Document ID: chunk:federal_register_of_legislation:F2023L00010:body:0:p73
Version: federal_register_of_legislation:F2023L00010
Segment Type: other
Provision Reference: 
Character Range: 195521–198435

of the asset or liability; and
(b)                   measurement uncertainty has arisen from a significant decrease in the volume or level of market activity for the asset or liability.
BC191        The Board considers that neither of the circumstances referred to in paragraph BC190 seems particularly applicable to the treatment of restoration costs yet to be incurred by the entity at the measurement date.

Piecemeal replacement
BC192        Some ED respondents commented that, in some cases, an actual replacement of an asset is undertaken in different phases (ie a part of an asset rather than the whole asset is replaced) and asked whether, when developing unobservable inputs using its own assumptions in accordance with paragraph 89 of AASB 13, the entity should assume the asset will be replaced on a piecemeal basis or in its entirety. The Board concluded that using data of replacing an asset on a piecemeal basis might not be fully consistent with the objective of a fair value measurement under the cost approach. This is because a market participant buyer needing to acquire or construct an asset in its entirety would not need to incur additional costs that arise from replacing an existing asset on a piecemeal basis (such as security costs incurred to provide continuity of service delivery), nor would it logically be willing to pay the holder of the subject asset for incurring those additional costs.
BC193        The guidance in paragraph F14 that an entity need not undertake exhaustive efforts to obtain information about the costs referred to in paragraphs F12 and F13, provided that the entity includes all such costs for which data are reasonably available, should address concerns about practical difficulties of measuring the current cost to hypothetically replace an asset in its entirety if the asset's parts are actually replaced on a piecemeal basis. Where specific additional costs arising from piecemeal replacement are identifiable, they can readily be excluded from the estimate of the asset's current replacement cost. Where it is unclear whether some 'piecemeal costs' would differ if incurred as part of an entire replacement, when paragraph F5 applies, applying its principle to use the entity's own assumptions as a starting point and adjust them only to the extent that reasonably available information indicates that other market participants would use different data, would generally mean that the entity's own costs would be used, thus overcoming the practical difficulty of estimating the cost to hypothetically replace an asset in its entirety.

The most economical manner of hypothetical replacement
BC194        Application of the cost approach assumes implicitly a hypothetical acquisition or construction of the subject asset occurs in the most economical manner. However, stakeholders informed the Board that in many cases, not-for-profit public sector entities