Document ID: chunk:federal_register_of_legislation:F2024C00046:body:0:p52
Version: federal_register_of_legislation:F2024C00046
Segment Type: other
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Character Range: 133162–136101

of 'economic (ie external) obsolescence' does not require a formal decision to have been made to reduce the physical capacity of that asset.

     F17                 When an asset described in paragraph F16 apparently has surplus capacity in view of current demand for its services, economic obsolescence is not identified for that asset if that 'surplus capacity' is necessary for stand-by or safety purposes (eg to deal with contingencies), even if it seldom or never is actively utilised. An example of an asset with stand-by capacity that is necessary for operational purposes, and would be replaced in full by a market participant buyer, is an electricity generation plant that maintains a generating capacity buffer that is typical of the industry to cater for periods of peak demand.

     F18                 An example of a strong indicator that economic obsolescence of assets would be identified when applying the principles in paragraphs F16 and F17 is a public school's buildings that have a capacity for 500 students but, due to demographic changes, a school for 100 students would meet current and reasonably foreseeable requirements, including a buffer needed for any temporary or underestimated student demand. In this example, based on these assumed facts alone (for simplicity), the school buildings' gross replacement cost would be based on the school's needed capacity (for 100 students), from which any other accumulated obsolescence related to the condition of the school buildings (eg physical obsolescence) would be deducted. Consistent with paragraph F16, the conclusion reached would not depend on whether a formal decision has been made to reduce the school buildings' capacity.

     F19                 Where an asset or a facility that is not held primarily for its ability to generate net cash inflows suffers a significant reduction in demand for its services, any economic obsolescence identified would not necessarily (and frequently would not) exhibit a linear relationship with that reduced level of demand. This is due to economies of scale causing some parts of an asset or a facility potentially needing replacement in full, or almost in full, despite a significant fall in demand for the services provided by the asset or facility, in which case the needed physical capacity of the asset or facility would not reduce linearly with the reduction in the level of demand for that asset's or facility's services. In the school example in paragraph F18, the administration office, canteen, toilet blocks, library and gymnasium might need replacing even for 100 students, although perhaps on a slightly smaller scale.

Australian illustrative examples for not-for-profit public sector entities
These illustrative examples accompany, but are not part of, AASB 13. They illustrate aspects of Appendix F Australian implementation guidance for not-for-profit public sector entities in AASB 13, but are not