﻿ Modified Economic Age/Life Method

# Modified Economic Age/Life Method

The Modified Economic Age/Life Method of estimating depreciation is used when a building has a significant amount of curable physical depreciation and/or curable functional obsolescence.

 • Curable depreciation and/or obsolescence is treated as if it is 100% depreciated
 • Incurable components are depreciated by the age/life method

The formula for estimating depreciation by the Modified Economic Age/Life Method is:

 • Incurable Depreciation = (Cost New – Curable Depreciation) x (Effective age)/(Total Economic Life)
 • Accrued depreciation = Incurable Depreciation + Curable Depreciation

Steps in the Modified Age/Life Method

Amount

Explanation

 1 Estimate the replacement cost new of the improvements.

\$300,000

Replacement cost

 2 Subtract the cost to cure all items of curable physical and functional depreciation.

\$60,000

Curable physical and functional obsolescence

 3 Calculate the replacement cost new of incurable components.

\$240,000

\$300,000 - \$60,000

 4 Estimate the effective age of the house assuming curable depreciation has been corrected.

15 yrs

Effective age

 5 Estimate the remaining economic life of the house assuming curable depreciation has been corrected.

45 yrs

Remaining economic life

 6 Calculate the total economic life by adding the effective age to the remaining economic age.

60 yrs

15 yrs + 45 yrs = 60 yrs

 7 Estimate the percentage depreciation attributable to incurable components by dividing the effective age by the total economic life.

25%

15 yrs ÷ 60 yrs = 25%

 8 Depreciation of incurable components is estimated by multiplying the depreciation rate of the incurable components by the estimated total cost new of the incurable components.

\$80,000

\$240,000 x 25% = \$80,000

 9 The total accrued depreciation by the modified age-life method is estimated by adding the estimated cost to cure the curable items (from line 2) to the depreciation estimate for the incurable components (from line 8).

\$140,000

Total depreciation

\$60,000 + \$80,000 = \$140,000