Which depreciation categories are included in accrued depreciation?

• A. Physical deterioration only
• B. Physical, functional, and external depreciation
• C. External obsolescence only
• D. Functional obsolescence only

Answer: (B)

Accrued depreciation covers all the ways a property can lose value over time, not just wear and tear. It includes three forms: physical deterioration (the real, tangible aging and decay of the structure), functional obsolescence (outdated design, layout, or systems that reduce usefulness or desirability), and external obsolescence (losses caused by factors outside the property, such as nearby nuisances, market conditions, or changes in the neighborhood). Because accrued depreciation reflects the total depreciation accumulated, you sum these three components rather than focusing on just one. For example, a property might be physically worn, have an outdated kitchen, and suffer from a noisy street nearby; all three factors contribute to the overall depreciation, and their combined impact is what accrues over time.