Florida Real Estate Broker ExaminationValuation and Market AnalysisEasy
A real estate appraiser is evaluating a commercial property using the cost approach. The appraiser determines the replacement cost new of the building is $1,200,000. If the building has an estimated economic life of 60 years and is currently 15 years old, what is the accrued depreciation using the straight-line method?
- A$300,000
- B$400,000
- C$200,000
- D$450,000
Show answer & explanationAnswer & explanation
Correct answer: A. $300,000
The straight-line method of depreciation calculates a constant amount of depreciation each year over the economic life of the asset. The annual depreciation is the replacement cost new divided by the economic life. Accrued depreciation is then the annual depreciation multiplied by the building's age.
Why the other options are wrong
- B. This option miscalculates the annual depreciation or the total accrued depreciation.
- C. This option calculates the depreciation for 10 years, not 15 years.
- D. This option represents 37.5% depreciation, which is incorrect for 15 years of a 60-year life.
Accrued Depreciation (Straight-Line)
The total depreciation accumulated to date using a constant rate over the asset's economic life.
- Calculated as Replacement Cost New / Economic Life * Age.
- Assumes a uniform loss in value each year.
- Used in the cost approach to valuation.
Memory trick: Straight lines show steady declines over time.