FINANCIAL
REPORTS – NEW ZEALAND
1.0
Introduction
1.1
Purpose
The
purpose of this Guidance Note is to provide information, commentary,
opinion, advice and recommendations to Members producing asset
valuations for financial reporting purposes in New Zealand and to
assist users of financial reports to understand the basis upon which
asset valuations for financial reporting purposes are
undertaken.
1.3
New Financial Reporting Standards
New
Zealand reporting entities will be required to apply New Zealand
Equivalents of International Financial Reporting Standards (NZ IFRS)
in the preparation of their external financial reports for periods
commencing on or after 1 January 2007. Entities have had the option
to adopt NZ IFRS early from 1 January 2005 but those electing to do
so must make a complete shift to NZ IFRS, that is, they must adopt
all of the standards.
The
term ‘IFRS’ refers to the standards and Framework issued by the
International Accounting Standards Board (IASB).The standards
comprise:
1.
International Accounting Standards (IASs) (the standards inherited by
the IASB from its predecessor body, the International Accounting
Standards Committee (IASC) but in most cases revised by the IASB) and
the interpretations of these standards (SICs) issued by the IASC’s
Standing Interpretations Committee;
2.
International Financial Reporting Standards (the new standards
developed and issued by the IASB), and the interpretations of these
standards (IFRICs) issued by the IASB’s International Financial
Reporting Interpretations Committee.
NZ
IFRS contain all the provisions of the corresponding IFRS, and may
include additional disclosure requirements that apply to all
entities, and also additional disclosure, recognition or measurement
requirements that apply only to public benefit entities.
Profit
oriented entities that comply with NZ IFRS simultaneously comply with
IFRS. However, public benefit entities that comply with the
additional recognition or measurement requirements in NZ IFRS will
not simultaneously comply with IFRS. In this context, public benefit
entities are reporting entities whose primary objective is to provide
goods or services for community or social benefit and where any
equity has
been
provided with a view to supporting that primary objective rather than
for a financial return.
1.4
New NZ IFRS re Property Valuations
Under
NZ IFRS, property assets will normally fall into one of the following
categories:
•
Investment property –
to be valued and accounted for in accordance with NZ IAS 40
Investment Property
•
Non-current Assets
Held for Sale - to be valued and accounted for in accordance with NZ
IFRS 5 Noncurrent Assets Held for Sale and Discontinued Operations.
•
Property, plant and
equipment - to be valued and accounted for in accordance with NZ IAS
16
Property,
Plant and Equipment.
At
the end of this Guidance Note is a summary of changes that have been
made in adapting IFRS to NZ IFRS in respect of property assets.
NZ
IAS 40 replaces SSAP-17 and NZ IFRS 5 and NZ IAS 16 replace FRS-3.
Set out on the chart below is a summary of property asset
classifications and the corresponding NZ IFRS:
As
noted above, New Zealand reporting entities will be required to apply
NZ IFRS for periods commencing on or after 1 January 2007. Up until
then, the adoption of NZ IFRS is optional, but those entities
electing to do so must make a complete shift to NZ IFRS, that is,
they must adopt all of the NZ IFRS standards. Accordingly, up until
2007, valuations may be required to be completed in accordance with
SSAP-17 or FRS-3, or their replacements – NZ IAS 40, NZ IFRS 5 and
NZ IAS 16.
Members
are referred to NZ IAS 40, NZ IFRS 5 and NZ IAS 16 for full details
of the valuation requirements under each standard.There are no
material changes to the way assets are to be valued (where
revaluations are required) under the new NZ IFRS however, the
following changes
are
highlighted:
•
Under NZ IAS 16, the
valuation guidance has been reduced in general terms, except as it
relates to Public Benefit Entities where much of the content from
FRS-3 has been repeated.
•
Under NZ IAS 16, the
requirement to revalue every five years as a minimum, has been
deleted. Revaluations are however to be undertaken “with sufficient
regularity to ensure that the carrying amount does not differ
materially from that which would be determined using fair value at
the balance sheet date.” (NZ IAS 16, paragraph 31)
•
Under NZ IAS 16, the
requirement for “recent” experience in the location and category
of the asset being valued has been added in terms of the independent
valuer. (NZ IAS 16, paragraph NZ 35.2)
•
Under NZ IAS 16,
specific disclosures as to the valuers, both internal and independent
external, where inhouse valuations have been completed have been
added (NZ IAS, paragraph 77.2).
•
Under NZ IAS 40, the
property is revalued to its fair value, and there is no longer a
requirement to assess (and deduct) estimated disposal costs.
•
Under NZ IAS 40, a
revaluation is now able to be conducted internally, where the entity
has in its employ a person sufficiently experienced to conduct a
valuation, so long as the basis of valuation has been subject to
review by an independent valuer (NZ IAS 40, paragraph NZ 33.1)
•
Under NZ IAS 40, the
requirement for “recent” experience in the location and category
of the asset being valued has been added in terms of the independent
valuer. (NZ IAS 40, paragraph NZ 33.2)
With
the exception of the summary of changes that have been made in
adapting IFRS to NZ IFRS in respect of property assets, the balance
of this Guidance Note remains unchanged from that which became
effective 15 February 2002 (with specific references to SSAP-17
and
FRS-3 only). This Guidance Note will however be completely revised
once NZ IFRS are required to be fully adopted by New Zealand
reporting entities.
1.4
Scope of this Guidance Note
This
Guidance Note applies to Members valuing assets for financial
reporting purposes in New Zealand.
Compliance
with this Guidance Note will ensure asset valuations are consistent
and in accordance with the Institute of Chartered Accountants of New
Zealand Financial Reporting Standard 3 - Accounting for Property,
Plant and Equipment ('FRS-3') and Statement of Standard Accounting
Practice 17 - Accounting for Investment
Property
and Properties Intended for Sale ('SSAP-17').
Where
members are required to undertake revaluations in accordance with NZ
IFRS, they should note in particular the preceding two sections.
FRS-3
provides extensive guidance on the principles relevant to the
revaluation of 'Property, Plant and Equipment' assets for financial
reporting purposes. A significant amount of guidance is provided on
the application of depreciated replacement cost valuation
methodology,
and
in particular, the process of optimisation.
Members
should obtain and become familiar with the valuation requirements of
both FRS-3 and SSAP-17.
This
Guidance Note is to be read in the context of the background material
and implementation guidance contained in the International
Valuation Standard 1- Market Value Basis of Valuation, and
International Valuation Standard 2 - Valuation Bases Other Than
Market Value. Where there is a conflict between this Guidance
Note and -IVS 1 or 2, then the provisions of this Guidance Note shall
prevail.
This
Guidance Note applies to revaluations of assets undertaken for
financial reporting purposes under the provisions of the New Zealand
financial reporting standards FRS-3 and SSAP-17.
FRS-3
recognises asset revaluations as an alternative to historical cost,
whereas SSAP-17, in respect of investment property, requires annual
revaluations.
This
Guidance Note does not apply where a valuation is undertaken for
purposes other than for financial reporting e.g. pursuing a
transaction, loan application etc.
This
Guidance Note applies to asset revaluations undertaken for financial
reporting purposes.
This
Guidance Note addresses general concepts and principles to be
complied with by Members when preparing asset valuations for
financial reporting purposes.
If
a valuation for financial reporting purposes under FRS-3 is carried
out by a member other than a member of the NZPI, then the valuation
is to be carried out in accordance with standards and guidance
comparable to the valuation pronouncements issued, or officially
endorsed, by the
New
Zealand Property Institute (FRS-3, paragraph 7.8).
1.5
Financial Statements
Financial
statements must report the assets, liabilities, equity, revenues,
expenses (the “elements” of financial statements) and cash flows
of the entity.
2.0
Relationship to Financial Reporting Standards
The
New Zealand financial reporting standards FRS-3 and SSAP-17 provide
primary guidance on the basis upon which assets are to be revalued
for financial reporting purposes.
Both
FRS-3 and SSAP-17 require valuations to be prepared in accordance
with the API/NZPI Valuation Standards (or in the case of
FRS-3, standards and guidance comparable to the valuation
pronouncements issued, or officially endorsed, by the NZPI - see
FRS-3 paragraph 7.8 and SSAP-17 paragraph 4.13).
FRS-3’s
requirement for Fair (or Market) Value has brought about a
fundamental change from the previous NZPI Valuation Standard 3, which
required ‘Market Value for the Existing Use’ (i.e. a valuation
assumption that the asset would continue to be used in its existing
use).
3.0
Materiality
Most
Accounting Standards are subject to the concept of materiality, which
is defined to mean “in relation to information, that information
which if omitted, misstated or not disclosed has the potential to
adversely affect decisions about the allocation of scarce resources
made by users of the financial report or the discharge of
accountability by the management or governing body of the entity”.
The
concept of Fair Value has been embraced and encapsulated in
accounting and financial reporting standards in Australia and New
Zealand.
4.0
Definitions
4.1
FRS-3 Definitions
'Borrowing
Costs' are interest and other costs incurred by an entity in
connection with the borrowing of funds (FRS-3, paragraph 4.1).
Borrowing
costs include:
(a)
interest on bank overdrafts, short and long term borrowings;
(b)
amortisation of discounts and premiums relating to borrowings;
(c)
amortisation of ancillary costs incurred in connection with the
arrangement of borrowings;
- the
cost of hedging contracts entered into, including the forward point
differential at inception of the hedging arrangement (FRS-3,
paragraph 4.2).
Borrowing
costs do not include exchange differences arising on foreign currency
borrowings except as provided in (d) above (FRS-3, paragraph 4.3).
'Carrying
Amount' is the amount at which an asset or liability is included in
the statement of financial position (FRS-3, paragraph 4.5).
'Depreciated
Replacement Cost' is a method of valuation that is based on an
estimate of:
(a)
in the case of property:
(i)
the Fair Value of land; plus
(ii)
the current gross replacement costs of improvements less allowances
for physical deterioration, and optimisation for obsolescence and
relevant surplus capacity;
(b)
in the case of plant and equipment, the current gross replacement
cost less allowances for physical deterioration, and optimisation for
obsolescence and relevant surplus capacity (FRS-3, paragraph 4.10).
'Depreciation'
is the measure of the consumption of the economic benefits embodied
in an asset whether arising from use, the passing of time or
obsolescence (FRS-3, paragraph 4.22).
'Fair
Value' is the amount for which an asset could be exchanged, or a
liability settled, between knowledgeable, willing parties in an arm's
length transaction (FRS-3, paragraph 4.23).
Other
terms commonly used to describe 'Fair Value' include 'Market Value',
'Open Market Value' and 'Current Market Value' (FRS-3, paragraph
4.24).
'Net
Market Value' is the Fair Value at a particular date less the costs
of disposal that could reasonably be anticipated at that date (FRS-3,
paragraph 4.33).
'Optimisation'
refers to the process by which a least cost replacement option is
determined for the remaining service potential of an asset. This
process recognises that an asset may be technically obsolescent or
over-engineered, or the asset may have a greater capacity than that
required.
Hence
optimisation minimises, rather than maximises, a resulting valuation
where alternative lower cost replacement options are available. In
determining depreciated replacement cost, optimisation is applied for
obsolescence and relevant surplus capacity (FRS-3, paragraph 4.13).
'Property,
Plant and Equipment' are tangible assets that:
a)
are held by an entity for use in the production or supply of goods
and services, for rental to others or for administrative purpose, and
may include items held for the maintenance or repair of such assets;
and
b)
have been acquired or constructed with the intention of being used on
a continuing basis (FRS-3, paragraph 4.35).
'Recoverable
Amount' is the greater of:
a)
net market value; and
b)
value-in-use (FRS-3, paragraph 4.40)
'Value-in-use'
is the present value of the net future cash flows obtainable from an
asset’s continuing use and ultimate disposal (FRS-3, paragraph
4.54).
4.2
SSAP-17 Definitions
'Property'
is, for the purposes of SSAP-17, an interest in land or buildings in
which the reporting entity, or any of the members of a group, singly
or in combination, does not occupy or intend to occupy more than 20
percent of the area of the land or buildings (SSAP-17, paragraph
3.1).
'Development
Property' is either investment property or property intended for
sale, depending on the intention of the reporting entity, which is
both being developed and is identifiable as a separate project
(SSAP-17, paragraph 3.4).
'Development
Margin' on a development property is the difference between (i)
expected net current value on completion and expected cost in the
case of investment property, or (ii) net sale price and expected cost
in the case of property intended for sale (SSAP-17, paragraph 3.5).
'Investment
Property' is property held, or development
property
intended to be held, primarily for capital growth or rental or
similar income (SSAP-17, paragraph 3.2).
'Net
Current Value' is open market value, less the costs of disposal that
could reasonably be anticipated. Open market value is the price for
which a property might reasonably be expected to be sold at the
operative date (SSAP-17, paragraph 3.6).Thus, net current value is
Fair
Value
net of disposal costs and therefore is the same as net market value
as defined in FRS-3, paragraph 4.33.
'Net
Realisable Value' is the same as net current value.
'Property
Intended for Sale' is all property, other than investment property,
held with the intention of realisation in the ordinary course of
business (SSAP-17, paragraph 3.3).
4.3
IVSC Definitions
'Highest
and Best Use' is the most probable use of a property which is
physically possible, appropriately justified, legally permissible,
financially feasible, and which results in the highest value of the
property being valued - (IVS General Valuation Concepts and
Principles)
'Market
Value' is the estimated amount for which a property should exchange
on the date of valuation between a willing buyer and a willing seller
in an arms length transaction after proper marketing wherein the
parties
had each acted knowledgeably, prudently, and without compulsion -
(IVS General Valuation Concepts and Principles)
'Obsolescence'
is a loss in value due to a decrease in the usefulness of property
caused by decay, changes in technology, people's behavioural patterns
and tastes, or environmental changes (IVS -2003, Glossary of Terms).
'Service
Potential' is the future economic benefits embodied in the asset in
terms of its potential to contribute, directly or indirectly, to the
flow of cash and cash equivalents to the entity. Service potential is
measured as the level of productive capacity that would have to be
replaced if the entity were deprived of the asset (IVS -2003,
Glossary of Terms).
5.0
Revaluation of Non-Current Assets
5.1
Asset Classification under Financial Reporting Standards
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The
following property will generally be accounted for in accordance with
FRS-3:
a)
owner-occupied property;
b)
property held for short-term rental where the entity
is
actively managing that property;
- property
whose rental is directly linked to the risks and rewards of the
business being operated from that property.
Other
property, including property held for rental and capital growth, is
to be accounted for in accordance with SSAP-17.Thus owner-operated
hotels are normally accounted for in accordance with FRS-3, whereas
shopping centres and office blocks are normally accounted for in
accordance with SSAP-17 (adapted from FRS-3, paragraph 4.36).
Diagram
1 provides additional guidance on the classification of property
assets between FRS-3 and SSAP-17 for financial reporting and
valuation purposes.
Where
the Valuer is required to exercise professional judgement to
determine the most appropriate classification, the determination and
its basis must be fully disclosed in the valuation report by the
Valuer.
Care
should be taken to confirm the entity for whom the valuation is being
prepared, particularly in the case of a group, as to whether the
valuation is for the financial statements of a specific entity within
the group or the group as a whole. The classification of the asset
could be different under each which would mean a different valuation
basis.
5.2
Basis of Valuation
The
terms 'Fair Value', 'Current Value' and 'Open Market Value' used in
financial reporting standards FRS-3 and SSAP-17 are synonymous with
'Market Value' as defined in NZPI Valuation Standard 1.
Portfolios
of investment properties or property, plant and equipment are usually
valued on the basis of summing the individual asset values. The
market value of such assets viewed or treated as a portfolio or as an
assembled group of properties could exceed, or could be less than,
the sum of the 'Market Value' of each asset individually. Where this
is the case, the fact that this difference exists should be reported
separately to the entity from whom valuation instructions are
received.
5.3
FRS-3
'Property,
Plant and Equipment' is valued at Fair Value.
Where
an item of property, plant and equipment is able to be reliably
determined using market based evidence, market value represents Fair
Value.
Where
the Fair Value of a property, plant and equipment asset is not able
to be reliably determined using market based evidence for the same or
a similar asset, depreciated replacement cost is to be used to
estimate Fair Value.
Disposal
costs are not to be deducted from the assessed Fair Value of a
property, plant and equipment asset for financial reporting purposes
under the provisions of FRS-3, unless an asset has been withdrawn
from use and there is an intention to dispose of the asset.
5.4
SSAP-17
'Investment
Properties' are valued for financial reporting at net current value
(market value less the costs of disposal).
The
valuer should report both market value and disposal costs.
5.5
Apportionments of Value/ Componentisation
For
the purposes of FRS-3, valuers are to separately identify property
asset values between land and buildings.
FRS-3
requires asset components that have different useful lives or which
provide a different pattern of economic benefits to an entity to be
recorded separately for financial reporting purposes. The valuer will
be required to undertake further valuation apportionments of
property, plant and equipment assets where requested by the
instructing entity.
5.6
Disclosures
The
valuer’s written report should disclose the following
information:
• The
nature of instructions and purpose of the valuation;
• The
date of valuation;
• The
financial reporting standard governing the accounting treatment of
the asset and whether the classification has been made by the
instructing entity or the valuer;
• The
basis of the valuation, including type and definition of value;
•
Tenure of assets;
•
Assumed lease details
for owner-occupied property, where applicable;
•
Identification of the
assets and their locations including the date and extent of
inspections;
•
Values for each asset
(and apportionments as appropriate);
• The
assumptions underlying construction costs, construction period and
borrowing costs, where appropriate;
• How
any restoration, dismantling or removal obligations associated with
an asset has been treated, where applicable;
• The
names, qualifications and contributions of outside professional
persons who have provided assistance, where used;
• Any
key and/or special assumptions and/or limiting conditions;
•
Sufficient detail to
support the valuation conclusion as required in the API/NZPI
Standards and Guidance Notes; and
•
Such other matters
that are pertinent to the valuation.
5.7
Liaison with Auditors
At
the client’s request, and subject to appropriate consent, valuers
shall respond to the entity’s auditor to discuss and explain the
valuations openly. The client has the primary responsibility for the
form and content of the financial statements. The auditor has the
responsibility for forming and expressing an independent opinion on
whether the
financial
statements, prepared by the client fairly present the financial
position and performance of the entity, and comply with relevant
financial reporting standards.
6.0
Discussion
6.1
FRS-3: Property, Plant and Equipment
When
an entity chooses to revalue property, plant andequipment, FRS-3
requires that it be revalued to Fair Value.
As
mentioned -previously ‘Fair Value’ is synonymous with ‘market
value’.
The
Fair Value of an asset is determined by reference to its highest and
best use, that is, the most probable use of the asset that is
physically possible, appropriately justified, legally permissible,
financially feasible, and which results in the highest value (FRS-3,
paragraph 4.25).
Where
the Fair Value of an asset is able to be determined by reference to
the price in an active market for the same asset or a similar asset,
the Fair Value of the asset is determined using this information.
Where the Fair Value of an asset is not able to be determined in this
manner, the
Fair
Value of the asset is determined using other market based evidence,
such as by a discounted cash flow calculation using market estimates
of the cash flows able to be generated by the asset and a
market-based discount rate.
Where
Fair Value of the asset is not able to be reliably determined using
market-based evidence, depreciated replacement cost is considered to
be the most appropriate basis for determination of Fair Value.This
situation will usually only arise where an asset is specialised or
the only
transaction
price evidence arises in a monopoly context (FRS-3, paragraph 4.26)
For
property assets, market-based evidence may exist concerning either
the land component or the property in aggregate. Depreciated
replacement cost is used as an estimate of the Fair Value of property
only where the Fair Value of the property in aggregate (that is, for
land and improvements) cannot be reliably determined using market
based evidence (FRS-3, paragraph 4.11).
In
the case of property, depreciated replacement cost methodology is
based on the Fair Value of the land plus the current gross
replacement cost of improvements less allowances for physical
deterioration, and optimisation for obsolescence and relevant surplus
capacity.
Optimisation
is not applied in determining the value of the land component of
depreciated replacement cost. As discussed elsewhere,
the
value of the land in almost all cases will reflect the market value
of the land.
The
replacement cost of an item of property, plant and equipment
comprises its purchase/construction price plus any other costs
directly attributable to bringing the item to working condition for
its intended use. Replacement cost includes, for example, the costs
of obtaining resource consents, construction costs, architectural and
engineering
fees,
freight, and charges for installation, commissioning and testing
(adapted from FRS-3, paragraph 5.6).
FRS-3
requires capitalisation of borrowing costs that are directly
attributable to the acquisition or construction of an item of
property, plant and equipment. However, entities may defer
implementation of this requirement until reporting periods ending on
or after 31 March 2004.
Where
an entity does capitalise borrowing costs, depreciated
replacement
cost must include allowance for borrowing costs. The estimate of
borrowing costs for this purpose, should be based on the average debt
to equity ratio and average cost of debt applicable to entities
within the same industry as the entity reporting and should reflect
only the costs of debt.
Where
borrowing costs are included in depreciated replacement cost, the
valuer shall provide a detailed statement of the borrowing cost,
construction cost and construction period assumptions adopted in
deriving the valuation conclusion.
In
the case of plant and equipment, depreciated replacement cost
methodology is based on the current gross replacement cost less
allowances for physical deterioration, and optimisation for
obsolescence and relevant surplus capacity.
Obsolescence
may arise from factors such as outmoded design and functionality of
an asset and changed code requirements preventing reconstruction of
an asset in its current form. In determining depreciated replacement
cost, optimisation for obsolescence is made by reducing the
reproduction cost of the specific asset held to the
cost
of a modern equivalent asset that provides equivalent service
potential to that of the specific asset held (FRS-3, paragraph 4.14).
Surplus
capacity may arise from either over-design or from surplus components
of an asset. In determining depreciated replacement cost,
optimisation is applied only to surplus capacity that is not required
currently and for which there is no reasonable prospect it will ever
be
required
in utilising an asset in its current form (FRS-3, paragraph 4.15).
In
determining depreciated replacement cost, the extent of any reduction
in value for surplus capacity subject to optimisation depends on
whether that surplus capacity has an alternative use to the current
use of the asset.
Where
there is no alternative use, the optimised value of the surplus
capacity is zero. Where there is an alternative use, the optimised
value of the surplus capacity is the value of the highest and best
alternative use of that surplus capacity (FRS-3, paragraph 4.16).
To
illustrate the distinction described earlier between surplus capacity
not having an alternative use to the current use of the asset and
that which does, consider the following example. Assume depreciated
replacement cost is to be determined for a network of water pipes
where
the pipe diameter is greater than that required or ever expected to
be required (including that necessary for stand-by or for safety
purposes).There is also a discrete segment of the piping network that
is similarly not required for the current use of the asset but which
can be closed off and used for other purposes, such as a liquid
storage facility. In this case, the surplus diameter of the piping
would be disregarded for valuation purposes but the surplus segment
of the piping network would be valued at its highest and best
alternative use (FRS-3,
paragraph
4.17).
In
most cases, surplus capacity subject to optimisation is expected to
be disregarded in determining the depreciated replacement cost of an
asset. Such surplus capacity is unlikely to have an alternative use
unless it is physically and operationally separable from the required
capacity (FRS-3 paragraph 4.18).
In
determining depreciated replacement cost, optimisation for
obsolescence and relevant surplus capacity is applied only to the
extent that it reflects the most probable use of the asset that is
physically possible, appropriately justified, legally permissible and
financially feasible (FRS-3 paragraph 4.19).
Optimisation
is applied only to the depreciated replacement cost of plant, and
equipment and in determining an estimate of the value of improvements
component of the depreciated replacement cost of
property
(adapted from FRS-3, paragraph 4.20).
Optimisation
is not applied in determining the value of the land component of the
depreciated replacement cost of property. The value of the land
component will always reflect the market value of the actual land
held, in terms of both its size and location, even if such factors
are
under-utilised
(adapted from FRS-3, paragraph 4.20).
The
Fair Value of land would normally be determined from market based
evidence. However, in the rare instances where extensive works have
been carried out in order to prepare land for use in the entity’s
business, available market evidence will normally relate to land of
the same size and in the same general vicinity but which is priced
for uses that are sub-optimal relative to the use for which the works
were carried out. In these rare instances the Fair Value of the land
should be determined by having regard to the replacement cost of the
land. For example, consider the case where an airport or port company
acquires a section
of
seabed, fills it in and builds a seawall in order to produce flat
land for use in the entity’s business. The reclaimed land is in the
precise location where the entity requires land.
Market
evidence may exist for other land of the same size and in the same
general vicinity as the reclaimed land, but that other land is not
suitable for the use intended by the entity. Thus, the market
evidence on the Fair Value of that other land is not relevant to the
reclaimed land, and the best indicator of the Fair Value of the
reclaimed land would be
the
replacement cost of that land. Land resulting from extensive works by
a local or central government body in constructing new roading
provides a similar example.
(FRS-3,
paragraph 4.26A).
6.2
SSAP-17: Investment Properties
Investment
properties by their nature are able to be valued using market based
evidence. Applicable disposal costs (agency, legal etc.) are also
able to be determined from the market.
Development
properties intended to be held as investment properties which meet
certain specified criteria are recognised in financial statements at
cost plus accumulated development margins to date, determined on a
percentage of completion basis. The development margin is the
difference between expected net current value on completion and
expected cost.
Development
properties intended to be held as investment properties which do not
meet the specified criteria are carried at the lower of cost and net
realisable value (see SSAP-17, paragraph 5.5).
The
specified criteria referred to above are in the case of a development
property intended to be held by the reporting entity, the following
conditions should be met in order to provide the required degree of
reliability for recognition of a development margin in the financial
statements:
i)
the property should unconditionally be pre-let to at least 80 percent
of the anticipated annual rental revenue to be received from entities
external to the reporting group; and
- all
costs incurred and expected to be incurred by the entity can be
reliably be estimated (SSAP-17, paragraph 4.14)
If
a property, previously accounted for as an investment property, is
now intended to be sold, it should be reclassified accordingly but
continue to be recorded at the carrying amount at the date of change
of intention except where carrying amount is greater than net
realisable value, in which case, it should be written down to net
realisable
value
(see SSAP-17, paragraph 5.8).
6.3
Apportionment of Value/Componentisation
Valuers
will frequently be required to undertake an apportionment of reported
property values, allocating value separately to the land element
(non-depreciable) and the buildings (depreciable).Valuers should, as
far as it is possible, continue to apply market concepts. While it is
acknowledged that buildings cannot be separated from the land that
they occupy, valuers should recognise that the purpose of carrying
out the apportionment is to establish a basis for measuring the
consumption in the financial statements. Typically, the land value
should be established and deducted from the total value to arrive at
the
depreciable
amount for the buildings (adapted from IVS -2003, IVA 1 -, paragraphs
5.4 and 6.2.5).
FRS-3
requires asset components that have different useful lives or which
provide a different pattern of economic benefits to an entity to be
recorded separately for financial reporting purposes. This
requirement will necessitate the valuer to undertake further
valuation apportionments where instructed by the reporting entity.
For example, the value apportioned to buildings may need to be
further split into
the
structure, building services and fitout (and in some cases,
further
sub-components within these components).
Paragraph
5.21 of FRS-3 states:
Judgement
will be required to decide which components of complex items of
property, plant and equipment are accounted for separately.
Components will not need to be accounted for separately if materially
the same total depreciation expense, carrying amounts and revaluation
movements
will otherwise result. For entities with asset management plans, it
is expected that items of property, plant and equipment will be
accounted for at a higher aggregation level (i.e. at a lesser level
of detail) than that recorded in the asset management plans.”
The
implication of the above is that component apportionments should be
limited to major components which are clearly separately
identifiable. In any event, valuers should liaise and discuss the
required level of componentisation with the instructing entity.
For
the purposes of componentisation, the costs attributed to the
components should be based on an apportionment of the overall
replacement costs (or value) i.e. ‘top down’ as opposed to
‘bottom up’.The reason for this is that the top down approach
will more accurately reflect the market replacement cost/value since
aggregating the replacement costs/values of individual parts from a
‘bottom up’ approach will usually produce a higher overall
figure.
Valuers
may be further requested to advise on appropriate useful lives over
which asset components should be depreciated for accounting purposes.
In
some circumstances where apportionment of values is appropriate this
will require the valuer to seek the professional assistance of
specialist valuers (e.g. plant & equipment valuers) or other
experts such as engineers or quantity surveyors, where the valuer
does not have the necessary expertise.
6.4
Revaluation Frequency
Where
an entity chooses to revalue its assets under the provisions of
FRS-3, revaluations are to be undertaken on a systematic basis:
i)
with sufficient regularity to ensure that no individual item of
property, plant and equipment is recorded for financial reporting
purposes at a valuation that is materially different from its Fair
Value; and
- at
a minimum, every five years (FRS-3, paragraph 7.1 (b)).
While
the annual revaluation of items of property, plant and equipment is
not required by FRS-3, the adoption of a system involving annual
revaluation, especially for land and buildings assets, is encouraged
in order to provide more relevant information to users of an entity's
financial report (FRS-3, paragraph 7.2). FRS-3 states that the
principle
for
determination of the frequency of revaluations as being that
revaluations must be carried out with sufficient regularity to ensure
that the carrying amount of a revalued asset is not materially
different from its Fair Value. Accordingly, under changing market
conditions, revaluations may be required to take place more
frequently.
Examples
of changing market conditions include:
•
Introduction of new
technology;
•
Demand changes
resulting from, for example, centralisation or decentralisation;
•
Movements in
inflation and borrowing costs;
•
Government policy and
legislation.
Property
assets classified as investment properties under the provisions of
SSAP-17 are to be revalued annually.
6.5
Owner-Occupied Properties
Where
the primary approach to valuation of owner occupied properties for
financial reporting purposes is capitalisation or discounting of
future rental income, the valuer shall assume that a notional lease
is in place on market terms and conditions reflecting the current
use.
The
valuer’s report shall set out the basic terms of the assumed lease
including the notional lease term, market rental, responsibility for
outgoings, the basis and frequency of rental reviews and any other
terms and conditions applicable to a typical lease of like nature in
the market at the date of the valuation.
The
capitalisation or discount rate utilised in the valuation shall
reflect the notional lease terms and conditions.
Informal
and unenforceable lease or occupancy arrangements between related
entities or subsidiaries should not be taken into account or used as
the basis of a valuation. The asset which is the subject of that
agreement should be treated as owner-occupied.
The
presence of a formal lease or occupancy agreement between related
entities or subsidiaries which is legally enforceable consequently
changes the interest in the properties being valued. Such properties
should therefore be classified as investment properties. The
reporting entity should declare these arrangements in the valuation
instructions.
In the context of a group, the classification of the properties is
required to be reconsidered – and valued in accordance with the
appropriate valuation basis applicable at the group level.
6.6
Assistance with Impairment Reviews
Where
an item of property, plant or equipment is not revalued for financial
reporting purposes, a review by the reporting entity is required at
each reporting date to assess whether there is any indication that
the item may be impaired (see FRS-3, paragraph 9.3). Paragraph 9.4
of
FRS-3 sets out the indications of possible impairment which must, as
a minimum, be considered.
Where
an item’s future economic benefits are directly related to its
ability to generate future cashflows, and there is indication that
the carrying amount of the item exceeds the item’s recoverable
amount, the entity must estimate the item’s recoverable amount
(FRS-3, paragraph 9.3). If the recoverable amount is less than the
carrying amount, the item must be written down to recoverable amount.
Where
the future economic benefits of an item are not directly related to
its ability to generate net cash in flows, the carrying amount of the
item must not exceed net market value. However, where net market
value cannot be determined because such items rarely, if ever, are
sold
in
the open market except as part of the sale of a business in
occupation, then the carrying amount must not exceed depreciated
replacement cost.
It
follows - that valuers may be requested to assist entities to
estimate an item’s recoverable amount. Valuers requested to assist
entities in this way should have regard to the relevant requirements
and guidance in FRS-3 and elsewhere in this Guidance Note.
6.7
Liabilities Associated with Assets
When
an entity incurs an obligation to dismantle or remove an item of
plant or equipment or restore a site, to the extent that a provision
(liability) is recognised under FRS-15:
Provisions,
Contingent Liabilities and Contingent Assets, this is capitalised by
the reporting entity as part of the cost of bringing the item of
property, plant and equipment to working condition for its intended
use.
The
accounting treatment described - above applies in relation to both
the initial recording of an item of property, plant and equipment
(see paragraph 5.6 of FRS-3) and subsequent to initial recording (see
paragraph 6.5 of FRS-3.)
When
undertaking valuations of property, plant and equipment which have
restoration, dismantling or removal obligations associated with them,
the valuer must request guidance from the entity from whom valuation
instructions are received about how such obligations are to be dealt
with in the valuation. In all such circumstances, the valuation
report
is to disclose how such obligations have been treated.
6.8
Appropriateness of Rating and Other Valuations
Paragraph
7.10 of FRS-3 states that:
A
valuation carried out for purposes other than financial reporting,
for example a rating valuation, is not to be used as the basis for
recording a revaluation unless the basis of valuation has been
confirmed as appropriate, in accordance with the requirements of this
Guidance Note,
by
an independent valuer.
A
valuer requested to confirm the appropriateness of a rating or other
valuation for financial reporting purposes must determine whether the
valuation meets the requirements of FRS-3 and this Guidance Note. The
valuer must comply with all the requirements of this Guidance Note.
For
plant and equipment, where there is an active market or readily
available price indices that establish the item’s Fair Value with
reasonable reliability, the valuation need not be conducted by an
independent valuer or experienced employee (FRS-3, paragraph 7.1(d)).
For
the purposes of the above paragraph, a valuation may be undertaken
without the need for an independent valuer or experienced employee
only where there is sufficient objective market information available
which enable two or more non-experts to determine materially
the
same Fair Values of the particular item of plant and equipment. The
above paragraph is not applicable where depreciated replacement cost
is the most appropriate basis for determination of the Fair Value of
an item of property, plant and equipment (FRS-3, paragraph 7.9).
- Independent
Review of Employee Valuations
FRS-3
permits valuations to be conducted by employees who possess expert
knowledge and experience in the location and category of property,
plant and equipment being valued. The basis, methodology and
assumptions underpinning valuations conducted by such experienced
employees of the reporting entity are to be reviewed by
an
independent valuer to ensure the appropriateness of the valuation
approach. (See paragraphs 7.1(c)(ii) and 7.7 of FRS-3.)
When
a valuer is requested to undertake an independent review of a
valuation undertaken by an employee of the reporting entity, the
valuer must satisfy themselves that the basis and methodology of
valuation and the assumptions underpinning the valuation are
appropriate for a valuation for financial reporting purposes as set
out in this Guidance
Note.
The valuer must review the written report of the employee valuer and
ensure that all matters have been properly dealt with. The valuer
must be able to confirm that nothing has come to their attention to
suggest that the valuation is not appropriate for financial reporting
purposes.
6.10
Public Sector and Infrastructure Asset Valuation
Public
sector assets comprise a number of different asset types, including
conventional properties as well as heritage and conservation assets,
infrastructure (e.g., public utility plants), recreational assets,
and public buildings.
The
valuation of public sector assets is to be undertaken following the
same procedures and approaches as adopted in the valuation of private
sector assets.
6.11
Disclosure Requirements
The
valuation report shall contain a clause specifically prohibiting the
publication of the report in whole or in part, or any reference
thereto, or to the valuation figures contained therein, or to the
names and professional affiliations of the valuers, without the
written approval of the valuer as to the form and context in which it
is to appear.
The
valuation report shall also contain an affirmative statement that the
valuation has been prepared in accordance with these or other
recognised Standards, that the engagement was performed independently
and without bias towards the client or others, and other
disclosures
required elsewhere in this Guidance Note.
The
valuer shall require as a condition of the engagement that any
special limitation, assumption, or departure be disclosed in any
published document in which reference is made to the valuer's
opinion.
6.12
Effective Date
This
Guidance Note was previously NZPI Valuation Standard 3 and became
effective on 15 February 2002 and has been updated on 15 February
2006.
IFRS
to NZ IFRS – Summary of Changes in Respect to Property Assets
Introduction
NZ
IFRS refers to the New Zealand equivalent to (i)
IFRS:
International Financial Reporting Standards issued by the
International Accounting Standards Board (IASB), (ii) IAS:
International Accounting Standards adopted by the IASB and (iii) SIC:
Interpretations issued by the International Financial Reporting
Interpretations Committee of the IASB.
NZ
IFRS contain all the provisions of the corresponding IFRS, (including
IAS and SIC) and may include:
(i)
additional disclosure requirements that apply to all entities, and
- additional
disclosure, recognition or measurement requirements that apply only
to public benefit entities.
Profit
oriented entities that comply with NZ IFRS simultaneously comply with
IFRS. However, public benefit entities complying with additional
recognition or measurement requirements in NZ IFRS will not
simultaneously comply with IFRS.
Public
Benefit Entities are reporting entities whose primary objective is to
provide goods or services for community or social benefit and where
any equity has been provided with a view to supporting that primary
objective
rather than for a financial return.
In
respect of property, plant and equipment assets, set out below are
the changes that have been made in adapting IFRS to NZ IFRS. The
changes listed should be read in the context of the standards from
which they are drawn, the New Zealand Preface and the New Zealand
Equivalent to the IASB Framework for the Preparation and Presentation
of Financial Statements.
NZ
IFRS 1: First-Time Adoption of New Zealand Equivalents to
International Financial Reporting Standards All Entities:
Para
18(a) – deleted, as NZ IAS 40 does not permit the use of the cost
model other than in the exceptional circumstances outlined in
paragraph 53 of NZ IAS 40.
NZ
IFRS 4: Insurance Contracts All Entities
Appendix
C (Life Insurance Entities):
10.3
Investment property that is within the scope of NZ IAS 40 Investment
Property and that backs life insurance liabilities or life investment
contract liabilities, shall be measured at fair value under NZ IAS
40.
10.4
Property, plant and equipment that is within the scope of NZ IAS 16
Property, Plant and Equipment and that backs life insurance
liabilities or
life investment contract liabilities shall be measured using the
revaluation model under NZ IAS 16.
10.4.1.
An insurer applies NZ IAS 16 to its property, plant and equipment.
Under NZ IAS 16 property includes owner-occupied property
and
property being constructed or developed for future use as investment
property. Under NZ IAS 16, the cost model, for measurement
subsequent
to initial recognition, is to carry property, plant and equipment at
cost.
However,
NZ IAS 16 has a revaluation model:
an
entity, subsequent to initial recognition, may carry its property,
plant and equipment assets at a revalued amount, being its fair value
at the date of the revaluation less any subsequent accumulated
depreciation and subsequent accumulated impairment losses.
10.4.2
Those property, plant and equipment assets that are within the scope
of NZ IAS 16 and that the insurer considers back life insurance
liabilities
or life investment contract liabilities are measured using the
revaluation model under NZ IAS 16, that is, they are measured at fair
value with increases in fair value credited directly to equity and
decreases recognised as an expense unless they reverse a previous
increase.
Appendix
D (Financial Reporting of Insurance Activities):
15.3
Investment property within the scope of NZ IAS 40 and that backs
general insurance liabilities shall be measured using the fair value
model
under NZ IAS 40.
15.4
Property, plant and equipment that is within the scope of NZ IAS 16
Property, Plant and Equipment and that backs general insurance
liabilities,
shall be measured using the revaluation model under NZ IAS 16.
15.4.1
An insurer applies NZ IAS 16 to its property, plant and equipment.
Under NZ IAS 16 property includes owner-occupied property and
property being constructed or developed for future use as investment
property. Under NZ IAS 16, the cost model, for measurement subsequent
to initial recognition, is to carry property, plant and equipment at
cost.
However,
NZ IAS 16 also has a revaluation model: an entity, subsequent to
initial recognition, may carry its property, plant and equipment
assets at a revalued amount, being its fair value at the date of the
revaluation less any subsequent accumulated depreciation and
subsequent accumulated impairment losses.
15.4.2
Those property, plant and equipment assets that are within the scope
of NZ IAS 16 and that the insurer considers back general
insurance
liabilities are measured using the revaluation model under NZ IAS 16.
NZ
IAS 2: Inventories Public Benefit Entities
NZ
8.1. Inventories held by public benefits entities may include:
(a)
ammunition;
(b)
strategic stockpiles (for example, energy reserves);
(c)
stocks of unissued currency; and
- postal
service supplies held for sale (for example, stamps).
NZ
9.1. In respect of public benefit entities, inventories held for
distribution shall be measured at the lower of cost and current
replacement cost.
NZ
9.2. A public benefit entity may hold inventories whose future
economic benefits or service potential are not directly related to
their ability to generate net cash inflows. These types of
inventories may arise when an entity has determined to distribute
certain goods at no
charge
or for a nominal amount. In these cases, the future economic benefits
or service potential of the inventory for financial reporting
purposes is reflected by the amount of entity would need to pay to
acquire the economic benefits or service potential if this was
necessary to achieve the objectives of the entity. Where the economic
benefits or service potential cannot be acquired in the market, an
estimate of replacement cost will need to be made.
NZ
9.3. If the purpose for which the inventory is held changes, then the
inventory is valued using the provisions of paragraph 9 (that is,
inventory is then measured at the lower of cost and net realisable
value).
NZ
10.1. In respect of public benefit entities, where inventories are
acquired at no cost, or for nominal consideration, the cost shall be
the
current
replacement cost as at the date of acquisition.
NZ
IAS 16: Property, Plant and Equipment All Entities
NZ
5.2. Under NZ IAS 40, paragraph 53, an entity is permitted to use the
cost model for investment properties only where the fair value of the
investment
property is not reliably determinable on a continuing basis. This
arises when, and only when, comparable market transactions
are
infrequent and alternative reliable estimates of fair value are not
available.
NZ
35.1. Subject to paragraph NZ 35.3 valuations shall be conducted
either:
(a)
by an independent valuer; or
(b)
where an entity employs a person sufficiently experienced to conduct
a valuation, by that person, so long as the valuation has been
subject to review by an independent valuer.
NZ
35.2. The fair value of property, plant and equipment is determined
or reviewed by an independent valuer who holds a recognised and
relevant
professional
qualification and who has recent experience in the location and
category of the property, plant and equipment being valued.
NZ
35.3. For plant and equipment, where there is an active market or
readily available price indices that establish the item’s fair
value with
reasonable
reliability, the valuation need not be conducted or reviewed by an
independent valuer or experienced employee.
NZ
77.2. An entity shall disclose in respect of each valuation conducted
in accordance with paragraph NZ 35.1:
(a)
the name of each valuer;
(b)
a statement in respect of each valuer as to whether they are an
employee of the entity or whether they are contracted as an
independent valuer;
(c)
the total fair value of property, plant and equipment valued by that
valuer;
(d)
where the valuation has been conducted by an employee of the entity
the name of the independent valuer who reviewed the valuation; and
(e)
the date(s) of such valuations.
NZ
77.3. Where an entity has not used an independent valuer because
there is an active market or readily available price indices that
establish the fair value an item of plant or equipment with
reasonable reliability in accordance with paragraph.
NZ
35.3, an entity shall disclose this fact.
Public
Benefit Entities
NZ
15.1. In respect of public benefit entities, notwithstanding
paragraph 15 (that is, an item of property, plant and equipment that
qualifies for recognition as an asset shall be measured at its cost),
where an asset is acquired at no cost, or for a nominal cost, the
cost is its fair
value
as at the date of acquisition. The fair value of the asset received
must be recognised in the income statement.
NZ
15.2. In most instances when property, plant and equipment is
acquired, the cost of the item provides a measure of its value to the
entity at the date of acquisition. When property, plant and equipment
is donated, or the acquisition is subsidised, the cost of the item
(if any) is
not
a reliable indication of its value to the entity. This standard
therefore requires the fair value of such items to be determined as a
substitute for the cost of purchase, and the amount of the donation
or subsidy received to be recognised as revenue in the income
statement.
NZ
33.1. In the context of this Standard and in relation to public
benefit entities, depreciated replacement cost is a method of
valuation
that
is based on an estimate of:
(a)
in the case of property:
i.
the fair value of land; plus
ii.
the current gross replacement costs of improvements less allowances
for physical deterioration, and optimisation for obsolescence and
relevant surplus capacity; and
(b)
in the case of plant and equipment, the current gross replacement
cost less allowances for physical deterioration, and optimisation for
obsolescence and relevant surplus capacity.
NZ
33.2. Fair value is defined in paragraph 6 of this Standard (that is,
the amount for which an asset could be exchanged between knowledgable
willing
parties in an arms length transaction).
Depreciated
replacement cost is an acceptable estimate of the fair value of an
asset only where the fair value of the asset is not able to be
reliably determined using market-based evidence in accordance with
paragraph 32 of this Standard.
NZ
33.3. In the context of this Standard and in relation to public
benefit entities, depreciated replacement cost is based on the
reproduction cost
of
a specific asset. In principle, it reflects the service potential
embodied in the asset. However, in some cases the reproduction cost
of the specific asset is adjusted for optimisation in determining
depreciated
replacement
cost.
NZ
33.4. Optimisation refers to the process by which a least-cost
replacement option is determined for the remaining service potential
of an asset.
This
process recognises that an asset may be technically obsolescent or
over-engineered, or the asset may have greater capacity than that
required.
Hence optimisation minimises, rather than maximises, a resulting
valuation where alternative lower cost replacement options
are
available. In determining depreciated replacement cost, optimisation
is applied for obsolescence and relevant surplus capacity.
NZ
33.5. Obsolescence may arise from factors such as outmoded design and
functionality of an asset and changed code requirements preventing
reconstruction of an asset in its current form.
In
determining depreciated replacement cost, optimisation for
obsolescence is made by reducing the reproduction cost of the
specific
asset
held to the cost of a modern equivalent asset that provides
equivalent service potential to that of the specific asset held.
NZ
33.6. Surplus capacity may arise from either overdesign or from
surplus components of an asset. In determining depreciated
replacement cost, optimisation is applied only to surplus capacity
that
is not required currently and for which there is no reasonable
prospect it will ever be required in utilising an asset in its
current
form.
Optimisation is not applied to surplus capacity that, while rarely or
never used, is necessary for stand-by or for safety purposes.
NZ
33.7. In determining depreciated replacement cost, the extent of any
reduction in value for surplus capacity subject to optimisation
depends on whether that surplus capacity subject to optimisation
depends on whether that surplus capacity has an alternative use to
the current
use
of the asset. Where there is no alternative use, the optimised value
of the surplus capacity is zero. Where there is an alternative use,
the
optimised
value of the surplus capacity is the value of the highest and best
alternative use of that capacity.
NZ
33.8. To illustrate the distinction described in paragraph NZ 33.7
between surplus capacity not having an alternative use to the current
use
of the asset and that which does, consider the following example.
Assume depreciated replacement cost is to be determined for a
network
of water pipes where the pipe diameter is greater than currently
required or ever expected to be required (including that necessary
for stand-by or for safety purposes).
There
is also a discrete segment of the piping network that is similarly
not required for the current use of the asset but which can be closed
off and used for other purposes, such as a liquid storage facility.
In this case, the surplus diameter of the piping would be disregarded
for valuation purposes but the surplus segment of the piping network
would be valued at its highest and best alternative use.
NZ
33.9. In most cases, surplus capacity subject to optimisation is
expected to be disregarded in determining the depreciated replacement
cost
of an asset. Such surplus capacity is unlikely to have an alternative
use unless it is physically and operationally separable from the
required
capacity.
NZ
33.10. In determining depreciated replacement cost, optimisation for
obsolescence and relevant surplus capacity is applied only to the
extent
that
it reflects the most probable use of the asset that is physically
possible, appropriately justified, legally permissible and
financially
feasible.
NZ
33.11. As evident from the definition of depreciated replacement
cost, optimisation is applied only in determining the depreciated
replacement cost of plant and equipment and in determining an
estimate of the value of the improvements component of the
depreciated replacement cost of property. Optimisation is not applied
in determining the value of the land component of the depreciated
replacement cost of property.
The
value of the land component will always reflect the fair value of the
actual land held, in terms of both its size and location.
NZ
33.12. In instances where the land is underutilised, the fair value
of the land will be determined by reference to the highest and best
use of
such
land. For example, in a case where specialised manufacturing
facilities are located in a prime central business district site but
the
operation
would be able to be run from a smaller sized and/or less valuable
alternative site offering the same service potential, the
fair
value of the land would be the open market value of the entire
central business district-located site.
NZ
33.13. The fair value of land would normally be determined from
market based-evidence.
However,
in the rare instances where extensive works have been carried out in
order to prepare land for use in the entity’s business, available
market evidence will normally relate to land of the same size and in
the same general vicinity but which is priced for uses that are
sub-optimal relative to the use for which the works were carried out.
In these
rare
instances the fair value of the land should be determined by having
regard to the replacement cost of the land. For example, consider the
case where an airport or port company acquires a section of seabed,
fills it in and builds a seawall in order to produce flat land for
use in the entity’s business. The reclaimed land is in the precise
location where
the
entity requires land. Market evidence may exist for other land of the
same size and in the same general vicinity as the reclaimed land,
but
that other land is not suitable for the use intended by the entity.
Thus, the market evidence on the fair value of that other land is not
relevant
to the reclaimed land, and the best indicator of the fair value of
the reclaimed land would be the replacement cost of that land. Land
resulting from extensive works by a local or central government body
in
constructing
new roading provides a similar example.
NZ
33.14. If an entity adopts the allowed alternative treatment in NZ
IAS 23, an amount equal to the amount of borrowing costs that would
be embodied in the fair value of the asset is included as a component
of depreciated replacement cost. The inclusion of such an amount as a
component of depreciated replacement cost is consistent with the
principle underlying the inclusion in the initial cost of an asset of
borrowing costs eligible for capitalisation as permitted by NZ IAS
23.The amount to be included as a component of depreciated
replacement cost is determined on the basis of the average
debt-to-equity ratio and average cost of debt applicable to entities
undertaking the same activities as the entity reporting.
NZ
77.1. Public benefit entities are not required to disclose, for each
revalued class of property, plant and equipment, the carrying amount
that
would have been recognised had the assets been carried under the cost
model, as required by paragraph 77(e).
NZ
IAS 36 Impairment of Assets Public Benefit Entities
NZ
2.1. This Standard shall be applied in accounting for the impairment
of all assets of public benefit entities, other than:
(a)
[assets excluded by paragraph 2;] and
(b)
assets whose future economic benefits are not directly related to
their ability to generate net cash inflows.
NZ
IAS 38 Intangible Assets Public Benefit Entities
NZ
124.1. Public benefit entities are not required to comply with the
requirement in paragraph 124(a)(iii) to disclose, in respect of
intangible
assets
accounted for at revalued amounts, the carrying amount that would
have been recognised had the revalued class of intangible
assets
been measured after recognition using the cost model in paragraph 74.
NZ
IAS 40 Investment Property All Entities
30-32
[An entity is not permitted to use the cost model except in the
circumstances outlined in paragraph 53.]
56
[An entity is not permitted to use the cost model except in the
circumstances outlined in paragraph 53.]
53
There is a rebuttable presumption that an entity can reliably
determine the fair value of an investment property on a continuing
basis.
However,
in exceptional cases, there is clear evidence when an entity first
acquires an investment property (or when an existing property first
becomes investment property following the completion of construction
or development, or after a change in use) that the fair value of the
investment property is not reliably determinable on a continuing
basis.
This
arises when, and only when, comparable market transactions are
infrequent and alternative reliable estimates of fair value (for
example, based on discounted cash flow projections) are not
available. In such cases, an entity shall measure that investment
property using the cost model in NZ IAS 16. The residual value of the
investment property shall be assumed to be zero.
The
entity shall apply NZ
IAS
16 until disposal of the investment property.
NZ
33.1. Valuations shall be conducted either:
(a)
by an independent valuer; or
(b)
where an entity has in its employ a person sufficiently experienced
to conduct a valuation, by that person, so long as the basis of
valuation has been subject to review by an independent valuer.
NZ
33.2. The fair value of investment property is determined or reviewed
by an independent valuer who holds a recognised and relevant
professional
qualification and who has recent experience in the location and
category of the investment property being valued.
NZ
75.1. An entity shall disclose in respect of each valuer employed:
(a)
the name of the valuer;
(b)
the total fair value of property valued by that valuer; and
- the
date(s) of such valuations.
Public
Benefit Entities
NZ
9.1. In respect of public benefit entities, property may be held to
meet service delivery objectives rather than to earn rental or for
capital
appreciation. In such situations the property will not meet the
definition of investment property and will be accounted for under NZ
IAS 16, for example:
(a)
property held for strategic purposes; and
(b)
property held to provide a social service, including those which
generate cash inflows where the rental revenue is incidental to the
purpose for holding the property.
NZ
20.1. In respect of public benefit entities, notwithstanding
paragraph 20, where an investment property is acquired at no cost or
for nominal cost, its cost shall be deemed to be its fair value as at
the date of acquisition.
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