Document ID: chunk:federal_register_of_legislation:F2024C00046:body:0:p112
Version: federal_register_of_legislation:F2024C00046
Segment Type: other
Provision Reference: 
Character Range: 295683–298685

reflecting the fact that the market participant buyer presently does not possess the subject asset and needs to acquire or construct it in its entirety. The Board concluded that, to estimate this amount, an entity would include all necessary costs intrinsically linked to acquiring or constructing the asset at the measurement date. This is because a market participant buyer of the subject asset would need to incur all those costs if it acquired or constructed the subject asset at the measurement date, whether that buyer hypothetically acquires the subject asset from the entity or constructs a substitute asset itself.
BC155        Because the subject asset is held by the reporting entity at the measurement date, an actual sale of the subject asset by the reporting entity to a market participant buyer did not occur on the measurement date. Consequently, as noted in IFRS 13 paragraph BC30, the definition of fair value assumes a hypothetical exchange transaction. Assuming a hypothetical acquisition or construction of a substitute asset by the market participant buyer requires the consideration of data about a reference asset. Therefore, an estimate of an asset's current replacement cost includes all necessary costs intrinsically linked to hypothetically acquiring or constructing a reference asset at the measurement date. The process of identifying and using data about reference assets, while maximising the use of relevant observable inputs and minimising the use of unobservable inputs, is discussed in paragraphs BC157–BC161.
BC156        ED 320 proposed the concept of "assuming the subject asset presently does not exist" as the overarching principle of the cost approach. The Board proposed that assumption as 'shorthand' for the principle that the market participant buyer presently does not possess the subject asset and needs to acquire that asset in its entirety. However, a few respondents commented that the concept that the subject asset presently does not exist conflicts with the proposed requirements to include certain asset-specific costs in current replacement cost. The Board decided not to state an overarching principle for the cost approach in the implementation guidance because paragraphs B8 and B9 clearly state that the cost approach reflects the amount that would be required currently to replace the service capacity of an asset, which requires all necessary costs intrinsically linked to the hypothetical acquisition or replacement of a reference asset to be included in the subject asset's current replacement cost.

Reference assets
BC157        The Board noted that, consistent with International Valuation Standard IVS 105 (effective 31 January 2022), measuring the fair value of an asset applying the cost approach generally requires an entity to:
(a)                    estimate the replacement cost of a reference asset as input; and
(b)                   adjust that estimated replacement cost of a reference asset for:
(i)                     any