In loss settlement, what is the difference between replacement cost and depreciation?

• A. Replacement cost pays to replace with a new item; depreciation reduces value to determine actual cash value.
• B. Replacement cost is based on market value; depreciation adds to replacement cost.
• C. Replacement cost is always equal to policy limits; depreciation is ignored.
• D. Replacement cost equals original purchase price; depreciation is irrelevant.

Answer: (A)