Document ID: chunk:federal_register_of_legislation:F2024C00046:body:0:p54
Version: federal_register_of_legislation:F2024C00046
Segment Type: other
Provision Reference: 
Character Range: 138513–141961

of accumulated obsolescence and the valuation of land are not addressed in this example.
As at 30 June 20X2, Council A controls a particular road (the subject road). In the process of using the cost approach to measure the fair value of the road, Council A determines which costs to include in the replacement cost of a reference road.
The costs in the list below, measured using prices as at that measurement date, relate to the reference road. For simplicity, in this example, it is assumed that the replacement of the reference road would occur within a year and, consequently, in the current market environment, material financing costs (from the perspective of the market participant) would not be incurred in replacing the reference road.
                                                                                                Estimated cost
Costs (excluding costs to remove unwanted existing structures and disruption costs: see below)  as at 30 June 20X2
                                                                                                $'000

Design work                                                                                     2,200
Earthworks                                                                                      10,000
Formation                                                                                       5,000
Pavement                                                                                        3,000
Surfacing                                                                                         2,000
Total                                                                                           22,200

The following two types of costs also relate to the reference road as at 30 June 20X2.
Costs to remove unwanted existing structures and disruption costs
Council A's road is situated in a densely populated area, and Council A assesses that, since there is no vacant site in the surrounding area as at 30 June 20X2, to construct a road in a hypothetical acquisition, a market participant buyer would need to incur $2,000,000 to remove unwanted structures on the land to make way for the construction of the road. Council A did not reflect any land improvement or remediation costs in the fair value of the land under the road.
In addition, because the construction work to replace the subject road at the measurement date would require interruption of power and water supplies, Council A assumes that the majority of that construction work would occur at night-time to minimise disruption to the community. Council A estimates that, if that work were performed mainly at night-time, it would cost $1,000,000 as at 30 June 20X2. In contrast, if those construction works were performed during the daytime, Council A estimates that those costs would reduce to $500,000 as at 30 June 20X2. Council A determined that there is no reasonably available information indicating that another market participant would construct a road at the location of the Council's road during the daytime.
Estimating the gross replacement cost of a reference road as at 30 June 20X2
Costs to a market participant buyer
In accordance with paragraph F9(a), Council A applies judgement in determining which costs to include in a reference road as at the measurement date (30 June 20X2).
Council A concludes that each of the estimated costs listed above (which total $22,200,000) and the