Document ID: chunk:federal_register_of_legislation:F2023L00010:body:0:p70
Version: federal_register_of_legislation:F2023L00010
Segment Type: other
Provision Reference: 
Character Range: 187360–190287

to restore the other entity's asset.
BC182        In relation to the concern noted in paragraph BC181(a), the Board regards such restoration costs as costs of obtaining access to the service capacity embodied in the entity's subject asset. The Board noted that such costs restore, rather than enhance, the disrupted asset and, accordingly, are confined to the consequences of acquiring or replacing the entity's subject asset.
BC183        In relation to the concern noted in paragraph BC181(b) about recognition of an increase in an asset's fair value without the entity incurring a related cost (and therefore a gain being recognised), the Board noted that these increases are examples of various increases in the market buying prices of components of assets that continue to be held by the entity and do not involve a related cost to the entity. The Board considered that a market participant would be willing to pay more for an asset due to the change in the asset's operating environment, despite the asset's service capacity to produce outputs not having improved. This is because all costs to restore another entity's asset would necessarily be incurred by a market participant if it were to acquire or construct the subject asset at the measurement date. Those additional restoration costs are necessarily incurred to obtain access to the services the subject asset is expected to generate. Similarly, a market participant would consider the costs currently avoided by possessing the subject asset; these costs are not limited to those already incurred by the entity or to restoration costs that would have been incurred to initially acquire or construct the asset.
BC184        The Board agrees with the concern noted in paragraph BC181(c) that the consolidated financial statements of the group to which the entity belongs would be overstated if both the disrupted asset and the subject asset are measured at their current replacement cost and included in the consolidated financial statements. Therefore, the Board decided that the current replacement cost of the subject asset should exclude any costs that hypothetically would be incurred to restore assets of an entity within the same consolidated group as the holder of the subject asset.
BC185        In reaching that decision noted in paragraph BC184 about the double-counting issue described in paragraph BC181(c), the Board considered whether, instead, it would be appropriate to exclude such restoration costs from current replacement cost, on the grounds of simplicity, for all non-financial assets of not-for-profit public sector entities not held primarily for their ability to generate net cash inflows. However, the Board decided against this approach because feedback from some stakeholders (in particular, local governments) supported including restoration costs for another entity's assets – consistent with local governments not being identified as