Using the breakdown method of estimating accrued depreciation:

1. | Each classification of depreciation is analyzed. |

2. | The dollar amount or percentage amount of depreciation for each classification is estimated. |

3. | The dollar amount for each classification is added to estimate the total depreciation. |

Steps in Estimating Depreciation by the Breakdown Method

1. | Estimate the dollar amount of curable physical deterioration (deferred maintenance): |

A. | Identify each item of curable physical deterioration. |

B. | Estimate the cost to cure each item of curable physical deterioration. |

C. | Add the total of all deferred maintenance. |

2. | Estimate the dollar amount of incurable physical deterioration of short-lived components: |

A. | Estimate the effective age of each component. |

B. | Estimate the total physical life of each component. |

C. | Calculate the percentage straight-line physical deterioration of each component by dividing the effective age by the physical life. |

D. | Estimate the replacement cost new of each component. |

E. | Estimate the dollar amount of depreciation of each component by multiplying the percentage depreciation by the replacement cost. |

F. | Add the depreciation of each component to arrive at total incurable physical deterioration. |

3. | Estimate the dollar amount of incurable physical deterioration of long-lived items: |

A. | Estimate the replacement cost of the entire building. |

B. | Subtract the estimated replacement cost new of components for which depreciation was calculated in 1 and 2 above. |

C. | Estimate the effective age of the entire building. |

D. | Estimate the economic life of the entire building. |

E. | Calculate the percentage straight-line depreciation for the long-lived components. |

F. | Calculate the depreciation for the long-lived components by multiplying the straight-line depreciation percentage by the long-lived component's cost new. |

4. | Estimate total depreciation by adding the dollar amounts of the deferred maintenance, the incurable physical deterioration of short-lived components, and the incurable physical deterioration of long-lived components. |

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