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C ONSUMPTION OF FIXED CAPITAL

Regi onal Seminar on Developing a Program for the Implementation of the 2008 SNA and Supporting Statistics Leyla BAYRAK NEVES DE ALMEIDA 11-13 September 2013 Ankara - Turkey. C ONSUMPTION OF FIXED CAPITAL. Definition:.

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C ONSUMPTION OF FIXED CAPITAL

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  1. Regional Seminar on Developing a Program for the Implementation of the 2008 SNA and Supporting Statistics Leyla BAYRAK NEVES DE ALMEIDA11-13 September2013 Ankara - Turkey

  2. CONSUMPTION OF FIXED CAPITAL

  3. Definition: In SNA, consumption of fixed capital is defined in general terms as the decline of the current value of the stock of fixed assets owned and used by a producer, as a result of physical deterioration,normal obsolescence or accidental damage, during the course of the accounting period.   CONSUMPTION OF FIXED CAPITAL

  4. Exclusions from the definition: The value of fixed assets destroyed by acts of war or exceptional events such as major natural disasters which occur very infrequently. Such losses are recorded in the System in the account for “Other changes in the volume of assets”. CONSUMPTION OF FIXED CAPITAL

  5. The gross consumption of fixed capital can be estimated either by surveys of enterprises or by the “perpetual inventory method” (PIM). • Corporate accounting registersdepreciation of fixed capital, but these records are not generally suitable for national accounts purposesand are not used for calculation of consumption of fixed capital. • 0 • In order to be consistent with other entries in the same production account, consumption of fixed capital should be measured at current replacement cost. ESTIMATING GROSS CONSUMPTION OF FIXED CAPITAL

  6. ESTIMATING GROSS CONSUMPTION OF FIXED CAPITAL Estimates of consumption of fixed capital are obtained by the PIM methodand PIM provides theoretically appropriate estimates for economic analysis. The basic requirements for the PIM are namely statistics on gross fixed capital formation, price indices for capital assets and information on average service lives for assets.

  7. Definition: The Perpetual Inventory Method (PIM) generates an estimate ofthe capital stock by accumulating past purchases of assets over their estimated service lives. The standard procedure is to use the PIM to estimate the gross capital stock, apply to it depreciation factors to calculate consumption of fixed capital and obtain the net capital stock by subtracting accumulated capital consumption from the gross capital stock. PERPETUAL INVENTORY METHOD - PIM

  8. REQUIREMENTS TO USE THE PIM Statistics on gross fixed capital formation Price indices for capital assets information on average service lives for assets.

  9. Countries which have no information related to Capital´s Service Life, use OECD’s average service life of investment. Significant studies about the service life of assets in Turkey are not available, therefore OECD average service lives areuse for this calculation. According to OECD recommendation, average service lives of construction, machinery and equipment investments, currently used for PIM estimates, are respectively 41 years and 31 years.

  10. ESTIMATING GROSS CONSUMPTION OF FIXED CAPITAL IN TURKEY Information on gross fixed capital formation in each year is required for calculations. Within the methodological revision the PIM was developed for estimates of the consumption of fixed capital covering the period since 1998. In order to apply the PIM, information on series of annual gross fixed capital formation in constant prices for machinery and equipment and for construction is required.

  11. Data on fixed capital formation series, beginning from 1948 at 1998 (base year) constant prices are used to produce the estimation of consumption of fixed capital at constant prices. Estimates at current replacement cost are obtained by relating the constant price estimates. The price indices used for relating the constant price estimates are derived from investment at current and at 1998 constant prices.

  12. Estimates are derived using a delayed linear function. This survival function shows that the surviving assets are reduced by a constant amount each year.

  13. Conclusion: Consumption of fixed capital has been estimated by TURKSTAT for the period starting in 1998, but data hasn’t been published due to the ongoing revision.

  14. PLANNED STUDIES GCFC estimationby sectors. If the PIM is used, sectors breakdown cannot be more detailed than statistics on gross fixed capital formation (GFCF). So GFCF estimation should bedonebysectors. To be able to have more reliable estimation of Consumption of Fixed Capital, it is necessary to have a comprehensive and detailed information of the service lives of assets .

  15. Thank you for your attention!

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