DEPRECIATION CONVENTION Definition

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DEPRECIATION CONVENTION is utilized to determine how much depreciation to charge the first year when an item is bought part way through the year. Three different conventions are used: 1. Half year convention - All property placed in service is considered to be placed in service half way through the year. During the first year, half of the "normal" depreciation is taken. At the end of the depreciation period, the other half of the "normal" depreciation is taken; 2. Mid-quarter convention - If the amount of depreciation claimed on new items during the last 3 months of a year exceeds 40% of the total depreciation claimed during the year, then the mid-quarter convention is used. The amount of depreciation of each item is figured for one year then multiplied by 87.5% if was placed in service during Jan. - March, 62.5% if it was placed in service during April - June, 37.5% for items placed in service during July-Sept, and 12.5% for items placed in service during Oct. - Dec.; or, 3. Mid-month convention - All property is considered to be placed in service during the midpoint of the month. This requires some calculations.

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STAND-ALONE is where the subject is capable of operating or is intended to be viewed independently. For example, a. a pc can be connected to a network, but it also has a "stand-alone" capability where the user can work locally on his/her pc without interacting with the network; or, b. a sales forecast for multiple product models or categories is a "blended" forecast, but if you were to break the forecast out by individual models or category, you would have a "stand-alone" forecast for each.

DEFEASANCE is a. the release of a debtor from the primary obligation for a debt. A legal defeasance could take place in absolute terms, i.e., the debt could cease to exist for anyone (by being forgiven or set aside), or the creditor could formally recognize that another party has taken over the primary obligation for the debt; and, b. in securities, a technique used by bond issuers to dis­charge old, low-rate debt by purchasing a smaller amount of higher-yielding U.S. Treasury debt. The Treasuries are held in trust to service the old debt being retired.

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