Government Finance Statistics Manual 2014

(nextflipdebug2) #1

Expense 125


deterioration, normal obsolescence, or normal acci-
dental damage.^19 Th e concept of consumption of fi xed
capital is identical to the concept used in the 2008
SNA. However, the amount of consumption of fi xed
capital [GFS] (23) expense recorded in GFS may diff er
from the amount recorded in the production account
of the 2008 SNA because of the GFS treatment of
own-account capital formation (see Table 6.4). When
nonfi nancial assets are produced on own-account, the
consumption of fi xed capital related to that produc-
tion process is recorded in GFS as part of the cost of
acquisitions of the fi xed assets rather than expense
(see paragraph A7.25).


6.54 Consumption of fi xed capital may deviate
considerably from depreciation as recorded in gov-
ernment fi nancial records. Consumption of fi xed cap-
ital is a forward-looking measure that is determined
by future rather than past events—it is determined
by the benefi ts that institutional units expect to de-
rive in the future from using the asset in production
over the remainder of its service life. Consumption of
fi xed capital is therefore based on the current market
value or replacement cost of the asset. Depreciation is
normally an allocation of the original costs of fi xed as-
sets (historic cost) over subsequent reporting periods.
Consumption of fi xed capital is calculated on the basis
of the estimated opportunity costs of using the assets
at the time they are used, as distinct from the prices at
which the assets were acquired. Even when the fi xed
assets used are not actually to be replaced, the amount
of consumption of fi xed capital charged as a cost of
production should be suffi cient to enable the assets to
be replaced, if desired.


6.55 Consumption of fi xed capital is estimated
with respect to all fi xed assets owned by government


(^19) Consumption of fi xed capital is described in the 2008 SNA in
paragraphs 6.240–6.257.
units, but not for valuables (precious metals, precious
stones, etc.) that are acquired precisely because their
value, in real terms, is not expected to decline over
time. Consumption of fi xed capital does not cover
the depletion or degradation of natural assets, such as
land, mineral or other deposits, coal, oil, or natural
gas, or contracts, leases, and licenses, which are re-
corded as other changes in the volume of assets (see
paragraph 10.52).
6.56 Th e calculation of the consumption of fi xed
capital refl ects assumptions about normal rates of
physical deterioration, obsolescence, and accidental
damage. Although some fi xed assets, such as roads
or railway tracks, may appear to have infi nite service
lives if properly maintained, their value may never-
theless decline because of a decrease in the demand
for their services as a result of technical progress and
the appearance of substitutes. Many fi xed assets are
scrapped or demolished only because they have be-
come obsolete. Consequently, consumption of fi xed
capital must include an allowance for anticipated
obsolescence. Any diff erence between the normal
expected rate of obsolescence and the actual rate of
obsolescence within a given period should be re-
corded as other changes in the volume of assets (see
paragraph 10.66).
6.57 Losses of fi xed assets due to normal or ex-
pected levels of accidental damage (i.e., damage
caused to assets used in production resulting from
their exposure to the risk of fi res, storms, accidents
due to human error, etc.) are also included under
consumption of fi xed capital. When these kinds of
accidents occur with predictable regularity, they are
taken into account in calculating the average service
lives of the goods in question. Any diff erence between
the normal expected and the actual accidental dam-
age within a given period should be recorded as other
changes in the volume of assets (see paragraph 10.67).
6.58 Consumption of fi xed capital excludes the loss
of value when fi xed assets are destroyed by acts of war,
natural disasters, and other exceptional events that
occur very infrequently. Similarly, it excludes losses due
to unexpected technological developments that may
signifi cantly shorten the service life of an existing fi xed
asset. Th ese events are recorded as other economic
fl ows and recorded as an other change in the volume of
assets (see paragraph 10.66). Holding gains and losses
Table 6.4 Detailed Classifi cation of Consumption
of Fixed Capital [GFS] (23)
23 Consumption of fi xed capital [GFS]^1
Consumption of fi xed capital [SNA]^1
Minus: Related to own-account capital formation
(^1) Further breakdown/“of which” lines could allow for the
identifi cation of the category of fi xed assets that the consumption
relates to. Identifying the type of assets is required for the
integration of stocks and fl ows of each type of asset (see Table 7.2).

Free download pdf