1. Item 5: Intermediate and Final Consumption
ESTP course on National Accounts ESA 2010
Luxembourg, 30 May – 03 June Eurostat

2. Intermediate Consumption (IC) & Final Consumption (FC)
What is consumption?
Consumption = goods or services are used up
- by institutional units
- in an accounting period
What is IC?
What is FC?

3. IC (P.2) Definition (ESA 2010 para 3.88):
Intermediate consumption consists of goods and services consumed as inputs by a process of production, excluding fixed assets whose consumption is recorded as consumption of fixed capital. The goods and services are either transformed or used up by the production process.
E.g. grain – flour – bred
car engine, wheels, seats …
electricity, services, …

4. The Production Process
Inputs
Production Process
Output
Goods
(in 2015)
Output (g&s) IC
Services
CFC
Fixed
Assets
Labour

5. Define the boundaries FC Inputs Production Process Output IC
Goods & Services IC
CFC
- GFCF
- Inventories
- Valuables
Labour

6. Boundaries Define the boundaries FC Inputs Production Process OutputIC
Goods & Services
Boundaries IC
CFC
- GFCF
- Inventories
- Valuables
Labour

7. IC includes
All goods and services used as inputs to the production process (in one local KAU, in one accounting period)
Rentals paid for fixed assets, e.g. the operational leasing of machines, cars, software and entertainment originals
Fees, commissions, royalties (for production)
Also for ancillary activities (marketing, accounting, transportation, storage, maintenance, security, etc.)
Also received from another local KAU of the same institutional unit

8. IC includes (II)
inexpensive tools (such as saws, hammers, screwdrivers, and other hand tools; pocket calculators) (not GFCF)
regular maintenance and repair of fixed assets (not GFCF)
services of staff training, market research and similar activities
expenditure by employees, reimbursed by the employer, on items necessary for the employers' production
expenditure by employers such as reimbursement of employees for travelling, separation, removal and entertainment expenses; providing amenities at work
FISIM purchased by resident producers

9. IC excludes Valuables Changes to inventories GFCF
mineral exploration (= GFCF)
major improvements, e.g. renovation, reconstruction or enlargement (= GFCF)
software purchased outright or produced on own-account
wages and salaries in kind
payments for licences for using natural resources (e.g. land) that are treated as rents, i.e. as a payment of property income

10. IC excludes (II)
military weapons and the equipment to deliver them (= GFCF)
Research & Development (= GFCF)

11. IC IC IC IC and the unit Institutional Unit Inputs Local KAU 2
Main Act. 2
Main Act. 1 IC
Secd.Act. 1
Inputs IC
Ancillary Act. 1
Local KAU 2
Local KAU 1
Internal flows within one local KAU are not being accounted for

12. IC – Time of Recording and Valuation
Recorded and valued at the time the goods and services enter the process of production
valued at the purchasers' prices for similar goods or services at the time of use
= replacement costs
NB: Also when taken from inventories

13. IC and input inventories
Bookkeeping at replacement costs:
IC(t1) = purchases(t1) − Changes in invent.(t1)
Bookkeeping at historic prices:
IC(t1) = purchases(t1) − Changes in invent.(t1) + holding gains of withdrawals from invent. in t1
NB: Changes in input inventories = value of entries into invent. − value of withdrawals from invent. − value of recurrent losses on goods held in invent.

14. Data sources for IC Business surveys Company and government accounts
Structural imputation

15. Final Consumption (FC)
Two concepts:
Final consumption expenditure (P.3)
Actual final consumption (P.4)

16. FC – Classification and Breakdowns
Classifications: COICOP, CPA, COFOG, COPNI
Breakdown by consuming institutional sector:
Households, General Government, NPISH
By characteristic of the consumption:
Individual vs. Collective Consumption

17. Final Consumption Expenditure (P.3)
Definition (ESA 2010 para 3.94):
Final consumption expenditure consists of expenditure incurred by resident institutional units on goods or services that are used for the direct satisfaction of individual needs or wants or the collective needs of members of the community.
National Concept,
i.e. + direct purchases abroad by residents, ./. purchases on the domestic territory by non-resident units.

18. Final Consumption Expenditure (P.3)
Consuming Sectors:
Household Final Consumption Expenditure (HFCE)
Government FCE
NPISH FCE

19. HFCE includes services of owner-occupied dwellings
income in kind (for employees, retained by owners)
items not treated as intermediate consumption (materials for small repairs and interior decoration of dwellings, repairs and maintenance of cons. durables)
items not treated as capital formation (in particular consumer durables)
part of FISIM used for final consumption purposes
implicit service charge (insurance, pension funds)
unincorporated enterprises are difficult

20. Government FCE includes
goods and services produced by general government itself other than own-account capital formation, and other than sales (market output, payments for non-market output)
social transfers in kind, which are purchased from market producers and supplied – without any transformation – to households

21. NPISH FCE includes
goods and services produced by NPISHs, other than own-account capital formation and other than sales to households and other units
social transfers in kind, which are purchased from market producers and supplied – without any transformation – to households

22. Time of Recording and Valuation of FCE
Expenditure on a good is recorded at the time of change of ownership; expenditure on a service is recorded when the delivery of the service is completed
hire-purchase or financial lease: when delivered
output retained for own final consumption: when produced, valued at basic prices
HFCE: recorded at purchaser's prices
Employees compensation in kind: at basic prices (produced) or at employers' purchasers' prices (purchased)

23. Time of Recording and Valuation FCE(II)
For Government and NPISH FCE the following equation holds:
Govt FCE = output (P.1) - minus own-account capital formation (P.12) – sales of market output (P.11) – sales of non-market output (P.131) + social transfers in kind purchased from market producers (D.632)

24. Individual vs. Collective Consumption
Individual goods and services  exclusion criterion
Collective services  no exclusion
All HH and NPISH FCE is individual
Government FCE is individual or collective, borderline defined on basis of COFOG or COICOP
- Individual: education, health, social security,
sports and recreation, culture
- Collective: All other, e.g. gen. administration,
defence, police, legal system

25. Actual final consumption (P.4)
= goods or services that are acquired by resident institutional units for the direct satisfaction of human needs, whether individual or collective
Social transfers in kind, transferred from Government or NPISH to households make the difference.

26. Different Consumption Concepts
Sector making expenditure
Government
NPISHs
Households
Total acquisitions
Individual consumption
X (= Social transfers in kind) X
Households actual individual final consumption
Collective consumption
n.a.
Government's actual collective final consumption
Total
Government's final consumption expenditure
NPISHs final consumption expenditure
Households final consumption expenditure
Actual final consumption = Total final consumption expenditure

27. Thank you for your attention!
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