what is the half year convention for depreciation 
the half year convention for depreciation is the depreciation schedule that treats all property acquired during the year as being acquired exactly in the middle of the year this means that only half of the full year depreciation is allowed in the first year while the remaining balance is deducted in the final year of the depreciation schedule or the year that the property is sold the half year convention for depreciation can be applied to all forms of depreciation methods understanding the half year convention for depreciationas one of many u s generally accepted accounting principles gaap the matching principle seeks to match expenses to the period in which the related revenues were earned depreciation is an accounting convention that helps match expenses incurred by a fixed asset and the related revenues generated by that asset over its useful life an item is recorded on a company s books as a fixed asset at the time of purchase if it exceeds a capitalization threshold set by the company and will bring value to the company over a number of years rather than taking the full expense in the year of purchase depreciation allows a company to expense a portion of the cost of an asset in each of the years of the asset s useful life the company will then keep track of the book value of the asset by subtracting the accumulated depreciation from the asset s historical cost the half year convention for depreciation allows companies to better match revenues and expenses in the year that they are incurred by depreciating only half of the typical annual depreciation expense in year one if the asset is purchased in the middle of the year this applies to all forms of depreciation including straight line double declining balance and sum of the years digits there is also a mid quarter convention that must be used instead of the half year convention if at least 40 of the cost basis of all fixed assets acquired in a year were put in service sometime during the last three months of the year example of the half year conventionas an example assume a company purchases a 105 000 delivery truck with a salvage value of 5 000 and an expected life of 10 years the straight line method of depreciation expense is calculated by dividing the difference between the cost of the truck and the salvage value by the expected life of the truck in this example the calculation is 105 000 minus 5 000 divided by 10 years or 10 000 per year ordinarily the company would expense 10 000 in years one through 10 if the company purchases the truck in july rather than january however it is more accurate to use the half year convention to better align the cost of the equipment with the time period in which the truck provides value instead of depreciating the full 10 000 in year one the half year convention expenses half of the calculated depreciation expense or 5 000 in year one in years two through 10 the company expenses 10 000 and then in year 11 the company expenses the final 5 000 the half year convention extends the number of years that the asset is depreciated but the extension provides a more accurate matching of expenses to revenues 