depreciation questions



1. Why is the value of a cottage one year old less than that for an equivalent cottage just completed?

2. Classify the following examples of depreciation according to whether or not they are physical, functional or economic depreciation. Further, classify them according to whether or not they are curable or incurable examples of depreciation. Explain your reasoning for the classification:

* A 1920 block of flats with an old "cage" style lift
* The siting of an effluent treatment plant near a prestigious residential suburb.
* A cottage subject to a change in zoning from residential to commercial.
* A median strip built by the highways department which reduces a service station's clientele by half.
* Demographic changes in an inner city suburb results in a local church losing it's congregation.
* A high but disused brick tower suitable for making "shot" (lead pellets).
* A cottage which is badly sited because it does not face attractive views.

3. Under what circumstances is the "reducing balance" model of future depreciation the most suitable model for the valuer to use?

4. The owner of a block of flats states that he never puts money away into a sinking fund for the future replacement of the building and in any case, rises in land value more than outweigh any loss in the value of the building.

Does this mean that the sinking fund model is not a suitable model in this particular case? Discuss?

5. After analyzing comparable sales it is found that the value of a 1915 cottage in a particular suburb is 500 per square metre. After applying the cost method it is found to be 650 per square metre,

Which method would you prefer? Explain your choice?

6. When does a building become "plant" under the Income Tax Assessment Act? How would this affect the return on investment?

7. Parts of a building can be subdivided into the following:
*Non depreciable building
*Plant
*Employee's facilities
*Depreciable building

How can such a classification be used to determine the return on investment for a building built in 1985?

8. It is well recognised that certain periods of poor building construction have resulted in buildings suffering from high rates of depreciation. For example, "austerity" buildings. Can you identify such buildings by architectural style and date of construction? Why were they badly built?

9. "Generally, economic obsolescence is the most important factor determining the life of CBD office blocks".

Is this statement true? Discuss.

10. "The life of buildings is shorter in times of high interest rates than during periods of low interest rates".

Is the above statement true? Discuss. Can interest rates affect the life of a building?