Document ID: chunk:federal_register_of_legislation:F2022C00496:body:0:p17
Version: federal_register_of_legislation:F2022C00496
Segment Type: other
Provision Reference: 
Character Range: 42379–45245

at cost, adjusted when applicable for any loss of service potential, is consistent with the Framework for the Preparation and Presentation of Financial Statements, which notes at paragraph Aus49.1:
In respect of not-for-profit entities in the public or private sector, in pursuing their objectives, goods and services are provided that have the capacity to satisfy human wants and needs.  Assets provide a means for entities to achieve their objectives.  Future economic benefits or service potential is the essence of assets.  Future economic benefits is synonymous with the notion of service potential, and is used in this Framework as a reference also to service potential.  Future economic benefits can be described as the scarce capacity to provide benefits to the entities that use them, and is common to all assets irrespective of their physical or other form.
BC15 The Board noted that a fall in the current replacement cost of inventories held for distribution may at times indicate a loss of service potential, but that this is not necessarily always the case, and that a loss of service potential may at times be identified on other, more relevant, bases.  For example, obsolescence, which may occur with or without there being a fall in current replacement cost, may be the main factor leading to a loss of service potential for many not-for-profit entities.  The term 'obsolescence' covers both 'technical obsolescence' and 'functional obsolescence'.  Technical obsolescence occurs when an item still functions for some or all of the tasks it was originally acquired to do, but no longer matches existing technologies.  Functional obsolescence occurs when an item no longer functions the way it did when it was first acquired.  In either case, a loss of service potential may need to be recognised.
BC16 The Board also considered that a problem with a purely physical service potential approach is identifying ways in which physical service potential would be measured.  However, the Board concluded that many not-for-profit entities will often be more likely to monitor the service potential of their inventories held for distribution than they are to monitor the current replacement costs of those inventories.  The Board considered that this is especially likely to be the case when those inventories are important to maintaining its functions or operating capability and, therefore, often in cases when it is most likely to be material to the financial statements.
BC17 The Board considers that there is a need for the circumstances of a not-for-profit entity to be the determining factor behind its manner of assessing any loss of service potential for inventories held for distribution.  The measurement requirement for inventories held for distribution would require each not-for-profit entity to identify the basis (or bases) for determining any