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 $5,000 to replace today and had an estimated life of five years. Insurance payment $

Answer 1

As the actual purchase price of a furniture is not provided we assume it to be same as replacement cost today i.e. $5,000
The life of furniture is 5 years hence we depreciate it 20% every year.
Year	Depreciation	Remaining Value	Total depreciation
Year 1	5,000*20% = 1,000	5,000-1,000 = 4,000	1,000
Year 2	5,000*20% = 1,000	4,000-1,000 = 3,000	2,000
Actual cash value = replacement cost – depreciation
5,000 - 2,000 = $3,000
Actual cash value = $3,000