Document ID: chunk:federal_register_of_legislation:F2023L00010:body:0:p59
Version: federal_register_of_legislation:F2023L00010
Segment Type: other
Provision Reference: 
Character Range: 158204–161149

asset could be sold at the measurement date (excluding transaction costs); and
(ii)                   the price a market participant would be prepared to pay to replace the service capacity of the land and improvements in their existing use in the most economical manner. This amount would include the market price of land in the cheapest legally permissible location compatible with the entity's operational requirements for the facility. This is because, as an alternative to purchasing the asset subject to measurement, a market participant would build a modern equivalent property in an alternative site, if it would be cheaper than purchasing the asset in its existing location.
BC146        However, on further deliberation, the Board observed that the approach described in paragraph BC145 would have the following disadvantages:
(a)                    it is inconsistent with the view, which the Board supports, that the current replacement cost of real property should always be measured in its existing location because the service capacity of a property being replaced is the sum of:
(i)                     its capacity to provide services in its current use; and
(ii)                   its residual value (the present value of the net cash inflows from sale of the property at the end of the useful life of the improvements on the land), including the subsequent sale of the land component of the property (at its existing location). An asset's residual value contributes to the entity's capacity to provide services (and thus, indirectly, is another component of the existing asset's service capacity);
(b)                   it is unnecessarily complex. It would generally be very difficult to identify which location, of a potential variety of alternative locations with possibly significantly different market prices of land, might be used as the assumed alternative location; and
(c)                    it would be time-consuming and costly for preparers and auditors of financial statements. The additional cost of potentially preparing multiple valuations and due diligence assessments would be unlikely to be justified by the benefits to users of the financial statements.
BC147        In light of the concerns in paragraph BC146, the Board concluded that the current replacement cost of an asset, including real property, of a not-for-profit public sector entity not held primarily for its ability to generate net cash inflows should be measured by assuming the asset is replaced in its existing location, even if it would be feasible to relocate the asset to a cheaper location. The Board noted that respondents to ED 320 strongly supported the Board's view, and decided to add paragraph F11(a) to Appendix F of AASB 13.

Nature of costs included in current replacement cost (paragraphs F8–F15)
BC148        The Board was asked to clarify which costs should be included in the current replacement cost of an asset held by a