Chapter 14 The capital account

14.1    In the 2008 SNA, the capital account is the first of four accounts dealing with changes in the value of assets held by institutional units. It records transactions in non-financial assets. The financial account records transactions in financial assets and liabilities. The other changes in the volume of assets account records changes in the value of both non-financial and financial assets that result from neither transactions or price changes. The effects of price changes are recorded in the revaluation account. These four accounts enable the change in the net worth of an institutional unit or sector between the beginning and end of the accounting period to be decomposed into its constituent elements by recording all changes in the prices and volumes of assets, whether resulting from transactions or not. The impact of all four accounts is brought together in the balance sheets.

14.2    Assets are a store of value representing a benefit or series of benefits accruing to the economic owner by holding or using the entity over a period of time. The economic benefits that can be derived from the use of an asset consist of primary incomes (for example operating surplus generated by the use of the asset in production, or property income in the form of interest, dividends, rent etc., received by owners of financial assets and land) and the value, including possible holding gains or losses, that could be realised by disposing of assets. Assets consist of non-financial and financial assets. Liabilities are the counterparts of financial claims represented by financial assets; that is, liabilities are the financial assets of the institutional units or non-residents holding a financial claim against the subject unit).

14.3    The purpose of the capital account is to record the values of the non-financial assets that are acquired, or disposed of, by resident institutional units by engaging in transactions and to show the change in net worth due to saving and capital transfers. Non-financial assets consist of produced assets which have come into existence as outputs of the production process, and non-produced assets which have come into existence through processes other than production.

14.4    In the capital account, net saving appears as a source of funds along with net capital transfers and consumption of fixed capital. The inclusion of consumption of fixed capital effectively means that the sources of finance are gross saving and capital transfers. These sources are offset by accumulation entries for gross fixed capital formation (GFCF), changes in inventories, and acquisitions less disposals of non-produced non-financial assets. The balancing item in the account is net lending (if positive) or net borrowing (if negative).

14.5    The relationship of the balancing items of the capital and financial accounts is an important feature of National Accounts. The balancing items in both accounts (net lending/borrowing and change in financial position respectively) are conceptually equal, but due to measurement error result in a discrepancy which is presented as net errors and omissions. Compilation of financial accounts for each institutional sector is therefore impacted by the magnitude of net lending/borrowing as compiled from the capital account perspective.  Adjustments are often made to the financial accounts data to minimise net errors and omissions.

14.6    In the ASNA, the National capital account includes both details of the accumulation of assets and the means of financing them (as outlined below). The sectoral accounts are presented in the same way at the level outlined below, but the next level down illustrates the flows between the sectors, and do not include transactions with non-residents. They are a disaggregation of the national capital account, and show the extent to which the sum of savings and capital transfers are used to finance the acquisition of non-financial assets.

14.7    The 2008 SNA's Other changes in volume of assets account and Revaluation account are not presented as separate accounts; rather, the details contained in these accounts are presented as part of ASNA's Balance sheets.

14.8    A net lending (positive) result implies an excess of capital finance over requirements for gross capital formation and net purchases of non-produced non-financial assets. A net borrowing (negative) result implies the existence of a borrowing requirement to finance capital acquisitions. Net lending/borrowing will therefore be reflected in changes in financial assets and liabilities in the financial account and is technically equal to the balancing item in that account. At the national level, the net lending/borrowing outcome in the national capital account indicates whether surplus funds are lent to the rest of the world or whether there is a borrowing requirement from the rest of the world to finance national capital formation. Net lending/borrowing in the national capital account is equivalent to the balance on current account and capital transactions in the balance of payments.

14.9    There are three main types of produced assets: fixed assets, inventories and valuables. Both fixed assets and inventories are assets that are held only by producers for the purposes of production. Valuables may be held by any institutional unit and are primarily held as stores of value. However, valuables are not included within the asset boundary in the ASNA.

14.10    Fixed assets are non-financial assets that are used repeatedly and continuously in production processes for more than one year. They include:

• dwellings, including dwellings under construction and the value of alterations and additions to dwellings including those made by owner-builders;
• other buildings, including non-residential buildings and the fixtures, fittings and equipment that are integral parts of the buildings. Uncompleted buildings and structures are included. Buildings acquired for military purposes are also included;
• other structures, such as highways, railways, bridges, harbours, dams, pipelines, communication and power lines, constructions (other than buildings) for sport or recreation purposes. Structures acquired for military purposes are also included;
• ownership transfer costs;
• transport equipment, including motor vehicles, semi-trailers, ships, locomotives and aircraft. Transport machinery acquired by defence forces is included. Items of transport equipment acquired by households for final consumption are not treated as fixed assets;
• other machinery and equipment, including electrical apparatus, office accounting and computer equipment, furniture, fixtures and fittings not forming an integral part of buildings, durable containers, special tooling etc. Other equipment acquired by defence forces are also included;
• weapons systems;
• cultivated biological resources, consisting of:
  • Livestock, including breeding stocks, dairy cattle, sheep or other animals used for wool production and animals used for transportation, racing or entertainment; and
  • vineyards, orchards, and other plantations of trees yielding repeat products such as sap, resin, bark and leaf products.

14.11    Intellectual property products are also included as fixed assets. They include:

• research and development;
• mineral and petroleum exploration, comprising the capitalised value of expenditures on exploration for petroleum, natural gas and mineral deposits;
• computer software, including the purchase of software, and software developed in-house if the expenditure is large. Expenditures on the purchase, development or extension of databases are also included. The ASNA does not separately identify databases from computer software, as recommended by the 2008 SNA; and
• entertainment, literary or artistic originals, comprising the originals of films, sound recordings, manuscripts, tapes etc. on which drama performances, radio and television programming, musical performances, sporting events, literary and artistic output etc., are embodied.

14.12    Inventories are produced assets that consist of goods and services which came into existence in the current period or in an earlier period, and that are held for sale, used in production or other uses at a later period. They include materials and supplies intended to be used as inputs to production, work-in-progress, finished goods and goods purchased for resale without further processing. Work-in-progress includes the value of livestock raised for the purpose of slaughtering or eventual sale, and trees or other vegetation yielding once-only products (such as timber plantations).

14.13    Valuables are held as a store of value and include precious metals and stones not held for use as inputs to production, antiques, works of art and other valuables such as collections of jewellery of significant value. Due to data limitations, valuables are not currently included within the boundary of produced assets in the ASNA.

14.14    Non-produced assets are non-financial assets that occur in nature and over which ownership may be enforced or transferred. Environmental assets over which ownership cannot be attributed, such as international waters or air, are excluded. In the ASNA, non-produced non-financial assets consist of natural resources and contracts, leases and licences.

14.15    Natural resources include the following:

• land, including the value of land underlying dwellings, non-residential buildings and structures, land under cultivation, recreational land and associated surface water and private gardens and plots not cultivated for commercial purposes;
• mineral and energy resources, such as proven and exploitable reserves of coal, oil, natural gas, metallic and non-metallic mineral reserves;
• native standing timber available for commercial exploitation; and
• radio spectrum.

14.16    Water resources which are subject to some form of ownership or use rights, market valuation or some measure of economic control are conceptually included. Due to data limitations, however, they are not included in the ASNA.

14.17    Contracts, leases and licences entitle their owners to engage in certain specific activities or to produce certain specific goods or services and to exclude other institutional units from doing so except with the permission of the owner. Included are patents, broadcasting licences, other transferable contracts and spectrum licences.

14.18    Purchased goodwill and marketing assets are classified as non-produced assets. However, due to data limitations these are not included in ASNA.

14.19    The starting point of the capital account is net saving which is the balancing item of the income account. If net saving is positive it represents that part of disposable income that is not spent on consumption goods and services and must, therefore, be used to acquire non-financial or financial assets or to repay liabilities. If net saving is negative, then final consumption exceeds disposable income which must be financed by disposing of assets or incurring liabilities.

14.20    In order to determine the amount available to the unit or sector for the acquisition of non-financial and financial assets it is necessary to also take into account the consumption of fixed capital and capital transfers in addition to net saving. The result of this is gross saving and capital transfers which can then be used to acquire or dispose of non-financial assets. The acquisition and disposal of non-financial assets are accounted for by GFCF, changes in inventories and acquisitions and disposals of non-produced non-financial assets.

14.21    Therefore, the additional components required to compile the capital account are:

• consumption of fixed capital;
• acquisitions less disposals of non-produced non-financial assets; and
• capital transfers.