How a long-term asset is depreciated can have a rather sharp result, especially for capital-intensive companies. As a result, should property be assigned a life and basis based on its economic value or on its physical life expectancy. The implications of each can be major.
Assume that you are acquiring a $10 million computer system that has an economic life of approximately 3 years, a physical life of 6 years, and a technological life of 2 years. How would you depreciate this asset and which method would you use and why?