California Real Estate SalespersonProperty Valuation and Financial AnalysisMedium
A commercial building has an estimated reproduction cost new of $1,500,000. It has an estimated economic life of 60 years and is currently 15 years old. Assuming straight-line depreciation, what is the total accrued depreciation for the building?
- A$375,000
- B$1,475,000
- C$25,000
- D$1,125,000
Show answer & explanationAnswer & explanation
Correct answer: A. $375,000
First, calculate the annual depreciation: $1,500,000 / 60 years = $25,000 per year. Then, multiply the annual depreciation by the building's age: $25,000/year * 15 years = $375,000 total accrued depreciation.
Why the other options are wrong
- B. This is an incorrect calculation, possibly subtracting annual depreciation from the total cost.
- C. This is the annual depreciation, not the total accrued depreciation.
- D. This represents the remaining value, not the total accrued depreciation.
Straight-Line Depreciation
A method of calculating depreciation where the value of an asset is reduced uniformly over each year of its economic life.
- Depreciation per year = Cost / Economic Life
- Total Accrued Depreciation = Annual Depreciation × Age
- Used in the cost approach to valuation
Memory trick: Cost's Life Determines Annual Loss, then Age Tallies Total.