Appraisal Method of Depreciation - Explained
What is the Appraisal Method of Depreciation?
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Table of ContentsWhat is the Appraisal Method Of Depreciation?How is the Appraisal Method Of Depreciation Used?How the Appraisal Method of Depreciation WorksAcademics Research on Appraisal Method Of Depreciation
What is the Appraisal Method Of Depreciation?
A method for the asset to be depreciated, whereby one assesses and reports the difference as the depreciation sum at the beginning and end of each accounting period, assuming that the asset is reduced by value is known as the appraisal method of depreciation. The value of the asset, which is depreciated at the start and end of the period of depreciation, defines the depreciation amount. The disparity between the values measured is the amount of depreciation that can be taken. Because the value is measured annually, there is no trend in the depreciation each year. No residual value has been created, the organization therefore does not know when to remove the asset or when to donate the asset for repair and maintenance.
Back to: ACCOUNTING, TAX, & REPORTING
How is the Appraisal Method Of Depreciation Used?
If the appraised value does not decrease during the time, then no depreciation is added to the expense in the appraisal method of depreciation. Under generally accepted accounting principles, this approach is not considered acceptable. This is partially because the method of assessment is focused on a prejudiced derivation as contrasted to an objective assessment focused on reported market prices, like stocks, bonds or equipment. During the reporting period, the determinants of a company profiting from depreciation are a number of factors. Tax and accounting are both reasons why organizations apply depreciation to long term assets. The cost incurred while organizations buy tangible assets can be subtracted as business expenses when depreciation is used for tax purposes.
How the Appraisal Method of Depreciation Works
The present value of a business can be assessed and understood when the appraisal method of depreciation is applied by the business owner. When considering physical deterioration, economic obsolescence and practical obsolescence, the assessor evaluates a variety of variables to determine the current value of the business and other business equipment. Instead of assessing the accounting depreciable life of the business's equipment and machinery, their normal useful life will also be assessed by the appraiser instead since the accounting depreciable life and the normal useful life are mostly not the same; making the current replacement cost to be adjusted by the appraiser, and the standard depreciation making use of just the real cost in its measurement.
Academics Research on Appraisal Method Of Depreciation
- Buildingdepreciationand propertyappraisaltechniques, Salway, F. (1987). Building depreciation and property appraisal techniques.Journal of Valuation,5(2), 118-124. The impact of accelerating technological change in recent years has been to shorten the useful lifespan of many commercial buildings. Shorter income flows and increasing yields have resulted in a rapid descent towards site values. The response to changing investment circumstances such as this will first be reflected in the subjective investment appraisal, which will precede changes in reactive market valuation methodology. This paper presents and compares three alternative methods of appraisal which might allow explicit analysis of building depreciation. Treating the building element of property as a wasting asset akin to a leasehold is rejected for its simplistic assumptions and lack of flexibility. A cost based approach is similarly flawed. The recommended approach is an explicit cash flow projection which reflects the fact that rental growth will decline over a holding period, considering alternative resale prices based upon site value, value for refurbishment, or value if relet unimproved.
- Valuation,appraisal, discounting, obsolescence anddepreciation, Deakin, M. (1999). Valuation, appraisal, discounting, obsolescence and depreciation.The International Journal of Life Cycle Assessment,4(2), 87. Previous editions of this Journal have drawn attention to the critical role valuation plays in life cycle analysis and environmental impact assessment (see for exampleVolkwkinandKlpffer|1|). In particular, the critical role of valuation has heen highlighed in a number of discussions on valuation step within life cycle costing, hedonic and contingency assessments of environmental impact and both the utility and welfare of pathway analysis/assessment (Krkwitt, Mayerhofer, TrukenmllerandFriedrich, 1998;Powell, PearceandCraighill, 1997;Volkwein, On in andKlpffer, 1996 |2-4|). Focusing on the utility of market valuation, this paper examines the critique of discounting environmentalists have made in relation to property valuation, investment appraisal and the application of the principle in the income based net annual return model of land use time-horizons and the spatial configuration of building programmes-a criticism implict in valuation step, hedonic, contingency and pathway analysis/assessments. It examines the argument put forward regarding the link between the selection of a discount rate, the valuation of property, appraisal of investment and inter-generational downloading of costs associated with the use of land, repair, maintenance and refurbishment of buildings: the downloading of costs, seen by some, to have an adverse impact and work against the introduction of experimental designs aimed at energy saving, clean air environments.
- Annual survey of economic theory: the theory ofdepreciation, Preinreich, G. A. (1938). Annual survey of economic theory: the theory of depreciation.Econometrica: journal of the econometric society, 219-241.
- An empirical analysis of the reliability and precision of the cost approach in residentialappraisal, Dotzour, M. (1990). An empirical analysis of the reliability and precision of the cost approach in residential appraisal.Journal of Real Estate Research,5(1), 67-74. Many articles and books have discussed the limitations of the cost approach to estimate market value or real estate. This article is the first to empirically measure the predictive ability of the cost approach to estimate value of single-family houses. Three hypotheses have been tested. The results indicate that the cost approach did not provide unbiased estimates of value, and the sales comparison approach estimated value more precisely. Additionally, cost approach precision was not significantly different for newer or older properties.
- Deduction Question of the First Type EconomicDepreciationinDepreciationReplacement CostMethod--Thoughts on the application of index on the scale economic, Tonglu, W. (2005). Deduction Question of the First Type Economic Depreciation in Depreciation Replacement Cost Method--Thoughts on the application of index on the scale economic benefits [J].The Journal of Assets Appraisal,9.