Document ID: chunk:federal_register_of_legislation:F2023L00010:body:0:p67
Version: federal_register_of_legislation:F2023L00010
Segment Type: other
Provision Reference: 
Character Range: 179292–182199

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 land to avoid double-counting the site preparation costs. The Board included guidance on this issue in paragraph F12(c). An entity may need to apply judgement to determine whether necessarily incurred site preparation costs are reflected (explicitly or implicitly) in the fair value measurement of a subject parcel of land; where it is unclear whether this is the case, an entity might deem that such costs are reflected in the fair value measurement of the subject parcel of land and therefore exclude those costs from the current replacement cost of the subject asset fixed to the land.
BC174        A stakeholder provided comment on the circumstance described for Jurisdiction B of Illustrative Example 4 – where the entity incurred costs to level the subject site prior to constructing a facility on the site, but available land in the proximity of the subject site was level. The example concluded that a market participant buyer could hypothetically purchase a level site and therefore the levelling costs should not be included in the current replacement cost of the subject facility. The stakeholder was concerned that, if an entity had incurred site levelling costs (that were capitalised in the facility's carrying amount), but in a subsequent measurement of the facility, site levelling costs are excluded from the current replacement cost of the subject facility, the reduction in the asset's value would misleadingly indicate that the entity had made an economically unjustified decision in incurring the site levelling costs.
BC175        In respect of the stakeholder's concern noted in paragraph BC174, the Board was informed by some stakeholders that, in many cases, if the market approach is applied to measure the value of the land under a facility, any site preparation works incurred would be reflected in the land's market value. In those cases, the aggregate fair value measurement of the land and facility would not indicate that the necessarily incurred site preparation costs are economically unjustified. The particular outcome in Scenario B of Illustrative Example 4 reflects a simplified assumption (ie that the value created by site preparation works affects the improvements rather than the land). Illustrative examples are included to illustrate particular aspects and considerations, rather than provide a template for the treatment of particular fact patterns. As noted in paragraph IE1, the evaluations in each illustrative example are not intended to represent the only manner in which AASB 13 could be applied.
BC176        Some stakeholders commented that the treatment of costs to remove and dispose of unwanted existing structures on land in order to hypothetically construct a reference asset at