Part C - Valuation of transactions in non-financial assets
In Australian GFS, all transactions in non-financial assets are valued at current market value. This consists of the current exchange value of the non-financial asset plus costs of ownership transfer (with the exception of land). For further information on the valuation of non-financial assets see Chapter 8 Part D of this manual.
Costs of ownership transfer of non-financial assets
The costs associated with the acquisition or disposal of non-financial assets are called the costs of ownership transfer in GFS. With the exception of the acquisition or disposal of land, these costs are not shown separately to their associated non-financial asset because they are included as part of the current market value of the underlying non-financial asset. There are no costs of ownership transfer recorded for land because the costs of ownership transfer are attributed to items built on the land itself, which are treated as improvements to the land (known as land improvements in GFS). Land itself comprises only the ground, including the soil covering and any associated surface waters, over which ownership rights are enforced. Therefore, the costs of ownership transfer on land are recorded as an undistinguished part of the value of land improvements. Also, there are no costs of ownership transfer on inventories because these are held specifically for use as part of the production of goods and services.
Paragraph 8.8 of the IMF GFSM 2014 indicates that costs of ownership transfer are attributed to the purchaser or seller of the asset according to which unit bears the responsibility of meeting the costs in the purchase agreement. Examples of costs of ownership transfer include fees paid to surveyors, engineers, architects, lawyers, and estate agents, trade and transport costs separately invoiced to the purchaser, and taxes payable on the transfer. Paragraph 6.60 of the IMF GFSM 2014 notes that costs of ownership transfer are estimated at the time of the acquisition of an asset and are written off through depreciation over the period the asset is expected to be held by the purchaser rather than over the whole life of the asset. By writing off the costs of ownership transfer over the period that the owner holds the asset, there are no remaining costs of ownership transfer included in the value of the asset when it is sold to a new owner. Interest and other financing charges incurred in connection with a transaction are not costs of ownership transfer. Costs of ownership transfer are further discussed in Chapter 3 Part D and Chapter 8 Part D of this manual.
Valuation of transactions in inventories
Additions to and withdrawals of inventories (including defence inventories) are valued at the current market price applicable at the time the addition or withdrawal takes place, and are recorded as change in inventories (ETF 4111, TALC 21). Paragraph 8.10 of the IMF GFSM 2014 states that the market value of inventories at the time of purchase can be quite different from their market value at the time of withdrawal, and care must be taken to ensure any difference in the value is reflected in the accounts as holding gains or losses. No costs of ownership transfer are recognised for transactions in inventories, including defence inventories. Further information on inventories can be found in paragraphs 8.98 to 8.112 of this manual.
Valuation of transactions in barter or in-kind transactions
Paragraph 8.9 of the IMF GFSM 2014 states that transactions in non-financial assets acquired through barter or in-kind transactions are valued at their equivalent market value plus any costs of ownership transfer.
Valuation of transactions in own-account capital formation
Transactions in non-financial assets produced for own-account capital formation are valued at their estimated market value, and recorded as acquisitions of non-financial assets under own-account capital formation (ETF 4113) with a further breakdown using an appropriate category in the supporting information under own-account capital formation (ETF 76, TALC, COFOG-A) (see Appendix 1 Part B). If satisfactory estimates of basic prices cannot be made, transactions in own-account capital formation may be valued at their cost of production.
Valuation of transaction in non-financial assets purchased on a non-market basis
For various reasons, public sector units may sometimes acquire or dispose of non-financial assets on a nonmarket basis, either by purchasing or selling non-financial assets at above or below the current market value of the same or similar assets. If the acquisition of the asset is a part of a deliberate action by government (e.g. as part of a bailout operation) and there is clear evidence that the amount paid by government for the asset is above or below the market value of the asset, then an implicit transfer to record the difference in the value of the sale price and the market value is recorded under assets acquired below market value (ETF 1152, TALC, COFOG-A, SDC) and difference would be recorded as assets donated (ETF 1262, TALC, COFOG-A, SDC)
Depreciation on non-financial assets
Depreciation is an internal transaction which records the decline in the current value of the stock of nonfinancial assets over their useful life, due to physical deterioration and normal obsolescence. Depreciation records the value of the internal accounting process by which the cost of assets are written off over time. Paragraph 8.18 of the IMF GFSM 2014 indicates that the reduction in the value of non-financial assets recorded via the expense classification depreciation (ETF 124). The other side of the double entry is recorded separately from other transactions relating to the disposals of non-financial assets, via reductions in non-financial assets due to depreciation (ETF 4212) so it can be removed from the calculation of net lending (+) / net borrowing (-). Depreciation usually relates to fixed, tangible, produced non-financial assets, whereas amortisation relates to intangible produced assets.
Depreciation relates only to fixed, tangible produced non-financial assets. The reduction in value of intangible produced non-financial assets (eg. the depletion in the value of patents over time) is referred as amortisation. Amortisation of intangible produced, non-financial assets is not classified as transactions. It is classified as an other change in volume (ETF 5212 TALC 14). These matters are further discussed in paragraph 11.167 to paragraph 11.173 of this manual.
In Australia’s GFS system, depreciation is recorded in lieu of the IMF GFS concept of consumption of fixed capital. This deviation from the international standards is undertaken in agreement with Commonwealth, and state and territory treasuries, because only depreciation information is currently available from government accounts. The estimates of consumption of fixed capital in the Australian National Accounts are derived independently by the ABS, but are in insufficient detail to be of use in the GFS system.
Depreciation on non-financial assets should (theoretically) be recorded continuously throughout the reporting period. However in practice, depreciation is only computed at the end of the reporting period because its value depends on the average price of the asset over the entire reporting period. In GFS, depreciation is recorded as an expense and as a negative component of the net acquisition of non-financial assets. This ensures its exclusion from GFS net lending (+) / borrowing (-), which is derived as the GFS net operating result less the net acquisition of non-financial assets. Depreciation is further discussed in Chapter 7 Part C of this manual.