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3.3 Measurement of the Assets

The measurement basis for each grouping or classification needs to be determined. When revaluing heritage and cultural collections, the choice is between fair value, depreciated replacement cost or ascribing no financial value to the item.

3.3.1 Fair Value

To use fair value in measurement, the first step is to determine whether there is an active market for such assets. In determining the availability of such a market, it is important to consider the function of the asset. It may be possible to replace the function of an asset not with an identical asset but with another type of asset.

Therefore, the absence of an active secondary market for a particular type of asset does not necessarily mean that it cannot be measured reliably. Where the fair value of an asset can 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 fair value of the asset is not to be determined in this manner, the fair value of the asset is determined using other market-based evidence, such as recent auction prices and dealer catalogues.

Only in cases where fair value of the asset is not able to be reliably determined because of the absence of market-based evidence should DRC be considered as a proxy for determining of the fair value of collections.

3.3.2 Depreciated Replacement Cost (DRC)

FRS-3 regards DRC to be the most appropriate basis for determination of fair value where fair value of the asset is not able to be reliably determined using market-based evidence (paragraph 4.26).

The specialised or unique nature of certain assets means there may not be a market available. In such cases, the appropriate value is DRC. For example, for specimens, the cost of mounting an expedition or field trip to re-collect the same specimens, together with the costs associated with their documentation and preparation represent the replacement cost for accounting purposes.

The purpose for which the items are held will determine the appropriate form of replacement and thus valuation. For instance, an asset may represent a certain school of art, the clothes of a particular historical person, or an example of pre-war film production. It may be possible to replace the function that a unique item performs by the acquisition of another painting of that school, some other possessions of the historical character or a copy of another film of that period by a different producer. However, if the painting was held because it was by a particular artist, or because the clothes had been worn by a famous fashion model, or the film had been collected because it was the work of a particular producer, the replacement items used as a reference for valuation must relate to those specific persons.

Further, as an example, a library may hold a set of encyclopaedias. If the set is held for its information content, then the cost of a CD ROM may be the measure of its replacement cost. If it was held for its binding or printing techniques, then a CD ROM would not be an appropriate substitute. It is important, therefore, for the collection managers to decide on the form or manner in which an asset would be used (having regard to its functions), and to advise the valuer accordingly.

3.3.3 Unrealisable, Irreplaceable Items

Reliable measurement using either fair value or DRC may be difficult for certain groups of items including:

  • unique items that have iconic status (e.g. the Treaty of Waitangi);
  • historic and irreplaceable library and museum collections; and
  • items that are sacred to particular communities.

It is suggested that valuers should try to ascribe a financial value to these assets, on the basis of similar assets or the highest and best use of the assets - i.e. using the best estimates. Only in the case where it is impossible to do so will no financial information be ascribed to the assets. In such case, relevant information on those items should be disclosed in the notes to the financial statements. The note should include the reasons for the inability to obtain a reliable value, the quantum, nature and functions of the assets and their heritage significance, together with an estimate of the annual cost of maintenance/preservation, where applicable. It is emphasised here that describing these assets in notes does not mean that they have no value, rather it is not possible to assess what the asset would realise if it was sold and it is not able to be replaced.

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