What is the Mid-Year Convention?

The mid-year convention states that a fixed asset purchased at any time during a year is depreciated as of the mid-point of that year. The mid-year convention is rarely used for accounting purposes, but is commonly applied for taxation purposes.

Example of the Mid-Year Convention

As an example of the mid-year convention, if a $100,000 asset is purchased on February 15 and it has a five-year useful life, $10,000 of depreciation will be recognized in the first year, under the assumption that it was actually acquired on July 1. $20,000 of depreciation will be recognized in each of the next four years, and a half-year of depreciation will be charged in the final year. This approach will result in $10,000 of depreciation in Year 1, $20,000 in Year 2, $20,000 in Year 3, $20,000 in Year 4, $20,000 in Year 5, and $10,000 in Year 6.