Straight-Line, Modified Half-Year Example

A piece of equipment with a 5-year life is placed in service in April 2018. The asset, which was purchased for $10,000 and has a salvage value of $2,000, is sold in July 2022.

Year	Depreciation Allowance	Calculation
2018	$1,600.00	[($10,000 - 2,000 salvage) / 5 years] x 100%
2019	1,600.00	($10,000 - 2,000 salvage) / 5 years
2020	1,600.00	($10,000 - 2,000 salvage) / 5 years
2021	1,600.00	($10,000 - 2,000 salvage) / 5 years
2022	800.00	[($10,000 - 2,000 salvage) / 5 years] x 50%

Had the asset been sold in the first half of the year, no depreciation (rather than 50%) would have been allowed in the disposal year. This is due to the effect of the convention type on the disposal year.

In the above example, the asset was placed in service in April, the first half of the year. Therefore, a full year of depreciation is allowed in the acquisition year. The annual allowance is earned evenly over the number of months that the asset was in service in that year.