Whats the intuition behind incurable deterioration formula? Im struggling to get this formula in my head, simply as it is!
= (effective age / total economic life) * (replacement cost + developer’s profit - curable deterioration)
This is like depreciation.
replacement cost + developer’s profit - curable deterioration is the value of the asset let’s say 100$
effective age / total economic life is how old the asset is. Let’s say it has an economic life of 5 years and its effective age (how old it is) is 1 year so you’ll get a depreciation of 20% (1 year/5 year) of the asset value.
Deterioration = 20% * 100$ = 20$
Whoa, what is this? CFAI page reference please?