Document ID: chunk:federal_register_of_legislation:F2023L00010:body:0:p16
Version: federal_register_of_legislation:F2023L00010
Segment Type: other
Provision Reference: 
Character Range: 42129–45077

of $3,000,000 to level the reference parcel of land to be a fit-for-purpose site for the modern equivalent airstrip, since the only available land in the proximity is also undulating. Using the cost approach, the Health Department in Jurisdiction A measures the replacement cost of a reference airstrip as at 30 June 20X1 as $4,500,000 ($3,000,000 site levelling cost and $1,500,000 other construction cost).
Jurisdiction B
It would be expected that another market participant buyer could hypothetically purchase a level site, in which case, it would not need to incur the $3,000,000 site levelling cost. Using the cost approach, the Health Department in Jurisdiction B measures the replacement cost of a reference airstrip as at 30 June 20X1 as $1,500,000.
Jurisdiction C
It would be expected that another market participant buyer, being unable to acquire a level site (to hypothetically construct a modern equivalent airstrip) as an alternative to acquiring the Health Department's airstrip, would be prepared to pay for the cost of site levelling when pricing the airstrip. The Health Department in Jurisdiction C measures the replacement cost of a reference airstrip as at 30 June 20X1 as $4,500,000 ($3,000,000 site levelling cost and $1,500,000 other construction cost), despite the fact that it did not actually incur any site levelling costs when the airstrip was constructed.
Including the $3,000,000 site levelling cost in the fair value measurement of the airstrip represents the advantage for a market participant buyer to possess the Health Department's airstrip (ie would be considered by a market participant buyer when pricing the airstrip). The advantage to a market participant buyer of possessing the Health Department's airstrip would include that the buyer would avoid the need to incur site levelling costs to prepare an undulating parcel of land for the construction of a reference airstrip.
This example assumes the value attributed by market participants to the site levelling is included in the estimated current replacement cost of the airstrip. That simplifying assumption would not necessarily be appropriate in all situations. For example, a particular entity with circumstances similar to those of the Health Department in Jurisdiction B might value the land under the airstrip using the market approach and the valuations before and after that site levelling might indicate that the site levelling increased the fair value of that parcel of land. Where the fair value of land incorporates the value attributed by market participants to site improvements, the cost of those improvements would, in accordance with paragraph F12(c), be excluded from the current replacement cost of improvements measured using the cost approach.

      Economic obsolescence (paragraphs F16–F19)

IE4                 Example 5 illustrates an assessment of whether economic obsolescence should be identified in relation to an asset not