# What is Half-year Convention in Depreciation?

Depreciation is an important aspect of accounting that helps businesses allocate the cost of their assets over their useful lives. There are different methods that businesses can use to calculate depreciation, including the half-year convention. In this blog post, we will explain what the half-year convention is and how it works.

The half-year convention is a method of depreciation that assumes that an asset is placed in service at the midpoint of the year, regardless of when it was actually purchased or put to use. This means that even if the asset was purchased or put to use in the last month of the year, it is assumed to have been used for half a year in that year for depreciation purposes.

The half-year convention is a simple method that is commonly used for tax purposes. It is especially useful for businesses that purchase assets at different times of the year because it allows them to simplify their depreciation calculations.

To calculate depreciation using the half-year convention, you first need to determine the cost of the asset and its useful life. Then, you divide the cost by the useful life to get the annual depreciation expense. For example, if an asset costs \$50,000 and has a useful life of 5 years, the annual depreciation expense would be \$10,000 (\$50,000/5).

Using the half-year convention, the depreciation expense for the first year would be half of the annual depreciation expense, or \$5,000. This is because the asset is assumed to have been in use for half a year in the year of acquisition. For each subsequent year, the depreciation expense would be the same as the annual depreciation expense, or \$10,000.

Let’s look at an example to illustrate how the half-year convention works in practice. ABC Company purchased a delivery truck for \$30,000 on June 1st, 2022. The truck has a useful life of 5 years. Using the half-year convention, the depreciation expense for the first year (2022) would be \$2,500 ((\$30,000/5) x 0.5), and for each subsequent year it would be \$6,000 (\$30,000/5).

In conclusion, the half-year convention is a simple method of depreciation that assumes that an asset is placed in service at the midpoint of the year. It is a useful method for businesses that purchase assets at different times of the year, as it allows them to simplify their depreciation calculations. By understanding how the half-year convention works, businesses can ensure that their financial statements accurately reflect the value of their assets over time.

For more about the differences between Half-year and Mid-month conventions, visit these articles: Mid-month Convention, Difference Between Half-year and Mid-month Conventions.

Caroline Grimm

Caroline Grimm is an accounting educator and a small business enthusiast. She holds Masters and Bachelor degrees in Business Administration. She is the author of 13 books and the creator of Accounting How To YouTube channel and blog. For more information visit: https://accountinghowto.com/about/