Question

What amount would a person with actual cash value (ACV) coverage receive for two-year-old furniture destroyed by a fire? The furniture would cost $10,900 to replace today and had an estimated life of five years.

Answer 1

Answer:

AVC (Actual Cash Value) amounts to $6,540

Explanation:

Computing the depreciation as:

Depreciation = (Value of the furniture / Estimated or useful life of the furniture) × Age of the furniture

where

Value of the furniture is $10,900

Estimated or useful life of furniture is 5 years

Age of furniture is 2 years

= ($10,900 / 5) × 2

= $2,180

= $4,360

Now, computing the ACV as:

ACV (Actual Cash Value) =  Value of the furniture - Depreciation value

where

Value of furniture is $10,900

Depreciation value is $4,360

So, putting the values above:

ACV = $10,900 - $4,360

ACV = $6,540