Economic Flows, Stock Positions, and Accounting Rules 57
takeovers, frequency of revaluations, and tax and
other regulations.- Historic cost, in its strict sense, refl ects the cost
at the time of acquisition, but sometimes it may
also refl ect occasional revaluations.
3.116 Th e valuation of assets and liabilities based
on accounting standards may not fully refl ect the
market prices of the assets and liabilities. In such
cases, the source data for GFS should be adjusted to
refl ect, as closely as possible, the market value of the
assets and liabilities.^23
3.117 Some fi nancial assets and liabilities, such as
bonds, have a nominal value, face value, and market
value, and for some purposes, supplementary data on
the nominal and face values of stock positions may
be useful.^24 However, transactions in these assets and
liabilities should be valued at the prices actually paid.
Similarly, to attain integration between stock posi-
tions and fl ows, the stock positions of debt securities
should be valued at their market value when recorded
on the balance sheet.
Valuation adjustments in special cases
3.118 When a unit sells an item and does not ex-
pect to receive payment, or the corresponding pay-
ment is not due for an unusually long time,^25 the value
of the principal (recorded in other accounts payable/
receivable) is reduced by an amount that refl ects the
time to maturity using an appropriate discount rate,
such as the contractual rate for similar debt instru-
ments. If payment is not due for an unusually long pe-
riod of time, this reduction is by partitioning the market
price of the item purchased, which equals the reduced
principal amount, and accrued interest, the assumption
being that the amount to be paid includes an allowance
for interest. If payment is not expected for an unusually
long period of time, such as due to the circumstances
of the debtor, a reduction in the principal to be paid is
recorded through a valuation change in other accounts
(^23) More information on the valuation rules and numerical ex-
amples are in the PSDS Guide, paragraphs 2.115–2.123, and the
2013 EDS Guide.
(^24) Th e PSDS Guide recommends that debt instruments should be
valued at nominal value, while debt securities should be valued at
market value as well.
(^25) What constitutes an unusually long time in this context will
depend on the circumstances. For example, for any given time pe-
riod, the higher the level of interest rates or the longer the delay in
payment, the greater is the opportunity cost of delayed payment.
payable/receivable, with interest accruing on the re-
duced principal amount, refl ecting the time delay in
payment. In both the circumstances described in this
paragraph, interest should accrue until payment is
made, at the rate used to discount the principal.
3.119 Flows and stock positions expressed in a for-
eign currency are converted to their value in the do-
mestic currency at the rate prevailing at the moment
they are entered in the accounts—that is, the moment
the transactions or other fl ow takes place, and stock
positions are converted at the rate prevailing on the
balance sheet date. Th e midpoint between the buy-
ing and selling spot rates should be used so that any
service charge is excluded. When a multiple exchange
rate system is in operation, the valuation should be
based on the rate applicable to the type of asset in
question. Th e valuation in the domestic currency of a
purchase or sale on credit expressed in a foreign cur-
rency may diff er from the value in domestic currency
of the subsequent cash payment because the exchange
rate changed in the interim. Both transactions should
be valued at their market values as of the dates they
actually occurred, and a holding gain or loss result-
ing from the change in the exchange rate should be
recorded for the period or periods in which it occurs.
3.120 For some transactions in goods, contracts
establish a quotation period oft en months aft er the
goods have changed hands. In such cases, market
value at the time of the change of ownership of the
goods should be initially estimated, and revised with
the actual market value, when known. Market value is
given by the contract price even if it is unknown at the
time of change of ownership.
3.121 Transfers in kind should be valued at the
market prices that would have been receivable if the
resources had been sold in the market. In the absence
of a market price, the donor’s view of the imputed
value of the transaction will oft en be quite diff er-
ent from that of the recipient. Th e suggested rule of
thumb is to use the value assigned by the donor as the
basis of recording.
3.122 In some cases, actual exchange values may
not represent market prices. Examples are transac-
tions involving transfer prices between affi liated units,
manipulative agreements with third parties, and cer-
tain noncommercial transactions. Prices may be
under- or overinvoiced, in which case an assessment