Certified Pennsylvania Evaluator Practice Exam

Which of the following is considered a "short-lived" item for replacement reserves?

1. Real estate taxes

2. Capital improvements

3. Furnace

4. Depreciation

The correct answer is: Furnace

The correct choice identifies the furnace as a "short-lived" item for replacement reserves. In the context of property management and financial planning, short-lived items are those that have a relatively shorter useful life and, therefore, require more frequent replacement. Furnaces typically have a lifespan of around 15 to 30 years, depending on the type and maintenance. However, compared to long-lived assets like roofs or structural components of a building, which can last several decades, a furnace falls under a category that necessitates regular budgeting for eventual replacement. The term "replacement reserves" refers to funds set aside for the future replacement of various building components, and distinguishing between short-lived and long-lived assets helps property managers allocate those funds more effectively. Short-lived items are those that will depreciate quicker and need to be replaced sooner, which is why the furnace fits this definition perfectly in the context of property management. In contrast, real estate taxes represent a recurring expense rather than a physical asset that requires replacement. Capital improvements generally refer to major renovations or enhancements that extend the life or value of a property, often considered long-term investments, rather than items needing frequent replacement. Depreciation, while a financial concept associated with the wear and tear of assets, does not represent