1 The purpose of and method of depreciation for partial years.

Calculations of partial-year depreciation expense are necessary when depreciable assets are sold, retired, or purchased in the middle of accounting period or when the company prepares monthly or quarterly financial statements (Edmonds, McNair & Olds, 2012). There are three methods for partial period depreciation calculation: nearest whole month, nearest whole year and midyear convention. Using nearest whole month method, assets that were purchased during the first half of the month should be considered as owned for the whole month, while assets that were purchased during the second half of the month should be considered as owned in the following month. In case of assets sale asset should be considered as sold in the current month if it was sold before the middle of the month or should be considered as sold in the next month if it was sold after the middle of the month. Using straight-line depreciation accountant should use the number of recorded months as a numerator of the 12 months total for partial years depreciation determination (Wild, Larson & Chiappetta, 2007). Nearest whole year method is analogous to the previous except six months which are used instead of the middle of the month. For equipment which was purchased during the first six months of the year depreciation expense should be calculated for the entire year, while equipment purchased during the last six months of the year should receive depreciation expense in the next year. For assets sale the method is opposite, as for the nearest whole month method (Wild, Larson & Chiappetta, 2007). Using mid-year convention method assets are assumed to be bought at the middle of the year (1-st of July for calendar-year companies) disregard of when the purchase occurred. As a result half-year depreciation is considered in the first and last years and full depreciation in all other years (Wild, Larson & Chiappetta, 2007).

ACCOUNTING UNIT 5 Q12 References Wild, J. J., Larson K. D., & Chiappetta, B. (2007). Fundamental accounting principles (18th ed.). New York, NY: McGraw-Hill. Edmonds, T., McNair, F., & Olds, P. (2012). Fundamental Financial Accounting Concepts (8th ed.). New York, NY: McGraw-Hill.