How is total physical depreciation determined?

Total physical depreciation refers to the reduction in value of a property due to wear and tear, aging, or physical damage. The way to determine this depreciation involves assessing the property's current value in relation to its cost when it was new.

The correct approach involves calculating the cost to replace the property and then taking into account any curable items—those elements that can be repaired or improved to restore value. By subtracting the value of these curable items from the original cost, you can ascertain how much of the value has been lost due to physical deterioration. This method provides a clear picture of total physical depreciation because it considers only the costs necessary to bring the property back to its optimal condition.

In contrast, the other methods described either do not accurately reflect the nuances of physical depreciation or do not relate directly to the total physical condition of the property. For instance, multiplying the new cost by a depreciation percentage doesn’t consider specific curable or incurable conditions that might affect a property’s value. Similarly, combining replacement cost with total depreciation may lead to confusion about the property's actual worth, while calculating remaining life doesn’t directly address the physical wear and tear that contributes to depreciation. Therefore, focusing on the cost minus the value of curable items gives the most