Document ID: chunk:federal_register_of_legislation:F2023L00010:body:0:p11
Version: federal_register_of_legislation:F2023L00010
Segment Type: other
Provision Reference: 
Character Range: 28348–31686

the gross replacement cost of a reference asset for a road
A local government (Council A) applies the revaluation model after recognition of each class of property, plant and equipment, as referred to in paragraph 31 of AASB 116 Property, Plant and Equipment.
Council A recognises roads and land under roads as separate classes of assets. It measures the fair value of its roads using the cost approach. This example illustrates the consideration of the costs to include in the gross replacement cost of a reference road. The measurement 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.
Costs (excluding costs to remove unwanted existing structures and disruption costs: see below)  Estimated cost 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