Future Business Leaders of America (FBLA) Accounting Practice Test

Which of the following is true about assessed value?

1. It is determined by market supply and demand

2. It directly correlates to the selling price

3. It is determined by tax authorities

4. It reflects only the condition of the asset

The correct answer is: It is determined by tax authorities

The assessed value of a property is primarily determined by tax authorities for the purpose of calculating property taxes. Tax assessors evaluate various factors, including property characteristics, location, and comparable sales, to establish a value that provides a fair basis for taxation. This value can differ significantly from the market value, which is influenced by supply and demand dynamics in the real estate market, as well as other subjective factors affecting individual transactions. In contrast to the other options, which suggest various direct relations to market conditions or the selling price, the assessed value remains a standardized figure used by local governments to ensure that property taxes are fairly levied within their jurisdictions. Therefore, understanding that the assessed value is a function of decisions made by tax authorities rather than purely based on market forces or asset condition helps clarify its role in property taxation.