Document ID: chunk:federal_register_of_legislation:F2023L00010:body:0:p43
Version: federal_register_of_legislation:F2023L00010
Segment Type: other
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Character Range: 115641–118802

entity or a similar not-for-profit public sector market participant buyer hypothetically bidding for the asset, which typically would be the case for assets within the scope of this Amending Standard;
(b)                   the illustrative examples on IFRS 13 do not include illustrative examples on 'financially feasible use'; and
(c)                    neither (i) nor (ii) above involves estimating fair values (instead, 'financially feasible use' is a factor in developing fair value estimates).
BC88            The Board also observed that, where the market or income approach is used, there should be no change to how financially feasible use would be assessed in light of paragraph Aus28.1.

Interaction with functional obsolescence
BC89            During the outreach related to the Fatal-Flaw Review draft Standard, a stakeholder questioned the interaction between the proposed paragraph Aus28.1 and functional obsolescence. With the introduction of a new financially feasible use concept in proposed paragraph Aus28.1 focused, in part, on the cost of providing goods or services, the stakeholder commented it is unclear whether a subject asset having excess operating costs compared with a modern equivalent reference asset might cause:
(a)                    the subject asset's current use to be considered financially infeasible after considering functional obsolescence; and
(b)                   if the subject asset is measured under the cost approach, the concept of functional obsolescence to be considered inapplicable because determining whether a use of the asset is 'financially feasible' has regard to the resulting cost of goods or services the asset provides and therefore the amount market participants would be willing to invest in the asset's service capacity.
BC90            Paragraph 80.6 of International Valuation Standard IVS 105 Valuation Approaches and Methods provides international valuation standards guidance on the two forms of functional obsolescence. It states:
          There are two forms of functional obsolescence:
               (a)  excess capital cost, which can be caused by changes in design, materials of construction, technology or manufacturing techniques resulting in the availability of modern equivalent assets with lower capital costs than the subject asset, and
               (b)  excess operating cost, which can be caused by improvements in design or excess capacity resulting in the availability of modern equivalent assets with lower operating costs than the subject asset.
BC91            To explain their concern, the stakeholder provided an example assuming that the subject asset (a building) has in-built halogen lights and the modern equivalent reference asset has in-built LED lights, which are more cost-effective to operate than halogen lights. In this case, paragraph 80.6(b) of IVS 105 would indicate the fair value of the subject asset should be adjusted down to reflect the excess operating costs compared with the modern equivalent asset used as a reference asset. The stakeholder requested the Board to clarify whether, if making such adjustments would result in a small estimated