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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Why is it necessary to record depreciation expense for partial periods? Describe some common conventions that are used to compute partial period depreciation.

To determine

State the reason for recoding depreciation expenses for partial periods and also label some of the conventions that are being used to compute the partial period depreciation.

Explanation

State the reason for recoding depreciation expenses for partial periods:

The depreciation expenses should be recorded only for the period in which the assets are being used in operation of the business. Hence, the partial depreciation expenses are required only when the assets are being purchased or disposed at any time other than the first or last day of the year.

Label some of the conventions that are being used to compute the partial period depreciation as follows:

There are three common conventions used to compute the partial depreciation expenses, they are:

  1. 1. Nearest Whole Month Convention.
  2. 2. Nearest Whole Year Convention.
  3. 3. One-Half Year Convention.

Nearest Whole Month Convention:

Under this convention, the assets that are purchased on or before 15th of the month are depreciated for an entire month, and the purchase made after (15th) that are not depreciated for the entire month...

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