What value is used to calculate depreciation for a county courthouse?

• A. Replacement cost
• B. Cost depreciation
• C. Market value
• D. Book value

Answer: (B)

Depreciation uses the asset’s cost as the starting point—the original price paid to acquire the courthouse—spread over its estimated useful life. This means the annual depreciation is derived from that cost, not from what it would cost to replace the building today or from its current market value. Replacement cost reflects today’s replacement price, and market value is what someone would pay now; neither is used to calculate depreciation. Book value is the running total after depreciation has been subtracted, so it’s the result, not the input, of the calculation. For example, if the courthouse cost $10 million and has a 40-year useful life, straight-line depreciation would be about $250,000 per year (ignoring salvage value).