238 Government Finance Statistics Manual 2014
fi nanced by a loan transaction: the lessor and lessee
record a loan equal to the market value of the asset,
this loan being gradually paid off over the period of
the lease. Th e implication of treating a fi nancial lease
as a loan is that interest accrues on the loan. Th e rate
of interest on the imputed loan equates the present
value of the total amount payable in installments
over the life of the lease (including any value to be
repaid at maturity) with the market value of the asset
at the time the lease is initiated. Th e installment cov-
ers interest accrued during the period as well as the
component of the repayment of the principal.
9.46 As described in paragraphs 7.159 and 7.161,
repurchase agreements and gold swaps are treated as
loans with no change of economic ownership for the
underlying assets that legally were sold. Similarly, the
winding up of the repurchase agreement or swap ac-
cording to the initial terms of the agreement is treated
as a liquidation of a loan. Th e economic nature of an
off -market swap is equivalent to a combination of
borrowing (the lump sum) in the form of a loan trans-
action and an on-market swap transaction (fi nancial
derivative) (see paragraph 7.162).Equity and Investment Fund Shares (3205, 3215, 3225, 3305, 3315, 3325)
Equity (32051, 32151, 32251, 33051, 33151, 33251)
9.47 Th e treatment of transactions in publicly
traded shares is generally straightforward. Problems
may be created, however, by the operations of quasi-
corporations and public corporations.
9.48 Additions to the funds and other resources
of a quasi-corporation, including in-kind transfers of
nonfi nancial assets, are treated as purchases of equity
by the owner of the quasi-corporation. Th is includes
new fi nance made available for use by the enterprise
in purchasing fi xed assets, accumulating inventories,
acquiring fi nancial assets, or redeeming liabilities.
Similarly, receipt by the owner of proceeds from sales
of any of the quasi-corporation’s assets, transfers in
kind from the quasi-corporation, and withdrawals
by the owner of accumulated retained earnings of the
quasi-corporation are treated as reductions in equity
by the owner. Liquidating dividends payable to share-
holders when an enterprise becomes bankrupt (or is
otherwise wound up) should also be recorded as with-
drawal of equity.9.49 For government units, regular transfers to
corporations or quasi-corporations to cover persis-
tent operating defi cits are subsidies (251), but if pay-
ments from government are irregular and are made
to cover accumulated losses or exceptional losses due
to factors outside the control of the enterprise, they
are treated as a capital transfer under capital transfers
not elsewhere classifi ed (2822).^14 If government makes
a transfer to a public corporation to fi nance all or part
of the costs to fi nance its acquisition of nonfi nancial
assets, this also is recorded as equity unless there is no
reasonable expectation of a suffi cient rate of return on
the investment, in which case the transfer is recorded
as capital transfers not elsewhere classifi ed (2822) (see
Box 6.3). Regular withdrawals of the income from
public corporations or quasi-corporations are prop-
erty income under, respectively, dividends (1412) or
withdrawals of income from quasi-corporations (1413).
Th e exception occurs when dividends are dispropor-
tionately large relative to the recent level of dividends
and earnings. Any dividends declared greatly in excess
of the recent level of dividends and earnings should be
treated as withdrawal of owners’ equity (32051, 32151,
32251, 33051, 33151, 33251) from the public corpora-
tion. Th is will be the case for distributions by public
corporations to shareholders of proceeds from priva-
tization receipts and other sales of assets and large and
exceptional one-off payments based on accumulated
reserves or holding gains.
9.50 Government units may acquire equity in a
public corporation or quasi-corporation as a result of
legislation or an administrative change creating the
corporation or quasi-corporation. In some cases, this
event will amount to a reclassifi cation of existing as-
sets and liabilities, which is recorded as an other eco-
nomic fl ow that results in an addition of equity to the
government unit’s balance sheet. An advance of funds
to create the new enterprise is a transaction refl ect-
ing the purchase of equity. As explained in paragraph
6.121, retained earnings of a foreign direct investment
enterprise are treated as if they were distributed and
remitted to foreign direct investors in proportion to
their ownership of the equity of the enterprise and
then reinvested by them by means of additions to
equity.(^14) See Box 6.3 for more details.