Document ID: chunk:federal_register_of_legislation:F2024C00046:body:0:p91
Version: federal_register_of_legislation:F2024C00046
Segment Type: other
Provision Reference: 
Character Range: 239725–242703

Financially feasible use (paragraph Aus28.1)
BC82            The Board was also asked to clarify the application of 'financially feasible use' in paragraph 28(c) of AASB 13 to non-financial assets of not-for-profit public sector entities not held primarily for their ability to generate net cash inflows, because those assets are not held primarily to produce an investment return. Paragraph 28(c) of AASB 13 refers to an asset's use that "generates adequate income or cash flows … to produce an investment return …".
BC83            The Board considered that modifying AASB 13 is necessary to avoid the risk that paragraph 28(c) of AASB 13 is interpreted to preclude measuring the fair value of a non-financial asset not held primarily for its ability to generate net cash inflows at an amount exceeding the present value of cash inflows generated directly by the asset. Such an interpretation could result in measurements that do not reflect faithfully the service potential embodied in those assets for which market participants would be prepared to pay in a hypothetical sale transaction. The Board noted that for many assets not held primarily for their ability to generate net cash inflows, their fair value would be measured at current replacement cost (under the cost approach), and although these assets often generate considerable cash inflows through 'indirect' sources, such as appropriations and grants, these cash inflows typically would not be included in assessments of 'investment returns' such as the cash inflows used in applying the income approach.
BC84            In commenting on the ED and the Fatal-Flaw Review draft, a stakeholder expressed concern that the Board's proposed not-for-profit public sector entity guidance on the concept of financially feasible use in paragraph Aus28.1 would introduce non-financial influences into the concept of financial feasibility and significantly distort the meaning of that concept. The stakeholder requested clarification of the following questions related to the Board's proposed paragraph Aus28.1:
(a)                    if fair value is not a measure of an asset's capacity to generate an investment return, which benefits are to be measured under paragraph Aus28.1; and
(b)                   under paragraph Aus28.1, would there be any circumstances under which the income approach may be applied to measure the fair value of a non-financial asset of a not-for-profit public sector entity not held primarily for its ability to generate net cash inflows?
BC85            In response to the stakeholder's question noted in paragraphs BC84 (stem) and BC84(a), the Board observes that, for any fair value measurement, regardless of the nature of the entity, the concept of future economic benefits or service potential must reflect benefits for which market participant buyers would be prepared to pay for the subject asset. The Board considers that, if a not-for-profit market participant buyer would be willing