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


consignment sales accounting entriesfuture value of lump sum excelinternal controls accounts receivableeffective interest rate exceldebt service calculator exceljournal entry of accounts payablestock holder equityfifo process costingnotes receivable sample problemsdoubtful accounts receivablespreadsheet accounting templateasset turnover rate formulais unearned revenue on the income statementaccelerated depreciation methodswhich journal would adjusting entries be foundlcm accountingmulti step income statementpromissory note payableequity multiplier equationsteps of the accounting cyclecoupon bonds calculatorexample of bookkeeping recordsjournal entries for accounts payablemonthly bank statement templateaccounting journal ledgerhow to record a capital lease journal entryis interest receivable a current assetaccounting formulas cheat sheetsample of a petty cash voucherdepreciation of fixed assets definitionwage accrualsunk cost definitionloan accounting journal entriescreditor definition accountingpmt rate nper pv fv 0 type 0petty cash imprestfuture value of periodic paymentsan nsf check is ahow to find profitability indexbasic balance sheet equationbasics of cash flow statementwhat is payback methodnpv annuity calculatordouble entry bookkeeping definitionbad debt journal entrypmt on exceldebtor accounting definitionwhat is the pmt functionsample of a petty cash voucherdefine sundries expensefv of annuity calculatorfavorable variancesaccounting ledger exampledouble entry for debit noteactual manufacturing overhead ratensf cheque definitionprintable ledger sheetsformula for annuity factorfob shipping point freight collectdeferred tax conceptcalculate unit variable costdiminishing balance method depreciation calculationrule of 78 loan calculatorhow to calculate a stock splitjournal entry to record impairment lossjournal entry for interest accrued on fixed depositcapital lease accounting entriesnper in excelexamples of accounts receivableaccounts receivable report sampletotal contribution margin formulacost accounting absorptioninventory turnover is calculated by dividingdefinition of interest coverage ratio