Mid-month convention definition
/What is the Mid-Month Convention?
The mid-month convention states that all fixed asset acquisitions are assumed to have been purchased in the middle of the month for depreciation purposes. Thus, if a fixed asset was acquired on January 5th, the convention states that you bought it on January 15th; or, if you bought it on January 28, still assume that you bought it on January 15th. Doing so makes it easier to calculate a standard half-month of depreciation for that first month of ownership.
When using the mid-month convention, you should record a half-month of depreciation for the last month of the asset's useful life. By doing so, the two-half month depreciation calculations equal one full month of depreciation.
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Problems with the Mid-Month Convention
Many companies prefer to use full-month depreciation in the first month of ownership, irrespective of the actual date of purchase within the month, so that they can slightly accelerate their recognition of depreciation; doing so reduces their taxable income. Also, the mid-month convention introduces some complexity to the calculation of depreciation, making it more likely that a calculation error will occur.