.20 = $76,000. Total accrued depreciation = $20,000 (curable) + $76,000 (incurable) = $96,000.
Why the other options are wrong
- A. This is only the incurable portion, omitting the curable $20,000.
- C. This overstates depreciation and does not match correct sequencing of the calculation.
- D. This applies the 20% rate to the full $400,000 without separating curable items correctly.
Total Accrued Depreciation (Curable + Incurable)
Total accrued depreciation combines curable physical deterioration (cost to cure) with incurable depreciation calculated on the remaining cost after curable items are removed.
- Curable items are valued at cost to cure
- Incurable rate = effective age ÷ total economic life
- Apply incurable rate to remaining cost after subtracting curable amount
Memory trick: Fix what's curable first, then age the rest.