Half-Year Convention For Depreciation

You run a sausage-making factory. In February, you buy a brand new, shiny casing-stuffing machine. Fast-forward to the end of the year: you're getting the books ready for tax time, and you need to figure out how much depreciation to take on the casing stuffer. You know how much depreciation would be standard for the full year. But you bought the machine in February, installed it in March, and it didn't start stuffing casings until early April.

You've hit an accounting conundrum.

Luckily, there's a rule-of-thumb to help you out. It's called the half-year convention for depreciation.

It says that, if you acquire an asset during a year, you can assume a half-year of depreciation. So in the first year, you take half the depreciation that would be standard for the first year. The remaining half-year gets added to the final year of the asset's depreciation schedule.