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How to calculate Actual Cash Value and Recoverable Depreciation

Actual Cash Value example and formula

Chart showing Actual Cash Value and Recoverable Depreciation of an asphalt shingle roof

Chart showing Actual Cash Value and Recoverable Depreciation of an asphalt shingle roof

 

Let’s say you put a new $10,000 roof on your house 5 years ago and your roof was just destroyed by a hail storm. Let’s also assume your 5 year old roof was average asphalt roofing shingles, which lasts about 20 years. Because your roof was only 5 years old when the hail storm hit, the Actual Cash Value would be $7,500. Accordingly, the recoverable depreciation would be $2,500. This is the difference between the $10,000 replacement cost and the actual cash value.

Here’s the formula:

R x (E – C) / E = ACV

10,000 x (20 – 5) / 20 = 7,500

R = $10,000 (Replacement cost or purchase price of the roof)
E = 20 years (Expected life of the roof)
C = 5 years (Current life of the roof)

Actual Cash Value is calculated by subtracting the current age of your roof from the expected life of the roof (e.g. 20 – 5, which = 15), times the replacement cost or purchase price of the roof (15 x $10,000, which = 150,000), divided by the expected life of the roof (150,000 / 20, which = 7,500.

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