What does the mid-quarter convention apply to?

The mid-quarter convention applies to situations where more than 40% of the total cost of an asset is purchased during the last three months of the tax year. This convention is important because it ensures that the depreciation for those assets accurately reflects the time they were in service during the tax year. If the bulk of the asset purchases occur in the last quarter, standard conventions would not provide an accurate representation of their use. Therefore, this method helps align the depreciation expense with the actual use of the asset, providing a fair approach to matching expenses with revenue in that period.

In contrast, options that refer to assets purchased in specific quarters or years do not address the percentage-based rule that triggers the mid-quarter convention. This percentage criterion is essential for determining the appropriate depreciation approach and ensuring compliance with tax regulations.