A public utility building of 5000 m2 was constructed 5 years before, on a site of 1 hectare. The present value of open land in that location is Rs. 100/m2 and present construction

Q. A public utility building of 5000 m² was constructed 5 years before, on a site of 1 hectare. The present value of open land in that location is Rs. 100/m² and present construction cost of such building is Rs. 2500/m². If the value of the building is assumed to be depreciating at a constant rate of 6 percent per annum, then the present value of the property using ‘Valuation by Cost Method’ is   (in Rs. lakhs) (rounded off to one decimal place).

1. 10.7 lakh
2. 1.7 lakh
3. 101.7 lakh
4. 11.7 lakh

Ans: 101.7 lakh

Explanation: 

Present Land value = Rs. 100 × 10,000 = Rs. 10 lakhs

Cost of Construction of the building = Total Area × Per Sq m

Cost of Construction = 5,000 × 2500 = 125 lakhs

Depreciation rate = 6% Value of the building after depreciation in 5 years = 125 (1 – r)n = 125 × (1 – 0.06)5 = 91.7 lakhs

Present Value of Property = Land Value + Building Value = 10+ 91.7 = 101.7 lakhs