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Holding gains

Australian System of National Accounts: Concepts, Sources and Methods
Reference period
2020-21 financial year


16.9    Holding gains and losses arise from changes in assets, liabilities and net worth over time in the level and structure of prices. Holding gains accrue purely as a result of holding assets over time without transforming them in any way. Holding gains include not only gains on capital such as fixed assets, land and financial assets but also gains on inventories of all kinds of goods held by producers.

16.10    A holding gain (loss) is realised when an asset that has increased (decreased) in value due to holding gains (losses) since the beginning of the accounting period is sold, redeemed, used or otherwise disposed of, or a liability incorporating a holding gain or loss is repaid. An unrealised holding gain is one accruing on an asset that is still owned or a liability that is still outstanding at the end of the accounting period.

16.11    The nominal holding gain on a non-financial asset is the value of the benefit accruing to the owner of that asset as a result of a change in its price over a period of time. The nominal holding gain on a financial asset is the increase in value of the asset, other than transactions in the assets (including the accrual of interest over a period of time) and other changes in the volume of assets. The nominal holding gain on a liability is the decrease in value of the liability, other than by transactions or by other volume changes. Nominal holding gains (losses) are decomposed into neutral holding gains and real holding gains.

16.12    A neutral holding gain (loss) over a period is the increase (decrease) in the value of an asset that would be required, in the absence of transactions and other changes in the volume of assets, to maintain command over the same amount of goods and services as at the beginning of the period. It is the increase in the value of the asset required to preserve exactly the same volume of goods and services).

16.13    A real holding gain (loss) is the amount by which the value of an asset increases (decreases) over the neutral holding gain for the period, in the absence of transactions and other changes in the volume of assets. It is the difference between the nominal holding gain (loss) and the neutral holding gain (loss) for the same asset over the same time period).

Holding gains on fixed assets

16.14    Nominal holding gains may occur on existing fixed assets either because of general inflation or because the price of the asset itself changes over time. When assets of the same kind are still being produced and sold on the market, an existing asset should be valued in the opening or closing balance sheet at the current purchaser’s price of a newly produced asset less the accumulated consumption of fixed capital up to that time also calculated on the basis of the prices prevailing at the time the balance sheet is drawn up. When new assets of the same type are no longer being produced, the valuation of existing assets may pose difficult conceptual and practical problems. If broadly similar kinds of assets are still being produced, even though their characteristics may differ significantly from those of existing assets (for example, new models of vehicles or aircraft), it may be reasonable to assume that, if the existing assets were still being produced, their prices would have moved in the same way as those of new assets. However, such an assumption becomes questionable when the characteristics of new assets are much improved by technical progress.

Holding gains on inventories

16.15    The estimation of nominal holding gains on inventories is difficult because of lack of data on transactions or other volume changes in inventories. Goods entering inventories can be regarded as being acquired by the owner of an enterprise from itself as producer, while goods leaving inventories can be regarded as being disposed of by the owner to the producer for use in production or for sale. These internal transactions should be valued at the prices prevailing at the times they take place. The value of withdrawals thus includes any holding gains on the inventories when stored and this ensures that the value of the holding gain is not included in output. However, when the storage of goods is essentially an extension of the process of production, the increase in the value of the goods that is due to this production is not to be counted as a nominal holding gain. In the case of goods for resale, the value of the goods when withdrawn from inventory should include the value of any holding gain or loss that has occurred while they were in store but not the value of any margin to be realised by the wholesaler or retailer.

16.16    Other volume changes are likely to consist of inventories of goods destroyed as a result of exceptional events such as natural disasters (floods, earthquakes, etc.) or major fires. Recurrent losses of goods from inventories, such as losses due to regular wastage or pilfering, are treated in the same way as deliberate withdrawals. Nominal holding gains on inventories thus relate only to the level of inventories once both exceptional and recurrent losses on inventories have been taken into account.

Financial assets and liabilities

16.17    It is not always appropriate to describe financial assets and liabilities as having a price. Holding gains and losses appear to be treated differently for different categories, though the same basic principles apply to all categories:

  • Monetary gold is subject to nominal and real holding gains and losses because of changes in the exchange rate as well as in the price of gold itself.
  • The value of Special Drawing Rights (SDRs) is always subject to nominal and real holding gains and losses since the value of the SDR is based on a basket of four key currencies.
  • Domestic currency, deposits and loans, and other accounts receivable and payable are not subject to any nominal holding gains or losses as they are denominated in domestic currency. However, although the nominal holding gains are zero, the neutral holding gains on currency are not. Under inflation, neutral holding gains are positive and so the associated real holding gains are negative and of an equal size.
  • Bond price changes that are attributable to changes in market rates of interest constitute price and not volume changes. Therefore, they generate nominal holding gains or losses for both the issuers and the holders of the bonds. An increase in interest rates generates a nominal holding gain for the issuer of the bond and an equal nominal holding loss for the holder of the bond, and vice versa in the case of a fall in interest rates.
  • Nominal holding gains or losses may accrue on bills in the same way as for bonds. As bills are short-term securities with much shorter times to maturity, the holding gains generated by interest rate changes are generally much smaller than on bonds with the same face values.
  • For listed shares and investment fund shares and units, and derivatives, market prices exist and therefore holding gains and losses exist similar to inventories with no storage component.
  • For other forms of equity, holding gains are calculated as the sum of holding gains on assets less the holding gains on liabilities.