How is the formula for long-lived incurable depreciation calculated?

The formula for calculating long-lived incurable depreciation is based on the principle of replacement cost minus the value of short-lived items, which is represented in the chosen answer. This method takes into account the current cost to replace the entire asset with a similar one, and then subtracts the value of components or aspects of the asset that have a shorter useful life.

The rationale for this approach is that long-lived incurable depreciation refers to depreciation that cannot be economically remedied through repairs or updates; therefore, it assesses the enduring value of the asset by identifying how much of its value is lost to short-lived elements. By focusing on the remaining value that isn't impacted by these components, the appraisal can accurately reflect the effective age and remaining useful life of the property.

This methodology is important in property valuation, especially in cases where significant portions of a property are aging or in need of major repairs. It helps appraisers provide a fair assessment that accounts for both the longevity of the asset and the impact of its components on overall value.