METHODOLOGICAL EXPLANATION NON-FINANCIAL ASSETS
This methodological explanation relates to the data release: - Non-financial assets, Slovenia, annually (First Release)
Content: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
PURPOSE LEGAL BASIS UNIT DESCRIBED BY THE PUBLISHED DATA SELECTION OF OBSERVATION UNIT SOURCES AND METHODS OF DATA COLLECTION DEFINITIONS EXPLANATIONS PUBLISHING REVISION OF THE DATA OTHER METHODOLOGICAL MATERIALS
Prepared by Matevž Meze, Nina Stražišar Last updated: 21 December 2016
1 PURPOSE The purpose of the data publication is to present the value of non-financial capital stock of Slovenia’s entire economy through the balance sheet of the country’s non-financial assets. The key statistics are: - gross or net value of stocks of fixed assets (as of 31 December) at current and constant previous year’s prices, by activity, institutional sector and type of fixed assets - consumption of fixed capital at current and constant previous year’s prices, by activity, institutional sector and type of fixed assets - value of stocks of inventories as of 31 December at current prices, by activity, institutional sector and type of inventories.
2 LEGAL BASIS -
Annual Programme of Statistical Surveys (LPSR) (only in Slovene) National Statistics Act (OJ RS, No. 45/95 and 9/01) European System of National and Regional Accounts – ESA 2010 (Commission Regulation (EU) No. 549/2013 of the European Parliament and of the Council of 21 May 2013 on the European system of national and regional accounts in the European Union) (CELEX 32013R0549)
Data are internationally comparable and contribute to the European statistics.
3 UNIT DESCRIBED BY THE PUBLISHED DATA The unit described by the published data is the individual type of stock of fixed assets or individual type of stock of inventory, which we observe in terms of activity and institutional sector. An individual type of stock of fixed assets is shown in gross and net terms as of 31 December and in terms of flow as consumption of fixed capital. Stocks and flows are shown at current and constant previous year’s prices. Stocks of inventories are shown at current prices as of 31 December.
4 SELECTION OF OBSERVATION UNIT The survey in question is not a typical statistical survey as it is based on secondary sources – a sampling frame is therefore not used. The resources used provide full coverage. The calculation thus covers all institutional units (business entities) that own non-financial assets, take on obligations and participate in own right in economic activities and transactions with other units on the territory of the Republic of Slovenia. In accordance with ESA 2010, institutional units are covered following the NACE classification of economic activities (NACE Rev. 2) and its Slovenian counterpart SKD 2008. For the purposes of the ESA 2010 system, the institutional units are grouped into five institutional sectors that form the entire domestic economy: non-financial
corporations, financial corporations, general government, households and non-profit institutions serving households.
5 SOURCES AND METHODS OF DATA COLLECTION Stocks of fixed assets cannot be measured directly but must be estimated by a method using available statistical and administrative data sources in accordance with the recommendations of the System of National Accounts of the United Nations (2008 SNA) and ESA 2010. The main data sources used for compilation of stocks of fixed assets are: • Annual national accounts data on gross fixed capital formation (GFCF), time series since 1995, which include acquisitions less disposals (sales) of tangible and intangible fixed assets. • Fixed Capital Stock Survey (FCS survey) data were used in the case of fixed assets with particular long service life where the historical investment series were not available. The FCS survey, carried out in 1999 as a combination of census and sample survey, provides initial estimates of the opening stocks at the beginning of 1995, separately for dwellings, non-residential buildings and other buildings and infrastructure such as roads, railways, bridges and other civil engineering works. Values according to the survey were crosschecked, as far as possible, with other available information from statistical surveys and registers. For dwellings, 2011 Census data on number, surface and structural characteristics were used, while for roads and associated infrastructure, data on the road network from transport statistics were used. Additionally, available price data and construction costs for these assets were used. • Additional data sources for improving the quality of capital stock derived from the Perpetual Inventory Method: annual accounting statements depending on the legal status of the business entity (profit and loss account and balance sheets data on stocks of fixed assets), business register data, employment data, data on registered motor vehicles (used for cars and all other road vehicles), economic accounts for agriculture (used for estimation of agriculture activity and cultivated biological resources), information on weapons systems from the Ministry of Defence etc. The main data source used for measuring stocks of inventories is annual balance sheet data from annual accounting statements or annual reports of business entities as of 31 December. This administrative source is provided by the Agency of the Republic of Slovenia for Public Legal Records and Related Services (hereinafter: AJPES). According to the National Statistics Act and Annual Programmes of Statistical Surveys AJPES collects and processes data from the annual accounting statements by types of business entities submitted on standardized forms. The exception is data required on inventories for individual farmers. Estimation of the stock of inventory here is based on direct surveys from SURS’s economic accounts for agriculture and other statistical data on agriculture as the main data sources. Work in 3/11
progress of individual farmers is based on the number of livestock for slaughter, average live weight and average market value of these animals; material and supplies estimation is based on statistical information on animal feeding stuffs. The balance sheet is a basic financial statement, drawn up at a particular point in time, that summarize the values of assets owned and liabilities outstanding. Inventories appear in the balance sheet as current assets. Type of business entity determines which standard form prescribed for statistical data reporting is used: • The annual accounting statements of companies, cooperatives and private entrepreneurs; • The annual accounting statements of legal persons of public law including all central and local government direct budgetary units, agencies and funds and public service providers (market and non-market) of general government; • The annual accounting statements of non-profit organizations and agencies or legal persons of private law (e.g. political parties, trade unions, etc., units of non-profit service providers to households); • The annual accounting statements of societies, which include other non-profit private associations and clubs. The Slovenian Accounting Standards (SAS) and the legal basis for these business entities bound to submit annual accounting statements are taken into account.
6 DEFINITIONS Fixed assets (AN.11) are produced non-financial assets (AN.1) that are used repeatedly or continuously, in production processes for more than one year. Fixed assets consist of: Dwellings (AN.111). Other buildings and structures (AN.112) consist of buildings other than dwellings, other structures, including highways, roads, railways, bridges and other similar infrastructure, and land improvements which also includes the costs of transfer of ownership of land, which have yet to be written off. Machinery and equipment (AN.113) consist of transport equipment, ICT equipment, and other machinery and equipment. Weapons systems (AN.114) Cultivated biological resources (AN.115) consist of livestock or animal resources yielding repeat products, and tree, crop and plant resources yielding repeat products. Intellectual property products (AN.117) consist of research and development, computer software and databases, entertainment, literary or artistic originals, and other intellectual property products. For more information, see ESA 2010, Annex 7.1 Summary of each asset category. 4/11
The value of buildings and structures excludes the value of the land. Stocks of land are classified as non-produced assets that naturally occur, and are shown separately within the non-financial balance sheets. The value of dwellings includes occupied and unoccupied dwellings. Stocks of fixed assets are valued at current and constant previous year prices: Valuation at current prices implies that stocks of fixed assets accumulated over the years are valued at the prices in the year for which the estimates are given. Valuation at constant previous year prices represents the stocks of fixed assets in an accounting period at the prices of a previous period. For each type of fixed asset an appropriate index is used; the same applies for national accounts aggregates at constant prices. The stock of fixed assets at constant prices means that the effect of price changes has been removed. The purpose of valuation at constant prices is to decompose changes over time in the values of flows and stocks into changes in price and changes in volume. Statistics of fixed assets consist of gross stock of fixed assets, net stock of fixed assets and consumption of fixed capital (CFC). The term ‘gross’ means without deducting consumption of fixed capital, while the term ‘net’ means after deducting consumption of fixed capital.
Gross stock of fixed assets is a starting point to calculate consumption of fixed capital and the net stock of fixed assets. It presents the value of accumulated past capital formation re-valuated at the purchasers’ prices of new capital goods of a reference period, ignoring decay of assets and considering past investments “as new” – only retirement is taken into account. Retirements occur when fixed assets are withdrawn from the stock of fixed assets at the end of their service life. In other words, gross stock of fixed assets includes the values of the accumulated consumption of fixed capital. For gross value it is assumed that fixed assets retain their full capacity until removed from the stock. Consumption of fixed capital (i.e. depreciation) is a cost of production. It is defined as a decline in the value of the net stock of fixed assets used in production, as a result of normal wear and tear and foreseeable obsolescence. It is the difference between the real economic value of an asset at the beginning of the period and the end of the period. It is estimated on the basis of the gross stock of fixed assets and the probable average economic life of the different categories of those assets. The calculation is based on a ‘straight line’ method of depreciation (except for research and development where geometric depreciation method is applied): the assets in each group depreciate by a constant value each year in the whole service life. According to the ESA 2010 guidelines, consumption of fixed capital must be calculated for all fixed assets, except for animals (i.e. cultivated biological resources).
To avoid confusion, the term ‘consumption of fixed capital’ is used in national accounts to distinguish it from the ‘depreciation’ allowed for tax purposes or depreciation shown in business accounts. In the system of national accounts CFC must be in line with 5/11
current market values and service life of all fixed assets used in the production process. However, the business account data on depreciation are valuable for comparison with the estimated CFC data.
Net stock of fixed assets is the sum of written-down values of all fixed assets still in use. The written-down (net) value of a fixed asset is the actual or estimated current purchasers’ price of a new asset of the same type less the cumulative value of the consumption of fixed capital accrued up to that point in time. In calculation the net capital stock at the end of the year T equals the net value at the end of the year T-1 increased by gross fixed capital formation in the year T and reduced by consumption of fixed capital in that year. The calculation of all components of stocks of fixed assets by the Perpetual Inventory Method is first prepared at constant 2000 prices and then converted to current prices and to constant previous year prices. The net stock of fixed assets at current prices is the measure that enters nonfinancial asset balance sheets drawn up for sectors and the total economy. The net stock of fixed assets is valued as if capital goods (used or new) were acquired on the date to which the balance sheets relates. It is designed to reflect the wealth of the owner of the asset at a particular point in time.
Whenever direct information on the stock of fixed assets (gross and net) is missing, ESA 2010 for the calculation of the stock of fixed assets recommends the Perpetual Inventory Method (PIM). In general terms, the PIM is used to derive an estimate of stocks of fixed capital by accumulating past purchases of assets over their useful lives. To derive this estimate, information is needed on: GFCF by asset type, fixed assets price indices, average service life by asset and industry, asset retirement patterns, an age-price profile, opening (initial) stock values for very long-life assets (e.g. dwellings). The assumption about the expected economic service life of an asset – i.e. expected total period during which an asset remains in use, or ready to be used, in a productive process – has a great impact on the accuracy of capital stock estimates derived from the PIM estimates. ESA 2010 recommends usage of the probable average economic life of the different categories of fixed assets, which is usually shorter than technical service life. Depreciation rates, used in the PIM, are adapted to the national specificities, meaning that SURS in determining the depreciation rates followed the requirements of the national accounting standards and information from statistical surveys, administrative sources and expert opinions. At the same time we took into consideration the recommendations from Measuring Capital: OECD Manual, 2001 and 2009. Reference period: Gross and net stocks of fixed assets refer to a specific point in time, in this case the end of the year. Consumption of fixed capital as a flow refers to the year as a period. 6/11
Inventories (AN.12) carried on the balance sheet are together with fixed assets (AN.11) categorized as produced non-financial assets (AN.1) that came into existence as outputs from the production process. Inventories are used up in production as intermediate consumption, sold or otherwise disposed of. Inventories as current assets are generally fully utilized or sold in one production cycle, unlike fixed assets that are used repeatedly or continuously in production processes for more than one year. As a rule, in the financial statements there is a lag between production and the actual sale of output and between acquisition and the use of asset in the production process. Products held by institutional units during these intervals are called inventories. All inventories held by the government sector are included as well. Five types of inventories are distinguished in the ESA 2010: Materials and supplies (AN.121) consist of goods held by producer as intermediate inputs into production with no intention to sell. Intermediate consumption defines the boundary for the inventory of materials and supplies. They may include small tools with service life up to one year. They do not include stock of newly acquired fixed assets (including small tools when these are classified as a fixed asset) and valuables which are held as stores of value and not used primarily for production or consumption. Each institutional unit, including non-market producers owned by government, may be expected to hold some inventories of materials and supplies (in some cases consisting of office supplies only), but more often this is characteristic of units in manufacturing and processing industries. Work in progress (AN.122) consists of goods and services which are partially completed within the production process and not yet sold, shipped or handed over to other units without further processing. This includes goods that are not mature and whose production process will be continued in a subsequent period by the same producer (e.g. livestock being raised only for slaughter). Work in progress must be recorded in the balance sheet for any production process that is not completed at the end of the accounting period. Unfinished production (e.g. buildings under construction) that is treated as gross fixed capital formation should not be classified as inventories of work in progress. This includes uncompleted fixed assets produced on own-account. Finished goods (AN.123) consist of goods produced and held by producers. These goods will not undergo further processing before being supplied to another institutional unit. Inventories of finished goods can only be held by institutional units that produce them. Military inventories (AN.124) consist of ammunition, missiles, rockets, bombs and other single-use military items delivered by weapons or weapons systems. Goods for resale (AN.125) consist of goods acquired by enterprises – typically wholesalers or retailers – for the purpose of resale without further processing except for packaging, etc.
Stocks of inventories, as all other assets recorded in the balance sheets, should be valued at the prices prevailing on the dates to which the balance sheets relates. Consistent with the generally accepted rules, stocks of inventories are valued at current market prices. In accordance with ESA 2010 there are some special features of valuation for different types of inventories: Materials and supplies are valued at purchasers’ prices; prices for similar goods or services at the time of use. For work in progress, the value of the closing balance sheet can be calculated by applying the fraction of the total production cost incurred by the end of the period. Finished goods entering or leaving inventories are valued at basic prices of goods at the time the entries or withdrawals take place. Inventories of goods intended for resale are valued at the prices prevailing on the date to which the balance sheet relates. It is assumed that the closing balance sheet is valued correctly; the revaluation takes place between the closing balance sheet of year T-1 and the opening balance sheet of year T. The closing balance sheets of year T-1 should equal the opening balance sheet of year T. The value of the stocks held by individual institutional units at the end of the accounting period may be affected by changes in price. The issue of holding gains and losses arising when institutional units hold the products which remain in the stocks and in the meantime their prices can increases or decreases. This change should be recorded separately from the transactions and other flows (such as output, other volume changes, etc.) and shown separately in the revaluation account. Regarding the nonfinancial assets SURS only publishes the stock of inventories at the end of the year T, which equals the stocks recorded on the asset side of the balance sheet in the annual accounts on 31 December of the year T. The institutional sectors are groups of resident institutional units. Institutional units are economic entities that are capable of owning goods and assets, of incurring liabilities and of engaging in economic activities and transactions with other units in their own right. For the purposes of the ESA 2010 system, the institutional units are grouped together into five mutually exclusive domestic institutional sectors: nonfinancial corporations; financial corporations; general government; households; nonprofit institutions serving households. The five sectors together make up the total domestic economy. The total economy is defined in terms of resident units. A unit is a resident unit of a country when it has a centre of predominant economic interest on the economic territory of that country — that is, when it engages for an extended period (one year or more) in economic activities on this territory.
7 EXPLANATIONS 7.1 CLASSIFICATIONS Data on stocks of fixed assets, stocks of inventories and consumption of fixed capital are published in accordance with the NACE Rev. 2 classification of activities at the A21 level. At the A21 level the economic activities are grouped into the following categories: A Agriculture, forestry and fishing B Mining and quarrying C Manufacturing D Electricity, gas, steam and air conditioning supply E Water supply; sewerage, waste management and remediation activities F Construction G Wholesale and retail trade; repair of motor vehicles H Transportation and storage I Accommodation and food service activities J Information and communication K Financial and insurance activities L Real estate activities M Professional, scientific and technical activities N Administrative and support service activities O Public administration and defence; compulsory social security P Education Q Human health and social work activities R Arts, entertainment and recreation S Other service activities T Activities of households as employers U Activities of extra-territorial organisations and bodies More information about classifications is available at http://www.stat.si/StatWeb/en/mainnavigation/methods-andclassifications/classifications. Stocks of fixed assets and inventories are published in accordance with the classification of assets (A), as determined by the ESA 2010, namely by the following categories of non-financial assets (AN): AN.11 Fixed assets AN.111 Dwellings AN.112 Other buildings and structures AN.113 Machinery and equipment AN.1131 Transport equipment AN.1132 ICT equipment AN.11321 Computer hardware 9/11
AN.11322 Telecommunications equipment AN.1139 Other machinery and equipment AN.115 Cultivated biological resources AN.117 Intellectual property products AN.1171 of which: Research and development AN.1173 of which: Computer software and databases AN.12 Inventories AN.121 Materials and supplies AN.122 Work in progress AN.123 Finished goods AN.124 Goods for resale The data are published by institutional sectors in accordance with the Standard Classification of Institutional Sectors (SKIS), as determined by the ESA 2010, namely: S.11 Non-financial corporations S.12 Financial corporations S.13 General government S.14 Households S.15 Non-profit institutions serving households (NPISH) 7.2 OTHER EXPLANATIONS Stocks of fixed assets and inventories are part of the balance sheet of non-financial assets. A complete balance sheet of non-financial assets composed of fixed assets, inventories, valuables and non-produced non-financial assets is the last missing link in the sequence of accounts, which SURS is planning to develop in the coming years. Non-financial balance sheets link directly to a ready-made group of accumulation accounts (i.e. capital and financial account), showing changes in the financial and nonfinancial assets, changes in liabilities and, consequently, changes in the net (wealth) capital stock of the institutional sectors or overall economy. Data on stocks of fixed assets are used in productivity calculations and as estimates of consumption of fixed capital in national accounts (i.e. for output and gross value added valuation). Published data on fixed assets are the first step in preparing the nonfinancial balance sheets for Slovenia.
8 PUBLISHING Data are published: Annually: - SI-STAT Data Portal: Economy – National Accounts. Non-financial assets (ESA 2010). The data are published annually (T) for the year before last (T-2). Data are presented in current and constant previous year’s prices (in million EUR), 10/11
by NACE Rev. 2 activities, institutional sectors and types of assets and inventories. First Release (GDP and National Accounts, Non-Financial Assets): »Nonfinancial assets, Slovenia«. Eurostat OECD.
9 REVISION OF THE DATA
9.1 PUBLISHING OF PRELIMINARY AND FINAL DATA Published data on non-financial assets are not indicated with the status (provisional or final data) due to the specificity of national and regional accounts data. All data regarding non-financial assets are subject to revision. The reasons for revision can be changes in classifications (SKD, SKIS), in the methodology of national accounts (ESA) or other (e.g. a new benchmark estimate), caused by improvements in data sources. The revisions mentioned can be carried out on an entire time series of data. The data published at the end of the year are in line with annual national accounts data on gross fixed capital formation published in August, which include the second estimate of data for the previous year and the revised data from previous years.
9.2 BREAKS IN TIME SERIES Since 2011 the data have been published according to the new version of the Standard Classification of Activities, SKD 2008. The data series were backwards revised. Data on fixed assets are prepared in line with the new European System of National and Regional Accounts – ESA 2010, implemented as from September 2014. In line with the ESA 2010 requirements the data for the 1995–2012 period were revised. More information on the introduction of ESA 2010 in Slovenia is available on the SURS website. Methodological explanation on revision of statistical data is available on http://www.stat.si/dokument/5299/RevisionOfStatisticalDataMEgeneral.pdf.
10 OTHER METHODOLOGICAL MATERIALS -
OECD (2009), Measuring Capital - OECD Manual 2009: Second edition, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264068476-en European System of National and Regional Accounts – ESA 2010 (Commission Regulation (EU) No. 549/2013 of the European Parliament and of the Council of 21
May 2013 on the European system of national and regional accounts in the European Union) http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32013R0549 System of National Accounts 2008, EC – IMF – OECD – UN – WB, New York, 2009 http://unstats.un.org/unsd/nationalaccount/docs/SNA2008.pdf