This method subtracts some allowance from new replacement cost, for physical depreciation, economic obsolescence or both. The reasoning behind the concept is that the business will gain if a property is replaced with a new property. The main difficulty is measuring physical depreciation and economic obsolescence. (i) Physical depreciation is the result of age plus wear and tear. (ii) Economic Obsolescence is illustrated by change in fashion or development of new, more efficient machinery. For valuing personal property, one must be careful to include costs for transportation, installation etc.