Florida Real Estate Sales Associate Examination Content OutlineReal Estate Property and OwnershipHard
An appraiser is using the cost-depreciation approach to value a 15-year-old commercial building. The appraiser estimates the current cost to construct a new, similar building is $1,000,000. The building has an estimated economic life of 50 years. What is the accrued depreciation of the building for the cost-depreciation approach?
- A$300,000
- B$150,000
- C$700,000
- D$850,000
Show answer & explanationAnswer & explanation
Correct answer: A. $300,000
To calculate accrued depreciation using the straight-line method for the cost approach, first determine the annual depreciation: Cost to Reproduce / Economic Life = $1,000,000 / 50 years = $20,000 per year. Then, multiply the annual depreciation by the effective age: $20,000/year * 15 years = $300,000.
Why the other options are wrong
- B. Incorrect. This would be 15% of $1,000,000, which assumes a flat rate or different calculation.
- C. Incorrect. This is the remaining value after depreciation ($1,000,000 - $300,000 = $700,000), not the depreciation itself.
- D. Incorrect. This is the remaining value if the depreciation was $150,000, or a different calculation entirely.
Accrued Depreciation (Cost Approach)
The total loss in value of a property from all causes (physical deterioration, functional obsolescence, economic obsolescence) as of the appraisal date.
- Calculated by various methods, often straight-line for physical deterioration.
- Economic life is the period over which an improvement contributes value.
- Effective age is the age indicated by the property's condition and utility.
Memory trick: COST to BUILD, MINUS the AGE, EQUALS the VALUE page.