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10 March, 16:15

What amount would a person with actual cash value (ACV) coverage receive for two-year-old furniture destroyed by a fire? The furniture would cost $10,900 to replace today and had an estimated life of five years.

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  1. 10 March, 16:20
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    AVC (Actual Cash Value) amounts to $6,540

    Explanation:

    Computing the depreciation as:

    Depreciation = (Value of the furniture / Estimated or useful life of the furniture) * Age of the furniture

    where

    Value of the furniture is $10,900

    Estimated or useful life of furniture is 5 years

    Age of furniture is 2 years

    = ($10,900 / 5) * 2

    = $2,180

    = $4,360

    Now, computing the ACV as:

    ACV (Actual Cash Value) = Value of the furniture - Depreciation value

    where

    Value of furniture is $10,900

    Depreciation value is $4,360

    So, putting the values above:

    ACV = $10,900 - $4,360

    ACV = $6,540
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