Document ID: chunk:federal_register_of_legislation:F2022C00554:body:0:p76
Version: federal_register_of_legislation:F2022C00554
Segment Type: other
Provision Reference: 
Character Range: 236509–239423

the contract liability approximates the fair value of the residual interest in the asset. Whilst this would effectively mean a more consistent outcome with the financial liability model, the Board considered this approach would be practically difficult, with the costs likely to outweigh the benefits. The Board also expected that in many instances there would not be a material difference between this net approach and amortisation of the liability on a time basis. The Board therefore concluded that this approach was not appropriate.

Cost approach
     BC62            The cost approach "reflects the amount that would be required currently to replace the service capacity of an asset (often referred to as current replacement cost)" (AASB 13, paragraph B8). This approach uses Level 2 and/or Level 3 inputs, which are observable or unobservable inputs. Current replacement cost is the "cost to a market participant buyer to acquire or construct a substitute asset of comparable utility, adjusted for obsolescence" (AASB 13, paragraph B9). The Board noted that current replacement cost is often used to measure the fair value of assets that are used in combination with other assets or with other assets and liabilities. This is particularly relevant if the service concession asset is part of an integrated network of assets, such as the provision of a transport network.

     BC63             The Board noted (in paragraph BC60) a public sector entity uses a service concession asset's capacity or service potential to provide goods or services to achieve public service objectives, replacing the asset irrespective of whether the replacement cost will be recovered by the expected cash flows that the asset may generate. This view would be consistent with measuring the asset using current replacement cost under the cost approach in AASB 13.

     BC64            Additionally the Board's view (in paragraph BC60) is that the service potential of a service concession asset under a service concession arrangement involving the financial liability model and the service potential of an identical asset involving the GORTO model is the same from the grantor's perspective, as both assets will provide the same utility to the public. The fair value of these assets should therefore be measured consistently.

     BC65            Unlike the other valuation methodologies, current replacement cost would result in the same value under both the financial liability model and the GORTO model. Current replacement cost would not include the restriction on the asset (see paragraph BC49) of the grantor having granted the operator the right to charge users as the restriction relates to future cash flows from the asset rather than the costs to replace the asset to provide its current service potential. The Board's considerations of whether the granting of the right to future cash flows should be recognised as