Document ID: chunk:federal_register_of_legislation:F2024C00046:body:0:p115
Version: federal_register_of_legislation:F2024C00046
Segment Type: other
Provision Reference: 
Character Range: 303661–306506

a conceptual viewpoint, paragraphs B8 and B9 of AASB 13 state that the cost approach to measuring an asset's fair value reflects the amount that would be required currently to replace the asset's service capacity. Therefore, in concept, the 'starting point' for considering the costs to include in an asset's current replacement cost is the current conditions (including market conditions and current operating environment) of the subject asset at the measurement date, estimated using a reference asset as input.
BC167        From a practical viewpoint, the entity might have limited information about some of the costs required currently to replace the service capacity of a reference asset. Although some costs to acquire or construct parts of an asset often have industry-wide data available to assist their estimation (eg costs of drainage pipes), some other parts of assets have costs that tend to be site-specific, and it may be necessary to use historical data retained by the holder of the subject asset. This can present practical difficulties, especially for costs of any parts that have not been incurred in recent years.
BC168        The Board concluded that an entity should not need to undertake exhaustive efforts to obtain information about the costs composing an asset's current replacement cost; however, an entity includes all such costs for which data are reasonably available. That is, under paragraph F14, if data about certain costs of some parts of an asset are not reasonably available, those costs would be omitted from an estimate of the subject asset's current replacement cost. However, those costs are not omitted simply because they relate to parts of an asset that are not expected to actually be replaced in the future.

Site preparation costs
BC169        Entities would need to apply judgement in the circumstances of the subject asset to determine the necessary costs intrinsically linked to acquiring or constructing the asset at the measurement date. For an asset fixed to a parcel of land, this would include whether it would be necessary for the market participant to incur site preparation costs in order to hypothetically construct a reference asset at the subject asset's location.
BC170        For example, to measure the current replacement cost of a building, an entity would consider whether a market participant buyer would be able to acquire a vacant site in the area surrounding the existing location. If suitable vacant sites are available, market participants would be unlikely to pay for the current cost to demolish existing structures on the site (and, therefore, it would be unlikely that such a cost would be considered 'necessarily incurred'). Similarly, if market participants are able to acquire a suitable parcel of land with an existing structure that they could modify as necessary