half-year convention

(redirected from Half Year Convention)

Half-Year Convention

In accounting, the assumption that an asset is purchased at its value exactly half-way through the calendar year in which it is purchased. For example, if one buys an asset for $1,000 on January 1st and it is worth $1,200 at the end of the second quarter, the half-year convention would assume that it was bought for $1,200. This can affect taxes owed on the asset and the depreciation allowed each year. Obviously the half-year convention can have both positive and negative impacts, depending on the price movement of the asset.

half-year convention

The assumption for tax purposes that a newly acquired asset is placed in service halfway through the year regardless of when the asset is actually acquired and placed in service. The half-year convention affects annual depreciation, taxation, and earnings calculations.
References in periodicals archive ?
The equipment is MACRS property with 5-year class life and half year convention applies.
Our example used the modified accelerated cost recovery system with the required half year convention.