Florida Real Estate Practice Exam

Which of the following best describes economic depreciation?

1. Economic depreciation and cost recovery

2. Economic depreciation and physical deterioration

3. Operating depreciation and taxing authority

4. Tax depreciation and physical deterioration

The correct answer is: Economic depreciation and physical deterioration

Economic depreciation is used to measure the loss of value of an asset due to any sort of physical damage or altering natural conditions like wear and tear. Option A Economic depreciation and cost recovery may seem like a viable option, but cost recovery refers to the process of recovering all or part of an investment or expense over a period of time and is not directly related to the decrease in value of an asset due to physical deterioration. Option C: Operating depreciation and taxing authority are both incorrect as they do not accurately describe the concept of economic depreciation. Operating depreciation, also known as functional depreciation, refers to the loss of value due to changes in market conditions or demand for the asset, while taxing authority refers to the power of government to impose taxes on individuals or businesses. Option D: Tax depreciation and physical deterioration may seem like a suitable option as both factors can contribute to the decrease