Certified Pennsylvania Evaluator Practice Exam

What is accrued depreciation?

1. The estimate of depreciation over the lifespan of a property

2. The difference between the new replacement cost and the current appraised value

3. The total amount of depreciation already perceived

4. The general market trend for depreciation

The correct answer is: The difference between the new replacement cost and the current appraised value

Accrued depreciation refers to the total amount of depreciation that has accumulated on a property since its acquisition or last major improvement. This concept is crucial in real estate valuation as it assists in determining the property's current value compared to its replacement cost. When understanding accrued depreciation, it's important to recognize that it is calculated as the difference between the cost to replace the property with a new one and the property's current value. This calculation considers both physical deterioration and other forms of depreciation, such as functional and economic obsolescence. Accrued depreciation is particularly relevant when assessing properties for investment or to determine market value through the cost approach. This method emphasizes the importance of knowing the relationship between what it would cost to replace an asset and what it is currently worth, effectively illustrating how market factors and the condition of the asset have influenced its value over time.