5216.0 - Australian National Accounts: Concepts, Sources and Methods, 2000  
ARCHIVED ISSUE Released at 11:30 AM (CANBERRA TIME) 15/11/2000   
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Contents >> Chapter 26: Balance sheets


26.1 A balance sheet is defined in paragraph 13.1 of SNA93 as follows:

        "A balance sheet is a statement, drawn up at a particular point in time, of the values of assets owned and of the financial claims - liabilities - against the owner of those assets. A balance sheet may be drawn up for institutional units, institutional sectors and the total economy."

26.2 This chapter contains details of the consolidated national and sectoral balance sheets. The balance sheet contains estimates of the value of some of Australia's natural resources as well as data on produced assets, and net financial claims on the rest of the world. The summary aggregate is net worth, which is defined as the difference between total assets and liabilities (including share capital).

Classification of assets in the balance sheet

26.3 Under SNA93 guidelines, for an asset to be included in the national balance sheets it must be an economic asset:

      • over which ownership rights are enforced by institutional units, individually or collectively; and
      • from which economic benefits may be derived by its owner by holding it, or using it, over a period of time.

26.4 SNA93 describes three types of asset that should be included in the national balance sheets:
      • non-financial produced assets;
      • non-financial non-produced assets; and
      • financial assets (and liabilities).

Differences between SNA93 and ASNA in the asset boundary

26.5 The balance sheet estimates are generally consistent with SNA93 recommendations, although there are three main areas where the ABS has not followed the recommendations of SNA93 with regard to the asset boundary.

26.6 The first of these divergences relates to the types of subsoil assets valued in the balance sheet. Paragraph 13.59 of SNA93 states:

        "Subsoil assets are proven reserves of mineral deposits located on or below the earth's surface that are economically exploitable given current technology and relative prices."

26.7 The ABS has taken the view that proven resources are too restrictive a concept to guide economic decision making in the Australian context. The volume of subsoil assets available for production is more accurately reflected by the term 'economically demonstrated resources' (EDR), which equate to proven plus probable resources. EDR are those resources that have a very high probability of existence and are economically feasible to extract, given current technology and relative prices. Furthermore, EDR estimates are the only data available in Australia on quantities of exploitable subsoil assets.

26.8 Second, while the flow accounts record new expenditure on mineral exploration (as gross fixed capital formation), the Australian balance sheets do not record a 'stock' value for mineral exploration. To the extent that SNA93 recommends the inclusion of mineral exploration in a nation's balance sheet, the ASNA is currently inconsistent with these recommendations. However, following representations from the ABS and other national statistical agencies, the SNA93 recommendation is being reviewed. The ABS view is that the total value of mineral exploration is already captured in the value of the stock of subsoil assets (in most instances subsoil assets appear as a result of exploration activity).

26.9 A third difference in treatment between the Australian national balance sheets and SNA93 is the treatment of ownership transfer costs. SNA93 suggests that these expenditures are an integral part of the value of the asset, and therefore that they should be included in the value of the asset being acquired. While the ABS recognises new expenditures on ownership transfer costs as gross fixed capital formation, the current treatment is that these expenditures are expensed within the year of acquisition, and so no stock value is recorded in the balance sheets. This decision is currently under review by the ABS.

26.10 Further, while SNA93 recommends that some assets such as valuables, water resources and intangible non-produced assets be included in national balance sheets, they are not recorded in the ASNA. However, in principle the ABS agrees that these assets should be included, though at present there are insufficient data to do so.

General principles of valuation

26.11 Ideally, assets should be valued on the basis of current, observable market prices as this is the basis on which decisions by producers, consumers, investors and other economic agents are made. In the absence of observable market prices, current prices can be approximated for balance sheet purposes in two ways. In some cases, market prices may be approximated by accumulating and revaluing acquisitions less disposals of the asset in question over its lifetime. This method has been used to value estimates of produced fixed assets as well as estimates of the value of consumer durables (the latter appears as a memorandum item in the balance sheet). In other cases, market prices may be approximated by the present, or discounted, value of future economic benefits expected from any given asset; this is the method used for subsoil assets and native forests in the balance sheets.

The ABS approach to valuation

Non-financial produced and financial assets

26.12 The principles of valuing non-financial produced and financial assets in the ASNA are covered in Chapters 16, 17, and 25 respectively. These are mostly consistent with the approaches recommended in SNA93.

Non-produced assets

Subsoil assets valuation

26.13 As there are insufficient transactions in subsoil assets in Australia to determine a reasonable price, the ABS has used the net present value (NPV) approach; given the data constraints, this is considered to provide more reliable estimates than alternative approaches.

26.14 The NPV approach involves calculating the expected future net income flow generated by the asset, and then discounting at an interest rate for the life of the asset. This initially involves estimating the value of gross output (price multiplied by production) during a twelve month period and deducting costs (including a normal return on produced capital) to derive net income. This difference is taken to be the equivalent of economic rent. The future income flow has been calculated for each year before being discounted over the expected mine life to obtain a value in today's dollars.

26.15 Normal returns to produced capital need to be excluded, as economic rent represents the returns from the resource only (and not any returns on produced capital used to extract the resource). 'Normal' returns on capital should include a reward to cover the cost of riskless capital, premium to cover risk and uncertainty in exploration and development, and an overall long term risk premium to cover price volatility and inflation. Data on normal returns to produced capital are derived by the ABS using a combination of data from a mineral economics consultancy firm and ABS capital stock estimates. While returns on produced assets are similar for most mining commodities, returns on lead and black and brown coal are somewhat lower than the industry average, while returns on petroleum commodities are, on average, higher. The difference in commodity returns reflect lower (or higher) risks and uncertainty in exploration and development.

26.16 In the derivation of real (inflation adjusted) discount rates, the ABS has assumed that a company's decision to commit resources (towards exploration and extraction) is significantly influenced by costs of borrowing. Consequently, the discount rate chosen has been aimed at reflecting the cost of capital, or the cost of borrowing, to the mining industry. Moreover, because the future stream of income is expressed in current dollar terms, a real (as opposed to a nominal) rate of discount is appropriate as the future income flow is calculated on the basis of current income and costs.

Timber valuation

26.17 As with subsoil assets, market transactions for forests are not common. For Plantations there are readily available proxies for market values, namely insurance values.

26.18 Standing timber is valued differently for native forests than plantation forests because there is no suitable market price data available, proxies or otherwise.Accordingly, the ABS has adopted as an alternative the NPV of the future stream of royalty income (on the assumption that royalties approximate economic rent).

26.19 The estimates of the value of Australia's timber resources are based on the estimated net area of forest available for production in each State and Territory.

Native standing timber

26.20 In line with the recommendations of SNA93, the ABS has valued native forests using the NPV method.

26.21 The ABS has valued native standing timber using a net value-of-production approach over the estimated rotation cycle of the forests. The ABS chose the cost of borrowing to the forest industry to represent the forest industry's nominal discount rate. The ABS estimated the cost of borrowing by deriving a five-year lagged moving average of the Reserve Bank's average indicator rate for large business loans. To derive a real rate of discount, the ABS has constructed an index reflecting changes in prices of forest industry inputs.

Coniferous plantations

26.22 Coniferous forests were valued using an insurance schedule provided by the insurance industry. The schedule shows the value of each hectare from 1 to 30 years of age (35 for South Australia) as determined by the Australian Forest Growers' Association.

Broadleaved plantations

26.23 These were also valued using insurance schedules showing the insured value of each hectare of forest according to tree age (up to 20 years). These schedules are determined by the Australian Forest Growers' Association.

Out of scope timber values

26.24 Standing timber other than that recommended for inclusion in national balance sheets in SNA93 may also have an economic value. For instance, conservation forests with timber values include national parks, wilderness areas, water catchment areas and those inscribed on the World Heritage List, such as the Lord Howe Island Group.

26.25 Although these forests contain commercially viable timber, logging is prohibited. As long as this situation continues, the ABS will not include this potential timber value in its balance sheet estimates.

26.26 Forests also have a range of non-timber values, such as maintaining biodiversity, acting as a carbon sink, and preventing soil erosion. However, valuing these attributes is not within the scope of the ABS balance sheet estimates.

Components of the balance sheet for Australia

Produced assets other than livestock and plantations

26.27 Estimates of produced fixed assets shown in the balance sheet, other than livestock, are essentially derived using the perpetual inventory method. For a description of this method see Chapter 16.

26.28 Estimates of private non-farm inventories are derived from information reported in Inventories and Sales, Selected Industries (Cat. no. 5629.0). Estimates of other inventories, other than livestock and plantation forests, are generally derived using the perpetual inventory method. Inventories are further discussed in Chapter 17.

Financial assets and liabilities

26.29 Data for financial assets are obtained from Australian National Accounts: Financial Accounts (Cat. no. 5232.0) and unpublished estimates. Chapter 25 provides information on the sources and methods used to compile these estimates. Estimates of financial assets and liabilities for 30 June 1995 and later dates are not fully consistent with the estimates shown for earlier dates. The break in series is due to major changes to the data from 30 June 1995 associated with the implementation of SNA93. As a result of this break in the series, net worth and total assets and liabilities are also not consistent across these two periods.


26.30 All livestock under the economic management of institutional units within Australia are in scope of the balance sheet estimates.

26.31 Livestock assets are classified as either fixed assets or inventories. Those livestock which are used in production of other products (e.g. breeding stock, animals for entertainment, sheep for wool and dairy cattle) are considered to be fixed assets. Inventories cover all other livestock types and include those animals raised for meat or other one-off products (e.g. leather).

26.32 A wide range of data sources has been used. A primary data source has been the annual Agricultural Census conducted by the ABS, which provides the livestock numbers. As the census estimates are as at 31 March, data on livestock slaughterings (from Livestock Products, Australia (Cat. no. 7215.0) and exports data have been used to estimate the numbers as at 30 June. For some livestock types it has been necessary to use industry sources and publications to obtain the required quantity data.

26.33 Data on the prices of animals have generally been obtained from industry publications and sources.


26.34 Land is defined in the SNA93 as

        "the ground itself, including the soil covering; (and any) associated surface water" (SNA93, paragraph 10.121).

Excluded are any buildings or other produced structures situated on it (cultivated crops, trees and livestock); subsoil assets; non-cultivated biological resources and water resources.

26.35 Estimates for the value of land in the balance sheets include freehold and leasehold land in private hands, plus land owned by Commonwealth government business enterprises, but exclude land held by the Commonwealth Government and State and local governments and their business enterprises.

26.36 From 30 June 1992 to 30 June 1999, estimates of land values were supplied to the ABS from each of the State and Territory Valuers-General. The estimates are on a consistent basis with those supplied to the Commonwealth Grants Commission, i.e. they represent the site value of land and are classified according to land purpose.

Subsoil assets

26.37 Subsoil assets are defined in SNA93 to consist of

        "proven resources of mineral deposits located on or below the earth's surface that are economically exploitable given current technology and relative prices" (SNA93, paragraph 13.59).

Subsoil assets consist of known deposits of coal, oil and natural gas, metallic minerals and non-metallic minerals.

26.38 Estimates of mineral resources in Australia are published annually by the Australian Geological Survey Organisation in Australia's Identified Mineral Resources. Production costs are provided by a private consulting firm and are derived using a number of models and regression techniques incorporating both known and estimated variables.

Standing timber

26.39 Standing timber assets cover both plantation and native forests. SNA93 does not specifically identify the types of standing timber to be included in national balance sheets other than that the forests must be owned by an institutional unit and must bring economic benefits to their owners. All publicly owned forests outside conservation reserves and all private forests in Australia are potentially available for timber production, either now or at some time in the future, although a number of constraints reduce the area of forest available for production.

26.40 Data on timber production from native forests (in value or volume terms), and average rotation cycles, have been obtained from the Australian Bureau of Agricultural and Resource Economics (ABARE) and each of the State forestry departments. Data on plantation forest area and plantings have come from the Bureau of Resource Sciences from 1995. From 1975 to 1995, these data were supplied by ABARE. Prior to 1975, annual planting data were not available, and so annual plantings had to be estimated based on annual increases in total plantation area in each year up to 1975.

The other changes in volume of assets account and the revaluation account

26.41 Discoveries and depletion of subsoil assets are recorded in the other changes in volume of assets account, while any holding gains and losses are included in the revaluation account. Further, growth and harvesting of native timber are recorded in the other changes in volume of assets account, while any holding gains are included in the revaluation account.

Sectoral estimates

26.42 A sectoral breakdown of the national balance sheet is also provided. The Australian national accounts identify four domestic institutional sectors within the economy (the household sector (which includes unincorporated enterprises and NIPSHs), general government, financial corporations and non-financial corporations). Transactor units are assigned to a sector according to their functional role in the economy.

26.43 The sectoral split is based on a variety of sources including published and unpublished ABS data, taxation statistics, and data from the State and Territory Valuers-General. The sectoral estimates for non-produced assets are experimental due to inadequate data sources, and were derived using fixed ratios or related data as an indicator of sector ownership.

Reliability of the estimates of natural resources

26.44 In order to derive estimates of net worth, natural resources have been valued in monetary terms to provide a common basis for aggregation of all assets. However, the valuation of natural resources is still very much in its infancy, and the values should be interpreted with caution and used in conjunction with the physical stocks of the resources.

26.45 SNA93 acknowledges that valuation of expected net returns, resulting from the commercial exploitation of these natural resources, is subject to great uncertainty and liable to considerable revision. It points out that, as ownership of these assets does not change frequently on markets, it is difficult to obtain appropriate market prices to use for valuation purposes, so that in practice it may be necessary to use the valuations which the owners of the assets place on them in their own accounts (SNA93, paragraph 13.60). As such data are not available in Australia, it is necessary for the ABS to calculate the net present value of these resources.

26.46 Given the way that the experimental estimates of subsoil assets are derived, only a very small proportion of the total resource is accounted for at any one time, and valuation can give a misleading impression of the size of the resource base. Monetary estimates are subject to considerable volatility, and accordingly can give a deceptively optimistic or pessimistic picture. Hence, the estimates must be viewed with some caution.

26.47 The volatility of the monetary estimates means that they should be looked at in conjunction with the physical stocks of the resources. When doing so, it must be borne in mind that the physical estimates are also subject to some uncertainty regarding the total resources which will ultimately become available for production.

26.48 While the natural resource estimates are still experimental, the ABS has consulted with a range of industry participants and related departments in an attempt to improve its estimates. The ABS is also involved in international conferences and discussion groups which have been convened with the objective of developing the most appropriate approach.

Uses of the balance sheet

26.49 The monetary estimates of natural resources contained in the balance sheet are underpinned by a data set of physical estimates detailing levels of particular natural resources. Due to the experimental nature of the monetary estimates, it is considered that monetary estimates of natural resources should be considered in conjunction with the physical estimates, especially for subsoil assets.

26.50 The estimates provide information for monitoring the availability and exploitation of these resources and for assisting in the formulation of environmental policies. Data on the level and composition of tangible and financial assets and liabilities also indicate the economic resources and claims on a nation and each sector, and are input to assessments of the nation's external debtor or creditor position.

26.51 Sectoral balance sheets provide information necessary for analysing a number of topics. Examples include determining household spending behaviour and liquidity, and the computation of widely used ratios, such as assets to liabilities, net worth to total liabilities, non-financial to financial assets, and debt to income. In a period of concern about the level of saving in Australia, national and sector balance sheets provide additional information on the relationship between consumption and saving behaviour.

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