How can fixed capital formation be classified

The insurance company invests the premium and the resulting property income is an extra source of funds. The property income represents income foregone by the client and is treated as an implicit supplement to the actual premium.

The insurance company sets the level of the actual premiums to be such that the sum of the premiums plus the property income earned on them less the expected claims will leave a margin that the insurance company will retain as the output of the insurance company. Non-life insurance output is calculated as: total premiums earned plus implicit premium supplements equal to the property income earned on technical reserves less adjusted claims incurred. The insurance corporation has at its disposal reserves consisting of unearned premiums actual premiums relating to the next accounting period and claims outstanding.

Claims outstanding cover claims that have not yet been reported, have been reported but are not yet settled or have been reported and settled but are not yet paid. These reserves are called technical reserves and are used to generate investment income. Holding gains and losses are not income from investment of the insurance technical reserves. Insurance technical reserves may be invested in secondary activities of the insurance company, e.

The net operating surplus on these secondary activities is income from the investment of insurance technical reserves. The appropriate level of claims used in calculating output is called 'adjusted claims' and these can be determined in two ways. The expectation method estimates the level of adjusted claims from a model based on the past pattern of claims payable by the corporation.

The second method uses accounting information: adjusted claims are derived ex post as actual claims incurred plus the change in equalisation provisions, i. Where the equalisation provisions are insufficient to bring adjusted claims back to a normal level, contributions from own funds are added to the measure of adjusted claims.

A major feature of both methods is that unexpectedly large claims do not lead to volatile and negative estimates of output. Changes in technical reserves and equalisation provisions in response to changes in financial regulation are recorded as other changes in the volume of assets; they are irrelevant for calculating output.

If, due to lack of information, both methods for estimating adjusted claims are not possible, it may be necessary to estimate output instead by the sum of costs including an allowance for normal profits. In case of with-profits insurance, the change in the reserves for with-profits insurance is deducted to obtain output. A life insurance policy is a type of saving scheme.

For a number of years, the policyholder pays premiums to the insurance corporation against a promise of benefits at some future date. These benefits may be expressed in terms of a formula related to the premiums paid or may be dependent on the level of success the insurance corporation has in investing the funds.

The method of calculating output for life insurance follows the same general principles as for non-life insurance. However, because of the time intervals between the time when premiums are received and when benefits are paid, special allowances must be made for changes in the technical reserves. The output of life insurance is derived as: premiums earned plus premium supplements, less benefits due less increases plus decreases in life insurance technical reserves. Premiums are defined in exactly the same way for life insurance as for non-life insurance.

Premium supplements are more significant for life insurance than for non-life insurance. Benefits are recorded as they are awarded or paid. There is no need under life insurance to derive an adjusted estimate of benefits since there is not the same unexpected volatility in the payment under a life policy. Life insurance technical reserves increase each year because of new premiums paid and new investment income allocated to the policyholders but not withdrawn by them and decrease because of benefits paid.

It is thus possible to express the level of output of life insurance as the difference between the total investment income earned on the life insurance technical reserves less the part of this investment income actually allocated to the policy holders and added to the insurance technical reserves. When this method is not feasible for data reasons or does not yield meaningful results, output of life insurance shall also be calculated as the sum of production costs plus an allowance for 'normal profit'.

The output of reinsurance is to be determined in exactly the same way as for non-life insurance, whether it is life or non-life policies that are being reinsured. The output of running a social insurance scheme depends on the way in which it is organised.

The following are examples of how such schemes are organised. Social security schemes are social insurance schemes that cover the community at large, and are imposed and controlled by government. Their purpose is to provide benefits for citizens to meet the demands of old age, invalidity or death, sickness, work injury, unemployment , family and health care, etc.

If separate units are distinguished, their output is determined in the same way as all non-market output as the sum of costs. If separate units are not distinguished, the output of social security is included with the output of the level of government at which it operates.

When an employer operates his own social insurance scheme, the value of the output is determined as the sum of costs including an estimate for a return to any fixed capital used in the operation of the scheme. The value of output is measured in the same way where the employer establishes a separate pension fund to manage the scheme.

Where an employer uses an insurance corporation to manage the scheme on his behalf, the value of the output is the fee charged by the insurance corporation.

For a multi-employer scheme, the value of output is measured as for life insurance policies: it is investment income received by the schemes less the amount added to reserves. Measuring the output of standardised loan guarantee schemes depends on the type of producer involved.

If a standardised loan guarantee scheme operates as a market producer, the value of output is calculated in the same way as non-life insurance. If the scheme operates as a non-market producer, the value of output is calculated as the sum of costs. For garages located separately from dwellings, which are used by the owner for final consumption purposes in connection with using the dwelling, a similar imputation is to be made. The rental value of owner-occupied dwellings abroad, e.

For owner-occupied dwellings owned by non-residents, analogous entries are made. In case of time-sharing apartments, a proportion of the service charge is recorded. The stock of dwellings is stratified by location, nature of dwelling and other factors that affect the rental. Information about actual rentals from rented dwellings is used to obtain an estimate of the rental value of the total stock of dwellings. The average actual rental per stratum is applied to all dwellings in that particular stratum.

If the information on rentals is derived from sample surveys, the grossing-up to total stock rentals relates to both a part of the rented and all owner-occupied dwellings. The detailed procedure to determine a rental per stratum is carried out for a base year and is then extrapolated to the later periods.

The rentals for unfurnished dwellings from all private market contracts are used to determine imputed rentals. Private market rentals that are at a low level due to government regulation are included. If the information source is the tenant, the observed rental is corrected by adding any specific rental allowance, which is paid directly to the landlord.

If the sample size for the observed rentals as defined above is not large enough, observed rentals for furnished dwellings may be used for imputation purposes, provided they are adjusted for the furniture element. Exceptionally, also increased rentals for public-owned dwellings may be used. Low rentals for dwellings let to relatives or to employment should not be used.

The average rental for imputation as described above may not be suitable for some segments of the rental market. For example, scaled-down rentals for furnished dwellings or increased public rentals are not appropriate for the respective actually rented dwellings.

In this case, separate strata for actually rented furnished or social dwellings combined with appropriate average rentals are required. Under the user-cost method, the output of dwelling services is the sum of intermediate consumption , consumption of fixed capital , other taxes less subsidies on production and net operating surplus NOS. The NOS is measured by applying a constant real annual rate of return to the net value of the stock of owner-occupied dwellings at current prices replacement costs.

Operating leasing is different from financial leasing: financial leasing is financing the acquisition of fixed assets, by making a loan from the lessor to the lessee. Financial leasing payments consist of repayments of principal and interest payments, with a small charge for direct services provided see Chapter Contracts, leases and licences. For example, for some types of education and medical treatment, nominal fees can be levied by government institutions or by other institutions due to specific subsidies , but for other education and special medical treatments they may charge commercial tariffs.

Another example is that the same type of service e. If the owner has licensed other producers to make use of the original in production, the fees, commissions, royalties, etc. However, the sale of the original is negative fixed capital formation. The goods and services are either transformed or used up by the production process.

Common examples are purchasing, sales, marketing, accounting, data processing, transportation, storage, maintenance, security, etc. These goods and services are not distinguished from those consumed by the principal or secondary activities of a local KAU; goods and services which are received from another local KAU of the same institutional unit ; rental of fixed assets, e. Examples are: reimbursement of employees for travelling, separation, removal and entertainment expenses incurred in the course of their duties; providing amenities at the place of work.

A list of relevant expenditure is presented in the paragraphs on compensation of employees D. To record only the service charge as intermediate consumption, the premiums paid are discounted for, e. The net change in actuarial reserves shall be allocated to the local KAUs as a proportion of the premiums paid; FISIM purchased by resident producers; the non-market output of the central bank output should be entirely allocated to the intermediate consumption of other financial intermediaries.

Examples are renovation, reconstruction or enlargement; software purchased outright or produced on own-account; military weapons and the equipment to deliver them; expenditure treated as the purchase of non-produced assets. Examples are long-term contracts, leases and licences see Chapter 15 ; expenditure by employers treated as wages and salaries in kind ; use by market or own-account producer units of collective services provided by government units treated as collective consumption expenditure by government ; goods and services produced and consumed within the same accounting period and within the same local KAU they are also not recorded as output ; payments for government licenses and fees that are treated as other taxes on production; payments for licences for using natural resources e.

They are valued at the purchaser's prices for similar goods or services at the time of use. They record the purchases intended to be used as inputs less the increase in the amounts of such goods held in inventory. Final consumption expenditure is expenditure on goods and services used by households, NPISHs and government to satisfy individual and collective needs. In contrast, actual final consumption refers to its acquisition of consumption goods and services.

The difference between these concepts lies in the treatment of certain goods and services financed by the government or NPISHs but supplied to households as social transfers in kind. Examples are food and other agricultural goods, housing services by owner-occupiers and household services produced by employing paid staff servants, cooks, gardeners, chauffeurs, etc.

Their purchases of goods and services as used by households for final consumption are either used for intermediate consumption or provided to employment as compensation of employees in kind, i. Individual goods and services have the following characteristics: it is possible to observe and record the acquisition of the goods and services by an individual household or member thereof and also the time at which the acquisition took place; the household has agreed to the provision of the goods and services and takes the action necessary to consume the goods and services, for example by attending a school or clinic; the goods and services are such that their acquisition by one household or person, or by a group of persons, precludes its acquisition by other households or persons.

Collective services have the following characteristics: they can be delivered simultaneously to every member of the community or to particular sections of the community, such as those in a particular region or locality; the use of such services is usually passive and does not require the agreement or active participation of all the individuals concerned; the provision of a collective service to one individual does not reduce the amount available to other in the same community or section of the community.

All government final consumption expenditure under each of the following headings is treated as expenditure on individual consumption: 7. It consists of the following COFOG groups: a general public services division 1 ; b defence division 2 ; c public order and safety division 3 ; d economic affairs division 4 ; e environmental protection division 5 ; f housing and community amenities division 6 ; g general administration, regulation, dissemination of general information and statistics all divisions ; h research and development all divisions.

Total actual final consumption is equal to the sum of households' actual final consumption and actual final consumption of general government. Total actual final consumption is equal to total final consumption expenditure. This is the price the purchaser actually pays for the products at the time of the purchase.

A more detailed definition is in paragraph 3. For the final consumption expenditure on goods and services supplied via market producers, the time of delivery is the time of recording. Accordingly, the values of the goods or services are recorded as expenditures by the institutional units or sectors that acquire them.

The goods and services acquired by resident households through social transfers in kind are valued at the same prices as those at which they are valued in the expenditure aggregates. Net capital formation is calculated by deducting consumption of fixed capital from gross capital formation.

Fixed assets are produced assets used in production for more than one year. These activities may lead to the creation of substantial new structures such as sea walls, flood barriers and dams, but these structures are not used to produce other goods and services, but obtain more or better land, and it is the land, a non-produced asset, that is used in production. For example, a dam built to produce electricity serves a different purpose from a dam built to keep out the sea.

Only the latter type of dam is classified as an improvement to land. For the enterprise that is using the fixed asset, rentals are treated as intermediate consumption. For the owner of the asset , the cost of acquisition is recorded as gross fixed capital formation; transactions recorded as changes in inventories : animals raised for slaughter, including poultry; trees grown for timber work-in-progress ; machinery and equipment acquired by households for purposes of final consumption; holding gains and losses on fixed assets; catastrophic losses on fixed assets, e.

These taxes are taxes on the services of intermediaries and any tax on the transfer of ownership but not taxes on the asset bought. All these costs are to be recorded as gross fixed capital formation by the new owner.

This rule is modified for: financial leasing, when a change of ownership from lessor to lessee is imputed; own-account gross fixed capital formation, which is recorded when it is produced.

When produced on own-account it is valued at the basic prices of similar fixed assets, and if such prices are not available, at the costs of production plus a mark-up except for non-market producers for net operating surplus or mixed income. These costs are included in the purchaser's prices in the case of produced assets. They are separated from the purchases and sales themselves in the case of land and other non-produced assets , and recorded under a separate heading in the classification of gross fixed capital formation.

The estimate of decline in value includes a provision for losses of fixed assets as a result of accidental damage which can be insured against. Consumption of fixed capital covers anticipated terminal costs, such as the decommissioning costs of nuclear power stations or oil rigs or the cleanup costs of landfill sites.

Such terminal costs are recorded as consumption of fixed capital at the end of the service life, when the terminal costs are recorded as gross fixed capital formation. Consumption of fixed capital is estimated on the basis of the stock of fixed assets and the expected average economic life of the different categories of those goods.

For the calculation of the stock of fixed assets, the perpetual inventory method PIM is applied whenever direct information on the stock of fixed assets is missing. Eurostat publishes annual and quarterly national accounts, annual and quarterly sector accounts as well as supply, use and input-output tables, which are each presented with associated metadata. Annex B of the Regulation consists of a comprehensive list of the variables to be transmitted for Community purposes within specified time limits.

Meanwhile, the ESA95 has been reviewed to bring national accounts in the European Union, in line with new economic environment, advances in methodological research and needs of users and the updated national accounts framework at the international level, the SNA The revisions are reflected in an updated Regulation of the European Parliament and of the Council on the European system of national and regional accounts in the European Union of ESA The associated transmission programme is also updated and data transmissions in accordance with ESA are compulsory from September onwards.

Please note, nama will contain the final ESA 95 data transmission from countries, up to Q2 and will be received until mid September After this date, ESA 95 data will remain on Eurobase for analytical purposes. Total Capital Formation can be broadly classified into Gross Fixed Capital Formation Change in stock of raw materials, semi-finished and finished goods.

Functions of Capital Formation Section 1. Capital Formation Section prepares the estimates of gross fixed capital formation of Haryana State for all the sectors of the economy both at current and constant prices on annual basis by: Industry of use Type of institutions Type of assets 2.

Importance of Estimates of Capital Formation 1.