Odoo Depreciation Compliance with IFRS Standards Part - 2

This example illustrates how Odoo calculates depreciation using the Declining Balance (30%) method, with an automatic switch to Straight-Line when it results in a higher depreciation expense. For an asset with a $10,000 cost, 5-year life, and zero residual value, Odoo initially uses the declining method. However, in Year 3, the straight-line method produces a higher depreciation amount, so Odoo switches methods to ensure the asset is fully depreciated by Year 5—in compliance with IFRS (IAS 16) standards.

Scenario Summary

Depreciation Mechanics

1. Declining Balance Formula

Annual Depreciation = (Remaining Book Value × Rate)

So, for 30% declining:

• Year 1: 10,000 × 30% = 3,000
• Year 2: 7,000 × 30% = 2,100
• Year 3: 4,900 × 30% = 1,470
• And so on...

However, after a few years, declining balance depreciation becomes too small, and the asset may never reach $0. To fix this (and comply with IFRS), Odoo automatically compares this to the Straight-Line method (which always ensures full depreciation).

Odoo's Auto Switch – Step-by-Step

Explanation:

• Year 3: Declining = $1,470, but Straight-Line (remaining life: 2 years) = $3,430 / 2 = $1,715
• Since Straight-Line gives higher expense, Odoo switches to it in Year 3
• Asset fully depreciates in Year 5 with value = $0, complying with IFRS (IAS 16)

How This Aligns with IFRS

• Systematic allocation: Both methods are systematic (Declining then Straight-Line)
• Reflects usage: Declining for early wear, Straight-Line for later stable usage
• Full depreciation: Asset with $0 residual ends at $0 Net Book Value
• Switch allowed: IFRS allows change if justified by consumption pattern (IAS 16 ¶61)

Final Depreciation Schedule (Odoo Output)

Odoo handles this logic automatically once the asset and method are configured.