1 Production Account Goods and Services Account Training Workshop on System of National Accounts for ECO Member Countries October 2012, Tehran, Islamic Republic of Iran United Nations Statistics Division

2 Production account Goods and services account Outline of Presentation

3 Production Production is presented in the SNA in two accounts Production account Goods and services account

4 Production account Measures output, intermediate consumption and value added of economic activity and institutional unit Records consumption of fixed capital Production Account

5 Output Value of goods and services produced by an establishment Excludes Value of any goods and services used in an activity for which the establishment does not assume the risk of using the products in production Value of goods and services consumed by the same establishment except for goods and services used for capital formation (fixed capital or changes in inventories) or own final consumption Recorded under Resources 3 types of output Market output Non-market output Output for own final use Production account

6 Output Time of recording Usually recorded when production is completed Work-in-progress in cases where output takes a long time to produce Valuation Market output Basic prices or producers prices Basic prices preferred in system of VAT or similar deductible tax Non-market output Total production costs (intermediate consumption + compensation of employees + other taxes less other subsidies on production + consumption of fixed capital) Output for own final use Average basic prices Total production costs (intermediate consumption + compensation of employees + other taxes less other subsidies on production + consumption of fixed capital + return to fixed capital)

7 Intermediate Consumption Consists of value of goods and services consumed as inputs by a process of production, excluding fixed assets whose consumption is recorded as consumption of fixed capital Recorded under Uses Includes Rentals paid on use of fixed assets Goods and services supplied by other establishments of same enterprise Goods and services used as inputs into ancillary activity Excludes Consumption of fixed capital Goods and services (intermediate products) produced and used within the establishment Expenditures on valuables (work of arts, precious metals, etc.) as stores of value

8 Intermediate Consumption Time of recording When they enter the process of production Valuation At purchaser's prices (net of deductible VAT) when purchased from outside At prices that are used to value output plus any additional transport charges when obtained from other establishments belonging to same enterprise

9 Boundary between Intermediate Consumption and Compensation of Employees Intermediate consumptionCompensation of employees Employees are obliged to use goods and services in order to enable them carry out work Goods and services are used by employees in their own time and at their own discretion 1.Tools or equipment used at work 2.Specialized clothing used mainly at work 3.Accommodation services at the place of work 4.Meals or drinks provided to workers on active duty 5.Transportation and hotel services provided for business 6.Changing facilities, washrooms, showers, baths, etc. necessitated by the nature of the work 7.Medical facilities provided because of the nature of work 1.Durable goods used extensively away from work 2.Uniforms which employees choose to wear extensively away from work 3.Ordinary housing services provided to employees and their dependents 4.Services of vehicles used away from work and transportation allowances 5.Ordinary medical facilities provided to employees and their dependents

10 Boundary between Intermediate Consumption and Gross Fixed Capital Formation Intermediate consumptionGross fixed capital formation 1.Recurrent expenditure on small durable producer goods, like hand tools, that are a small share of total expenditure on machinery and equipment 2.Regular maintenance, repair of fixed assets and replacement of parts that is required to keep fixed assets in working order 3.Research and development, staff training, market research are recorded as intermediate inputs though they may bring future benefits 4.Durable military goods such as bombs, torpedoes and spare parts 1.Expenditure on hand tools if it is large compared to total expenditure on machinery and equipment 2.Major renovation that is not dictated by the condition of the asset and enhances the efficiency or capacity of fixed assets 3.Mineral exploration and evaluation, computer software 4.Expenditures on military equipment, including large military weapons systems services

11 Consumption of Fixed Capital Cost of production Can be measured as the decline, during accounting period, in current value of stock of fixed assets owned (and used) by a producer as a result of physical deterioration, normal obsolescence or normal accidental damage Is calculated for all fixed assets, i.e. tangible and intangible fixed assets, but not for valuables and non-produced assets Is valued using actual or estimated prices of fixed assets prevailing at the time the production takes place but not the prices at the time fixed asset was originally acquired Deviates from depreciation as recorded in business accounts particularly during inflation Gross and net recording of aggregates Valuation of non-market output

12 Measurement of Value Added and associated aggregates Value added Balancing item in production account Output less intermediate consumption Measures the value created by production Can be measured gross (GVA) or net of consumption of fixed capital (NVA) Gross concept is preferred Aggregates associated with Value added Value added at basic prices Value added at producers' prices Value added at factor cost (not recommended) Gross domestic product (GDP)

13 Value Added, GDP and Valuation Output at basic prices - Intermediate consumption at purchaser's prices (net of deductible VAT) =Gross value added at basic prices =Compensation of employees +Other taxes less subsidies on production +Gross operating surplus/mixed income - Other taxes less subsidies on production =Value added at factor cost Gross value added at basic prices + Taxes less subsidies on products =GDP

14 The SNA Presentation: Production Account For Industries and Institutional Sectors UsesResources Intermediate consumptionOutput Market output Output for own final use Non-market output Gross value added Consumption of fixed capital Net value added For the Total Economy UsesResources Intermediate consumptionOutput Market output Output for own final use Non-market output Taxes less subsidies on products Gross domestic product Consumption of fixed capital Net domestic product

15 Goods and services account Brings together total supply and total uses of goods and services Balanced in itself No balancing item Resources – right hand side Uses – left hand side Forms the basis to derive GDP Goods and Services Account

16 Goods and Services Account UsesResources Intermediate consumptionOutput Market output Household consumption expenditureOutput for own final use output General government consumption expenditureNon-market output Gross fixed capital formation Changes in inventories Acquisitions less disposals of valuablesImports of goods and services Exports of goods and servicesTaxes less subsidies on products Total useTotal resources

17 Derivation of GDP Total supply (resources) = Total uses Output + Imports of goods and services + Taxes less subsidies on products = Intermediate consumption + Household consumption expenditure + Government consumption expenditure + Gross fixed capital formation + Changes in inventories + Acquisitions less disposals of valuables + Exports of goods and services Output – Intermediate consumption + Taxes less subsidies on products = Household consumption expenditure + Government consumption expenditure + Gross fixed capital formation + Changes in inventories + Acquisitions less disposals of valuables + Exports of goods and services – Imports of goods and services Production-based GDP = Expenditure-based GDP Goods and Services Account

18 Thank You