Fixed Asset Remaining Life and Half Year Averaging Convention

Issue

Why is the Remaining Life greater than the Original Life when an asset is depreciated while using the Half Year Averaging convention?

Resolution

What is happening is that you are depreciating this asset in the 1st half of the 1st year of the asset's life. In the 1st year, the asset will only take 1/2 year's worth of depreciation, but will begin depreciating on the Placed in Service Date. Fixed Assets then has to add days to the life, so the asset does not fully depreciate until the last year is half over.

For example:

Enter an asset with a Placed in Service Date of 1/15/03, 7 year Original Life, Half Year averaging convention, and depreciate the asset to 4/30/03. You will now see that the Remaining Life is 7 years, 063 days. In this case there are 63 days until the first half of 2003 is done (from 4/30/03). If Fixed Assets did not add these days, the asset would be fully depreciated on 1/15/2010 when in fact it should not be fully depreciated until the middle of the year in 2010.

The asset will be depreciated correctly, taking 1/2 year's worth of depreciation in the first year, but the days are added to ensure that it is fully depreciated in the correct amount of time.

This article was TechKnowledge Document ID: 31889