Document ID: chunk:federal_register_of_legislation:F2024C00046:body:0:p59
Version: federal_register_of_legislation:F2024C00046
Segment Type: other
Provision Reference: 
Character Range: 152415–155366

incur the $3,000,000 site levelling cost. Using the cost approach, the Health Department in Jurisdiction B measures the replacement cost of a reference airstrip as at 30 June 20X1 as $1,500,000.
Jurisdiction C
It would be expected that another market participant buyer, being unable to acquire a level site (to hypothetically construct a modern equivalent airstrip) as an alternative to acquiring the Health Department's airstrip, would be prepared to pay for the cost of site levelling when pricing the airstrip. The Health Department in Jurisdiction C measures the replacement cost of a reference airstrip as at 30 June 20X1 as $4,500,000 ($3,000,000 site levelling cost and $1,500,000 other construction cost), despite the fact that it did not actually incur any site levelling costs when the airstrip was constructed.
Including the $3,000,000 site levelling cost in the fair value measurement of the airstrip represents the advantage for a market participant buyer to possess the Health Department's airstrip (ie would be considered by a market participant buyer when pricing the airstrip). The advantage to a market participant buyer of possessing the Health Department's airstrip would include that the buyer would avoid the need to incur site levelling costs to prepare an undulating parcel of land for the construction of a reference airstrip.
This example assumes the value attributed by market participants to the site levelling is included in the estimated current replacement cost of the airstrip. That simplifying assumption would not necessarily be appropriate in all situations. For example, a particular entity with circumstances similar to those of the Health Department in Jurisdiction B might value the land under the airstrip using the market approach and the valuations before and after that site levelling might indicate that the site levelling increased the fair value of that parcel of land. Where the fair value of land incorporates the value attributed by market participants to site improvements, the cost of those improvements would, in accordance with paragraph F12(c), be excluded from the current replacement cost of improvements measured using the cost approach.

      Economic obsolescence (paragraphs F16–F19)

IE4                 Example 5 illustrates an assessment of whether economic obsolescence should be identified in relation to an asset not held primarily for its ability to generate net cash inflows, if the asset is measured at current replacement cost under the cost approach in paragraphs B8 and B9.

Example 5 – Kitchen with underutilised potential
A not-for-profit public sector institute (College A) measures the furniture and fittings in its college building at fair value using the cost approach. Its furniture and fittings include a kitchen of commercial standard necessary for training student chefs. The kitchen is an essential asset for College A to fulfil its teaching objectives, although it