California Real Estate Broker ExaminationValuation and AppraisalMedium
A property owner purchased a building for $500,000. Over 5 years, they have invested $100,000 in improvements. For accounting purposes, the property's value has been depreciated by $50,000. What is the current book value of the property?
- A$450,000
- B$550,000
- C$600,000
- D$650,000
Show answer & explanationAnswer & explanation
Correct answer: B. $550,000
Book value is calculated as the original cost plus capital improvements, minus accumulated depreciation. So, $500,000 (original cost) + $100,000 (improvements) - $50,000 (depreciation) = $550,000.
Why the other options are wrong
- A. This subtracts improvements and adds depreciation, or other incorrect calculation.
- C. This only adds improvements to the original cost, ignoring depreciation.
- D. This incorrectly adds depreciation instead of subtracting it.
Book Value
Book value is the value of an asset as recorded on a company's balance sheet, calculated as the original cost plus any capital improvements, minus accumulated depreciation.
- Used for accounting purposes, not market value.
- Reflects historical cost and depreciation.
- Can differ significantly from market value.
Memory trick: Cost plus improvements, then depreciation subtracts.