Document ID: chunk:federal_register_of_legislation:F2024C00046:body:0:p116
Version: federal_register_of_legislation:F2024C00046
Segment Type: other
Provision Reference: 
Character Range: 306255–309090

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 to create a modern equivalent of the subject asset, it would be unnecessary to remove and dispose of existing structures on the reference parcel of land. If there are no suitable alternative sites for a particular facility because the facility must be sited in its existing location, market participant buyers would be prepared to pay the location-specific costs of site preparation for that facility.
BC171        The costs included in an asset's current replacement cost, as a measure of the amount a market participant buyer would be prepared to pay for the asset, represent the costs avoided by a market participant buyer as a result of the entity possessing the service capacity embodied in the subject asset. Consistent with the related comment in paragraph B9 of AASB 13, the market participant buyer is prepared to pay the current amount of those costs avoided, and no more. For example, if:
(a)                    instead of acquiring the subject asset, a market participant buyer would have no choice but to incur costs to remove and dispose of unwanted existing structures on land as part of the costs to construct an asset with service capacity equivalent to that of the subject asset (because of a lack of suitable vacant sites at the measurement date); and
(b)                   the subject asset (land or improvements, or both) does not have any of those unwanted structures (either because the entity removed them or they never existed) and therefore acquiring the subject asset would save a market participant buyer from incurring those removal and disposal costs,
     those costs to remove and dispose of unwanted existing structures on land would be included in the subject asset's current replacement cost.
BC172        Where the conditions in paragraphs BC171(a) and (b) are satisfied, the costs to remove and dispose of unwanted existing structures on land would be those of the typical market participant buyer. However, in accordance with paragraphs F5, F6 and F14, in the absence of reasonably available observable data about the costs saved by the market participant buyer, the entity would use its own assumptions about the removal costs it would incur if, hypothetically, those unwanted structures existed.
BC173        Some ED respondents commented that the fair value of the land on which the subject asset is fixed would, in some cases, reflect the fact that it is fit-for-purpose for the subject asset; and therefore, any hypothetical site preparation costs should be excluded from the estimated current replacement cost of fixed improvements on that