How is Actual Cash Value (ACV) calculated?

Actual Cash Value (ACV) is calculated by taking the fair market value of an item and then subtracting depreciation. This method provides an estimate of how much the item is worth in its current condition, accounting for factors like age and wear and tear.

When determining ACV, the focus is on the current market value of the property rather than how much it would cost to replace it with a new item. This is why the calculated value includes a deduction for depreciation, reflecting the decrease in value over time.

The other options fail to capture the concept of ACV accurately. For instance, considering only the cost of replacement does not factor in depreciation, which is vital in determining the true current value of an asset. Simply looking at the cost of repair overlooks the overall value perspective, as repairs do not always equate to the actual market value of a damaged asset. Lastly, summing all covered losses does not fit into the calculation of an individual item's actual cash value; instead, it relates to overall insurance claims. Thus, the correct answer aligns with the standard industry practice of reflecting the market value minus depreciation.