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5216.0 - Australian National Accounts: Concepts, Sources and Methods, 2000  
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 15/11/2000   
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Accumulation and wealth

4.82 The value of assets less the value of liabilities is known in the system as net worth and is the system's measure of wealth. Accumulation represents the net additions to net worth that occur in the accounting period and includes acquisition and disposal of assets and liabilities by institutional units, and changes to the values of assets and liabilities arising from other events which, in the system, are known as revaluations and other changes in the volume of assets. Because the system's categories of stocks (i.e. assets and liabilities) are also used to categorise accumulation flows, wealth (assets and liabilities) is discussed before accumulation.

Wealth (assets and liabilities)

4.83 Assets are defined generally in SNA93 (paragraph 13.12) as entities

        "(a) over which ownership rights are enforced by institutional units, individually or collectively; and
        (b)
        from which economic benefits may be derived by their owners by holding them, or using them, over a period of time."

4.84 The economic benefits that can be derived from the use of an asset consist of primary incomes (for example operating surplus generated by the use of the asset in production, or property income in the form of interest, dividends, rent etc., received by owners of financial assets and land), and the value, including possible holding gains or losses, that could be realised by disposing of assets.

4.85 Assets consist of non-financial and financial assets. Liabilities are the counterparts of financial claims represented by financial assets (i.e. liabilities are the financial assets of the institutional units or non-residents holding a financial claim against the subject unit). The categories of assets that are covered by the balance sheets in the system are discussed in the following paragraphs. Liabilities are categorised in the same way as financial assets.

Non-financial assets

4.86 Non-financial assets consist of fixed assets, which are produced as outputs of the production process, and non-produced assets, which come into existence through processes other than production.

Produced assets

4.87 Tangible produced fixed assets are non-financial assets that are used repeatedly and continuously in production processes for more than one year. They include:

      • dwellings, including dwellings under construction and the value of alterations and additions to dwellings made by owner-builders;
      • other buildings, including non-residential buildings and the fixtures, fittings and equipment that are integral parts of the buildings. Uncompleted buildings and structures are included. Buildings acquired for military purposes are included if they could be used for civilian purposes;
      • other structures, such as highways, railways, bridges, harbours, dams, pipelines, communication and power lines, constructions (other than buildings) for sport or recreation purposes. Structures acquired for military purposes are included if they could be used for civilian purposes;
      • transport equipment, including motor vehicles, semi-trailers, ships, locomotives and aircraft. Items of transport equipment acquired by households for final consumption are not treated as fixed assets;
      • other machinery and equipment, including electrical apparatus, office accounting and computer equipment, furniture, fixtures and fittings not forming an integral part of buildings, durable containers, special tooling etc.;
      • cultivated assets, consisting of :
        • livestock for breeding, dairy, draught etc. Livestock includes breeding stocks, dairy cattle, sheep or other animals used for wool production and animals used for transportation, racing or entertainment. In the ASNA, the range of assets of this type recorded is restricted to sheep raised for wool, dairy cattle and sheep and cattle kept as breeding stock - see Chapters 16 and 26; and
        • vineyards, orchards, and other plantations of trees yielding repeat products such as sap, resin, bark and leaf products. As explained in Chapters 16 and 26, the treatment of these assets in the ASNA does not comply fully with the SNA93 recommendations.

4.88 Transport machinery and equipment acquired by defence forces are included as assets if they could be used in a fashion similar to civilian assets and could conceivably be switched from military to civilian use. Weapons and weapon delivery systems, including warships, submarines, tanks and fighter aircraft, are not treated as assets, and purchases of such items are treated as part of government intermediate and final consumption expenditure rather than as capital formation.

4.89 Intangible produced fixed assets include the following:
      • mineral exploration, comprising the capitalised value of expenditures on exploration for petroleum, natural gas and mineral deposits;
      • computer software, including the purchase of software, and software developed in-house if the expenditure is large. Large expenditures on the purchase, development or extension of databases are also included; and
      • entertainment, literary or artistic originals, comprising the originals of films, sound recordings, manuscripts, tapes etc on which drama performances, radio and television programming, musical performances, sporting events, literary and artistic output etc., are embodied.

4.90 Inventories include materials and supplies intended to be used as inputs to production, work-in-progress, finished goods and goods purchased for resale without further processing. Work-in-progress includes the value of livestock raised for the purpose of slaughtering or eventual sale, and trees or other vegetation yielding once-only products (such as timber plantations).

4.91 Valuables are held as a store of value and include precious metals and stones not held for use as inputs to production, antiques, works of art and other valuables such as collections of jewellery of significant value. Due to data limitations, valuables are not currently included within the boundary of fixed assets in the ASNA.

Non-produced assets

4.92 Tangible non-produced assets are non-financial assets that occur in nature and over which ownership may be enforced or transferred. Environmental assets over which ownership cannot be attributed, such as international waters or air, are excluded. Tangible non-produced assets include the following:

      • land, including the value of land underlying dwellings, non-residential buildings and structures, land under cultivation, recreational land and associated surface water and private gardens and plots not cultivated for commercial purposes;
      • subsoil assets, such as proven and exploitable reserves of coal, oil, natural gas, metallic and non-metallic mineral reserves; and
      • other natural assets such as native forests available for commercial exploitation and water resources which are subject to some form of ownership or use rights, market valuation or some measure of economic control. As discussed in Chapters 16 and 26, due to data limitations, water resources are not included in the ASNA.

4.93 Intangible non-produced assets entitle their owners to engage in certain specific activities or to produce certain specific goods or services and to exclude other institutional units from doing so except with the permission of the owner. Included are patents, broadcasting licences, other transferable contracts and purchased goodwill. As discussed in Chapters 16 and 26, not all of these assets are covered in the ASNA, because of data deficiencies.

Financial assets and liabilities

4.94 Financial assets, for the most part, represent a contractual claim on another institutional unit (resident or non-resident) and entitle the holder to receive an agreed sum at an agreed date (but see shares and other equity below). Liabilities are the counterparts of financial assets. With the exception of monetary gold and Special Drawing Rights (SDRs), the acquisition of a financial asset by an institutional unit involves a counterpart liability on the part of another institutional unit. Financial assets and liabilities are classified according to financial instruments as follows :

      • monetary gold and SDRs. Monetary gold is gold owned by the monetary authorities (in Australia's case, the Reserve Bank of Australia) that is held as a financial asset and as a component of a country's foreign reserves. All other gold held is treated as a physical commodity and classified as either inventories or valuables. Special drawing rights (SDRs) are international reserve assets created by the International Monetary Fund (IMF) and allocated to the IMF's member countries to supplement existing foreign reserves. SDRs are held exclusively by the central bank;
      • currency, transferable deposits and other deposits;
      • short-term securities - securities other than shares with an original maturity normally of one year or less;
      • long-term securities - securities other than shares with an original maturity normally of more than one year;
      • short-term loans - loans that have an original maturity normally of one year or less;
      • long-term loans - loans that have an original maturity normally of more than one year (no distinction between long and short-term loans is made in the ASNA);
      • derivatives, which are secondary securities linked to specific financial instruments, indicators or commodities;
      • shares and other equity. Unlike other financial instruments, shares and other equity do not provide the right to a predetermined income. They are instruments or records acknowledging claims to the residual value of incorporated enterprises after the claims of all creditors have been met;
      • insurance technical reserves, consisting of net equity of households on life insurance reserves and pension funds, and prepayment of premiums and reserves against outstanding claims. Insurance technical reserves are the assets of policyholders, and liabilities of insurance enterprises and pension funds;
        • net equity of households on life insurance reserves and on pension funds: these are reserves held by insurance enterprises and pension funds against outstanding risks, and reserves that add value on maturity to life insurance policies; and
        • prepayment of premiums and reserves against outstanding claims (for both life and non-life insurance): prepayment of premium reserves arises from the fact that, in general, insurance premiums are paid in advance. Reserves against outstanding claims are reserves of insurance enterprises and pension funds held to cover amounts expected to be paid out in respect of claims that are not yet settled or that may be disputed; and
      • trade credits and advances and other accounts receivable and payable

4.95 The system also includes a sector and subsector classification of financial assets and liabilities, which categorises financial claims according to the sectors and subsectors of counterparties. Counterparties are the institutional units on which claims are held by creditors, and the institutional units holding claims against debtors. Data are also presented for financial assets and liabilities cross-classified by financial instrument and sector.

4.96 The system also includes memorandum items to show assets that are not separately identified in the central national accounting framework, but are of more specialised analytical interest. These are:
      • consumer durables, which are not defined as assets in the system, but are of special interest. These cover private motor vehicles and other household durables; and
      • direct investment, which comprises financial assets and liabilities attributable to foreign direct investment, which are not recorded separately within financial instrument categories.

Net worth

4.97 As indicated in paragraph 4.82, net worth is equal to total assets less total liabilities and is the balancing item in the system's balance sheets. Whereas, in principle, the net worth of a corporation is equal to the difference in the value of the total assets owned by the company and its debt, in practice this value may not equal the value placed on the company by the market. Accordingly, in the system, the net worth of a corporation exists separately from the market value of shareholders' equity in the corporation, which is counted as a liability in the calculation of net worth. Net worth can be positive or negative and should reflect the market value of the wealth of the units, sector or economy being measured.

Accumulation

4.98 As mentioned in paragraph 4.82, accumulation represents net additions to net worth arising from acquisition and disposal of assets and liabilities by institutional units and changes to the values of assets and liabilities arising from revaluations and other changes in the volume of assets. The following discussion of accumulation is segmented according to the accounts in which the various types of accumulation are recorded. A complete discussion of the accounts appears in Chapter 8. In SNA93 (and the ASNA), the capital account records accumulation of non-financial assets and liabilities as well as sources of funds, such as capital transfers and saving, to finance that accumulation. The financial account records acquisition and disposal of financial assets and liabilities. In the ASNA, revaluations and other changes in the volume of assets are recorded in an account that reconciles the opening balance sheet, changes to assets and liabilities arising from transactions, revaluations and other changes in the volume of assets, and the closing balance sheet. The main entries in each of these accounts are discussed in the following paragraphs.

Capital account entries

4.99 In the capital account, net saving appears as a source of funds along with net capital transfers and consumption of fixed capital. The inclusion of consumption of fixed capital effectively means that the sources of finance are gross saving and capital transfers. These sources are offset by accumulation entries for gross fixed capital formation, changes in inventories, and acquisitions less disposals of non-produced non-financial assets. The balancing item in the account is net lending or borrowing. Each of these entries not discussed previously is discussed in the following paragraphs.

Capital transfers

4.100 As noted in the discussion of current transfers, transfers are transactions in which one institutional unit provides a good, service or asset to another unit without receiving from the latter any good, service or asset in return. A capital transfer is one in which:

      • ownership of an asset (other than cash or inventories) is transferred from one institutional unit to another (i.e. a capital transfer in kind); or
      • cash is transferred to enable the recipient to acquire another asset; or
      • the funds realised by the disposal of an asset are transferred.

The first category of capital transfers includes cancellation of liabilities by mutual agreement between creditor and debtor, sometimes known as 'debt forgiveness'. Unilateral cancellation of debt by a creditor does not constitute a transaction between institutional units; accordingly it is treated as writing off of the debt and is recorded with other changes in the volume of assets. The second category of capital transfers includes grants made by governments or international organisations to other governments, including grants by one level of government to another. Such grants are recognised as capital grants because the recipients, under the terms of the grants, are required to spend the money on capital projects (i.e. acquisition of non-financial assets). The second category of capital transfers also includes taxes that are deemed to be capital taxes. These are taxes, such as inheritance and gift taxes, that are non-recurrent and required to be paid only when a specific event (such as death of the taxpayer) occurs.

4.101 Gross saving plus capital transfers receivable less capital transfers payable (or net saving plus capital transfers receivable less capital transfers payable plus consumption of fixed capital) is called gross saving and capital transfers and is the amount of resources available to fund non-financial capital accumulation, which consists of gross fixed capital formation, acquisitions less disposals of valuables, changes in inventories, and acquisitions less disposals of non-produced non-financial assets.

Gross fixed capital formation

4.102 Gross fixed capital formation is equal to the total value of a producer's acquisitions, less disposals, of fixed assets (as defined in paragraphs 4.87 to 4.89) plus capital work done on own account during the accounting period plus certain additions to the value of non-produced assets realised by the productive activity of institutional units. The latter include reclamation of land from the sea, clearance of forests to bring land into use for the first time, draining of marshes or irrigation of deserts, and prevention of flooding by erection of breakwaters, sea walls or flood barriers. These activities may result in the creation of new structures such as seawalls, flood barriers, dams, etc., that are not used directly in production but are constructed to make additional land available.

4.103 Acquisitions of new and existing assets are valued at purchasers' prices plus ownership transfer costs associated with the acquisition of fixed assets. Ownership transfer costs include professional charges or commissions incurred by the asset acquiring unit, including fees paid to lawyers, architects, surveyors, engineers and valuers, and commissions paid to estate agents, auctioneers, etc., and all ownership transfer taxes payable by the acquiring unit. Consistent with this valuation method, disposals of fixed assets are valued at the prices payable by the units acquiring the assets, less any ownership transfers costs incurred by the units disposing of the assets.

4.104 Cases at the boundary between gross fixed capital formation and intermediate consumption are discussed in the earlier section of this chapter dealing with intermediate consumption.

Acquisitions less disposals of valuables

4.105 As discussed in paragraph 4.91, valuables are a separate category of non-financial assets that are not held for use as inputs to production. Acquisitions and disposals of valuables are also accounted for separately in the capital account. However, in the ASNA, a separate category has not been created because of lack of information about acquisitions and disposals of valuables.

Changes in inventories

4.106 Changes in inventories has already been discussed in the section dealing with production. However, the acquisition and disposal of inventories constitutes capital formation (or reduction) and changes in inventories is accordingly recorded in the capital account as well as part of production.

Acquisitions less disposals of non-produced non-financial assets

4.107 As discussed in paragraphs 4.92 and 4.93, non-produced non-financial assets include land, subsoil assets, other natural assets available for commercial exploitation, and intangible assets such as patents, broadcasting licences, other transferable contracts and purchased goodwill. All acquisitions and disposals of such assets are part of accumulation but, as discussed in Chapters 16 and 26, coverage of such transactions in the ASNA is limited because of data deficiencies.

Net lending or borrowing

4.108 Net lending/borrowing is the balancing item in the capital account. As stated in paragraph 4.101, the value of gross saving and capital transfers is the amount available for the acquisition of financial and non-financial assets. Gross saving and capital transfers, less the sum of gross fixed capital formation, changes in inventories and net acquisitions of non-produced non-financial assets, is defined in the capital account as net lending if positive, or net borrowing, if negative.

4.109 A net lending result implies an excess of capital finance over requirements for gross capital formation and net purchases of non-produced non-financial assets. A net borrowing result implies the existence of a borrowing requirement to finance capital acquisitions. Net lending/borrowing will therefore be reflected in changes in financial assets and liabilities in the financial account and is technically equal to the balancing item in that account. At the national level, the net lending/borrowing outcome in the national capital account indicates whether surplus funds are lent to the rest of the world or whether there is a borrowing requirement from the rest of the world to finance national capital formation. Net lending/borrowing in the national capital account is equivalent to the balance on current and capital transactions in the balance of payments.

Financial account entries

4.110 The financial account in the ASNA records changes in financial assets and liabilities arising from financial transactions. Changes in financial assets are recorded under the heading net acquisition of financial assets, which refers to acquisitions less disposal of financial assets. Changes to liabilities are recorded under the heading net incurrence of liabilities, which refers to incurrence of liabilities less repayments. Each of these major categories can be broken down according to the financial instruments used and the institutional sector or subsectors of counterparties, as discussed in the previous section on financial assets and liabilities (see paragraphs 4.94 and 4.95).

4.111 As discussed in relation to capital account entries, the balance of the capital account (net lending/borrowing) is technically equal to the balancing item in the financial account, which is equal to net acquisition of financial assets less net incurrence of liabilities. However, in the ASNA, the use of differing data sources for the two accounts can give rise to significant differences between the two balancing items. As discussed in Chapter 25, these differences are usually recorded in an item for net errors and omissions.

Entries in the reconciling account

4.112 As discussed in paragraph 4.99, in the ASNA, accumulation entries for revaluations and other changes in the volume of assets are recorded in an account that reconciles these entries with the opening balance sheet, transactions during the accounting period and the closing balance sheet. The account shows such information for each of the types of assets and liabilities discussed in paragraphs 4.87 to 4.96.

Revaluations

4.113 Revaluations are holding gains or losses arising from changes in the market prices of assets and liabilities during the accounting period. Holding gains and losses can be decomposed into neutral holding gains and losses, which are in line with the change in the general level of prices, and real holding gains and losses, which are changes that are above or below the change in the general level of prices. Such decomposition has not yet been introduced to the ASNA, which records only nominal holding gains and losses.

4.114 Holding gains and losses refer to assets and liabilities that remain qualitatively and quantitatively unchanged during the accounting period. Thus, changes in the value of physical assets that are attributable to some physical or economic transformation, whether improvement or deterioration, are not recorded as holding gains or losses. In particular, the decline in the value of fixed assets arising from physical deterioration, obsolescence or accidental damage is not a holding loss but is recorded in consumption of fixed capital or other changes in the volume of assets. Increases in value from growth of natural assets are also recorded with other changes in the volume of assets.

Other changes in the volume of assets

4.115 Other changes in the volume of assets are changes in the value of assets and liabilities over the accounting period arising from events other than transactions and revaluations. Other changes in the volume of assets are categorised in SNA93 as follows:

      • Economic appearance of non-produced assets - includes discovery of subsoil assets, transfers of other natural assets to economic activity, quality changes to non-produced assets arising from changes in economic use, and appearance of intangible non-produced assets such as patents and goodwill.
      • Economic appearance of produced assets - includes valuables and historic monuments which, for various reasons (e.g. not thought previously to be of value), have hitherto been excluded from the balance sheets.
      • Natural growth of non-cultivated biological resources - includes natural growth of virgin forests, fishstocks, etc.
      • Economic disappearance of non-produced assets - includes depletion of natural economic assets such as forests and subsoil assets as a result of physical removal and use, reassessment of subsoil assets as no longer exploitable, negative quality changes arising from changes in use, degradation due to use in economic activity, and write-offs or write-downs of patents and goodwill.
      • Catastrophic losses - losses of produced and non-produced assets from (i) earthquakes, volcanic eruptions, tidal waves, hurricanes, drought and other natural disasters; (ii) acts of war, riots, other political events; and (iii) technological accidents such as toxic spills and inadvertent release of radioactive materials.
      • Uncompensated seizures - includes seizures of assets by governments or other institutional units; such seizures may be in contravention of national or international law (excludes foreclosures and repossessions by creditors, which are recorded as financial transactions).
      • Other volume changes in non-financial assets n.e.c. - includes unforeseen obsolescence, degradation and damage not allowed for in consumption of fixed capital, abandonment of production facilities before they are brought into use, and exceptional losses in inventories (e.g. from fire, robbery or infestation).
      • Other volume changes in financial assets and liabilities n.e.c. - includes allocation and cancellation of SDRs, write-offs or write-downs of bad debts by creditors, and changes in the actuarially-determined value of defined-benefit superannuation schemes.
      • Changes in classification and structure - includes changes in the sector classification of units, monetisation and demonetisation of gold and other changes in the classification of assets and liabilities.

In the ASNA it has not been possible to cover all of the types of other volume changes described above and the value of other changes in the volume of assets sometimes is estimated as a residual. These matters are discussed in detail in Chapter 25.

Change in net worth

4.116 Change in net worth can be derived as the value of net worth in the closing balance sheet less the value of net worth in the opening balance sheet. Change in net worth reflects the results of transactions, revaluations and other changes in the volume of assets. Change in net worth can be decomposed into change in net worth due to saving and net capital transfers, change in net worth due to other changes in the volume of assets, and change in net worth due to revaluations.


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