CFA Practice Question

There are 195 practice questions for this study session.

CFA Practice Question

The subject property has a barn which would cost $40,000 to reproduce today. Effective age is 30 years and remaining economic life is 30 years. Curable physical deterioration is $4,000, and curable functional obsolescence due to a deficiency is $5,000. What is the barn's value based on the cost approach?
A. $11,000
B. $13,000
C. $15,500
Explanation: 40,000 - curable physical deterioration 4,000 = 36,000.
Incurable physical deterioration = 30/60 x 36,000 = 18,000.
Value: 40,000 - 4,000 - 18,000 - curable functional obsolescence 5,000 = 13,000.

User Contributed Comments 3

User Comment
devaughnb Shouldn't the $5,000 be treated same as the $4,000?!
chriswwu Only the physical structure ($4,000) depreciate. Functional obsolescence ($5,000) does not depreciate and the entirety is subtracted from the depreciated value of the physical structure.
yanoshi Where did the "30/60" come from when calculating Incurable physical deterioration??
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