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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
(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.
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.
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:
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:
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.
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:
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 :
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:
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.
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.
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:
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.
4.105 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.
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.
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.
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.
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).
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.
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.
4.115 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:
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.