Half Year Convention Depreciation

The half year convention depreciation is calculated on the basis that assets are brought into use or taken out of use half way through a financial year irrespective of when they were actually acquired or disposed of.

The main purpose of the half year convention is to avoid having to track the dates of acquisition and disposal of an asset.

The net effect of half year convention depreciation is that, in the year of acquisition and disposal, the depreciation expense will be half of the full year amount.

For example, if an asset is acquired on 1 February it is treated as having been brought into use on 1 July and the depreciation for the year is one half a full years depreciation. Likewise if an asset is disposed on 1 September, it is treated as being taken out of use on 1 July and the depreciation expense for the year is again one half the full years depreciation.

Half Year Convention Depreciation Example

Suppose a business acquires an asset costing 80,000 with a useful life of 4 years on the 1 March. Assuming the business adopts the straight line method of depreciation and the asset has no salvage value, calculate the half year depreciation assuming the asset is acquired on 1 March.

Asset acquisition date = 1 March
Asset cost = 80,000
Useful life = 4 years
Depreciation rate = 1/4 = 25%
Half year convention depreciation year 1 = 25% x 80,000 x 1/2 = 10,000

As the asset is acquired part way through the year the half year convention depreciation (10,000) is allocated over the 10 months from the date of acquisition (March) to the year end (December) at the rate of 10,000 / 10 = 1,000 a month.

In year 2 the depreciation expense is for a full year and calculated as normal.

Depreciation expense year 2 = 25% x 80,000 = 20,000

Assume on 1 September of year 3 the asset is disposed of. As the business uses the straight line depreciation half year convention the depreciation expense for the year is one half the full year amount and is calculated as follows:

Asset disposal date = 1 September
Half year convention depreciation year 3 = 25% x 80,000 x 1/2 = 10,000

Half year convention depreciation is sometimes referred to as mid year convention depreciation.

For further information see the Wikipedia definition.

Learn a new bookkeeping term

Random bookkeeping terms for you to discover.

Link to this Half Year Convention Depreciation Definition

Click in the box to copy and paste this half year convention definition link to your site.

Return to the Glossary

Half Year Convention Depreciation December 14th, 2015Team

You May Also Like

Related pages

sales returns income statementcalculating accounts receivable daysjournal entry for outstanding expensescar loan accounting entryjournalizing entries examplesbasic bookkeeping templatesimple payroll spreadsheetbank reconciliation example problemsadjusting entry for supplies useddouble entry of depreciationpercentage of completion method formuladifference between profit margin and markupannuity calculation excelstandard costing formulaexamples of owner's equityuncleared cheques in bank reconciliationfifo costing methodcash book template excelinvested capital turnover ratiofactoring process flowtwo column cash bookaccounting debit credit chartpv table annuitymicrosoft balance sheet templatepremium bonds payablereceipt ledgerdisbursement ledgersample of petty cash voucherfob destination pointabsorption costing equationsuspense accounts definitionnetbook valueblank ledger sheethow to calculate retained profitsprove it test tutorialdepreciation journal entries examplesdebtors control accountimprestdirect write off method and allowance methodcalculating npv on excelprepaid asset journal entryformula to calculate future value of annuityaccount receivable ratio formularaw material requisitionrequisition sheetexamples of intangible assetsvariable overhead ratebond amortization schedule straight line methodfuture value annuity table pdfjournal entries for fixed assets and depreciationliquidity ratios formulanpv perpetuity formulapro rata depreciationhow to perform vertical analysiscommon size statement of cash flowspetty cash voucher template wordquick ratio meansformula of roaaccrued revenue entrypetty cash useswhat is difference between markup and marginstock split journal entryadjusting entries for inventoryroce formulawhat does fob shipping point meaneft electronic funds transfer definitionexamples of accounts payableannuity table pdfadjusting journal entry examplescontinuous compounding ratebook keeping basicseffective annual rate formulawhat are debits and credits accounting