Document ID: chunk:federal_register_of_legislation:F2023L00010:body:0:p17
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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 held primarily for its ability to generate net cash inflows, if the asset is measured at current replacement cost under the cost approach in paragraphs B8 and B9.

Example 5 – Kitchen with underutilised potential
A not-for-profit public sector institute (College A) measures the furniture and fittings in its college building at fair value using the cost approach. Its furniture and fittings include a kitchen of commercial standard necessary for training student chefs. The kitchen is an essential asset for College A to fulfil its teaching objectives, although it was planned not to be utilised outside the scheduled class times.
In this example, it is assumed that:
    * the kitchen is scheduled to be used four hours per week;
    * the amount of kitchen equipment aligns with the intended number of students per class;
    * the current cost to replace the teaching kitchen with an identical capacity kitchen, less all forms of obsolescence other than any economic obsolescence, is estimated as at the measurement date (30 June 20X3) as $250,000; and
    * if the kitchen requires replacing, College A would replace it with one that has the same physical capacity.
Current replacement cost assessment as at 30 June 20X3
College A assesses whether any economic obsolescence of its teaching kitchen has arisen as at the measurement date (30 June 20X3).
Although the teaching kitchen is operated with less intensity than physically possible, this does not indicate economic obsolescence has arisen. This is because the teaching kitchen is necessary for College A to fulfil its teaching objectives and is achieving the level of output planned. Another college 'stepping into the shoes' of College A would be willing to pay $250,000 to replace the kitchen's service capacity.
Therefore, no economic obsolescence is deducted from the amount of $250,000, which is the kitchen's current replacement cost as at 30 June 20X3.

Basis for Conclusions
This Basis for Conclusions accompanies, but is not part of, AASB 2022-10 Amendments to Australian Accounting Standards – Fair Value Measurement of Non-Financial Assets of Not-for-Profit Public Sector Entities.

Introduction
BC1               This Basis for Conclusions summarises the Australian Accounting Standards Board's considerations in reaching the conclusions in this Standard, which amends AASB 13 Fair Value Measurement for application by not-for-profit public sector entities. It sets out the reasons why the Board developed the Standard, the approach taken to developing the amendments and the key decisions made. In making decisions, individual Board members gave greater weight to some factors than