I have an asset that I have entered into the system and I don’t understand how the depreciation is being calculated.

Article ID: 878348
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Issue

I have an asset that I have entered into the system and I don’t understand how the depreciation is being calculated. I am using straight-line and the half year averaging convention. My asset was placed in service on 10/15/01, with a cost basis of $20,500. I have no salvage value and the life of the asset is 3 years. I am on a standard calendar year, with no extra periods.
Resolution

Since you are using the half year convention the first year will calculate a full 1/2 year of depreciation regardless of when you place the asset in service. With that in mind, here is how the calculation is working:

1. Add up the number of days in the three year period (365, 365, 366 (leap year in 2004)=1096.

2. Take your cost basis of $20,500/1096=$18.7044 this is your daily depreciation.

3. With the half year convention, the first year is calculated at 182 days. Take the 182(days in year) * 18.7044 (daily rate)=$3404.20 yearly depreciation.

4. The placed in service date was 10/15. Since October has 31 days, that leaves 17 days to take depreciation in October. 17/31=.5484.

5. Add 2 months to the partial month (2+.5484=2.5484).

6. To get the month depreciation, take $3404.20/2.5484=$1335.82 (amount for Nov & Dec). For October take $1335.82 * .5484=$732.56.

7. For 2002, Take 18.7044 (daily rate)*365 days=$6824.10/12 months=568.93 (monthly depreciation). This example uses a periodic Depreciation Period.

8. Same for 2003.

9. 2004: Take 18.7044*184 (days remaining)=$3441.60/6=$573.60 (monthly depreciation).

This article was TechKnowledge Document ID: 25337

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Article ID: 878348 - Last Review: July 25, 2011 - Revision: 2.0
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