Document ID: chunk:federal_register_of_legislation:F2024C00046:body:0:p113
Version: federal_register_of_legislation:F2024C00046
Segment Type: other
Provision Reference: 
Character Range: 298396–301331

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 differences between the current service capacity of the reference asset and the subject asset; and
(ii)                   any obsolescence.
BC158        IVS 105 mentions that a reference asset could be a modern equivalent asset or a replica asset. Paragraph 70.5 of IVS 105 describes a modern equivalent asset as an asset "… that provides similar function and equivalent utility to the asset being valued, but which is of a current design and constructed or made using current cost-effective materials and techniques."
BC159        Paragraph 70.6 of IVS 105 states that using the reproduction cost method (ie the reference asset is a replica of the subject asset) to measure the value of the subject asset is appropriate in circumstances such as the following:
(a)                    the cost of a modern equivalent asset is greater than the cost of recreating a replica of the subject asset; or
(b)                   the utility offered by the subject asset could be provided only by a replica rather than a modern equivalent.
BC160        Some respondents to ED 320 argued that the implementation guidance should stipulate that a modern equivalent asset should be used as a reference asset only where a replica of the subject asset is unavailable. The Board disagreed with that suggestion because:
(a)                    if the current service capacity of an asset can be replaced more economically by a modern equivalent asset, it would be unlikely that a market participant buyer would be willing to pay the higher cost of a replica; and
(b)                   it would make AASB 13 more restrictive than IVS 105 and thus provide guidance on matters relating to detailed valuation assessments, which does not belong within the scope of an Australian Accounting Standard.
BC161        A few ED respondents argued that, for heritage assets held for their heritage significance, their replacement cost should be based on replication of the original heritage design but using modern cost-effective materials and processes (which are aspects of a modern equivalent asset). The Board agreed with that argument and added implementation guidance to that effect in paragraph F15.

Costs of parts of assets that will not actually require replacement
BC162        The Board was requested to provide guidance on whether an asset's current replacement cost should exclude costs of any parts of the asset that will not actually require replacement in the future because their service capacity does not expire over time (ie 'once-only costs'). This issue has been the subject of debate and inconsistent practice (for example, the current replacement cost of