Real Estate Math
A Minnesota property has a building worth $320,000 (excluding land) and effective age of 10 years with a total economic life of 50 years. Using the straight-line depreciation method, what is the total accrued depreciation?
A$48,000
B$64,000✓ Correct
C$32,000
D$80,000
Explanation
Annual depreciation rate = 1/50 = 2%. Accrued depreciation = Building value x Annual rate x Effective age = $320,000 x 2% x 10 = $64,000. Or: Accrued depreciation = (Effective age / Total economic life) x Building value = (10/50) x $320,000 = 20% x $320,000 = $64,000. This is the straight-line method used in the cost approach to appraisal.
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