An appraiser is trying to find the value of a piece of property. He looks at the land first and figures its value, and then he determines the value of the building by subtracting depreciation factors. After he has determined these facts, he adds the cost of land to the cost of the building to determine the value of the piece of property. Why does he do this?

Question

Big Bird

Business

20 October, 13:10

An appraiser is trying to find the value of a piece of property. He looks at the land first and figures its value, and then he determines the value of the building by subtracting depreciation factors. After he has determined these facts, he adds the cost of land to the cost of the building to determine the value of the piece of property. Why does he do this?

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Dean Jefferson · Answer 1

In appraising, land is never depreciated, as are buildings.

Explanation:

Generally land and buildings are separable assets and are been accounted for separately, even when acquired together.

In the other hand, land asset is not depreciated, because it is considered to have an infinite useful life. This distinctively makes it unique amongst all asset types; it is the only one for which depreciation is prohibited.

Nearly all fixed assets have a useful life, after which they no longer contribute to the operations of a company or they stop generating revenue. During this useful life, they are depreciated, which reduces their cost to what they are supposed to be worth at the end of their useful lives (which is known as salvage value). Land, however, has no definitive useful life, so there is no way to depreciate it.