Question

A property was originally purchased for $160,000. The land portion is 25% of total value. If depreciation totals $20,000, what is the value of the property using the cost approach?

Answer 1

Total value of property = $140,000

Step-by-step explanation:

Provided information we have,

Original cost of property = $160,000

25 % of such property = Land

Note: Depreciation expense is not charged on land, as the asset is not depreciated. Land tends to increase it's value rather than decrease.

Value of land = $160,000
`*` 255 = $40,000

Value of remaining property to be depreciated = $160,000 - $40,000

= $120,000

Depreciation for year 1 = $20,000

Value of property except land at end of year 1 = $120,000 - $20,000 = $100,000

Total value of property including land on cost basis = $100,000 + $40,000 = $140,000

Cost basis is the basis in which assets are shown at cost value less depreciation if any.

Here, thus, total value of property = $140,000