Nthabiseng Molemoeng Seminar on Developing a Programme for the Implementation of the 2008 SNA and supporting statistics October 2012 Consumption of Fixed Capital and Capital Stock

Outline  Definition  Method  Process of computation 2

Consumption of Fixed Capital 3

Definition  The consumption of fixed capital can be defined as the decline in the current value of the stock of fixed assets as a result of physical deterioration  The consumption of fixed capital is derived from gross fixed capital formation  Estimates are based on PIM - straight-line method  Service lives for different assets 4

Service Life Assumptions by Selected Countries CountryDwellingsConstructionTransport equipment Other equipment Australia Belgium Canada Finland France Germany Italy Japan Sweden UK US “Best practice”

Average service life – South Africa 6 Type of assetSectorLifetime Residential buildings50 years Non-residential buildings50 years Construction worksAgriculture80 years Mining30 years General government80 years Other50 years Transport equipment8 years Computer equipment5 years Machinery & other equipment Manufacturing8 years Mining & Electricity, gas and water 16 years Other10 years

Process of computation Formula programmed where X = Number of terms (i.e. service life) Y = GFCF The results yield: CFC = (Y[t-X] + Y[t-(X-1)] + Y[t-(X-2)] Y[t]) / X Private business enterprise Public corporations General government Current prices Constant prices 7

Straight line method based on asset with 5-year service life Yea rs Y1Y2Y3Y4Y5Y6Y7Y8Y9Y10 GF CF 250 GF CF 500 GF CF 600 GF CF 700 GF CF Tot al Yea rs Y1Y2Y3Y4Y5Y6Y7Y8Y9Y10 CF C 50 CF C 100 CF C 120 CF C 140 CF C 200 Tot al

Consumption of Fixed Capital Capital Stock 9

Definition  Fixed capital stock is the accumulation of gross fixed capital formation over a particular period less consumption of fixed capital.  Valuation of fixed capital stock is essential for the balance sheet.  Estimates of capital stocks are used for the analysis of economic efficiency and productivity 10

Process of computation Formula programmed FCS t = FCS t-1 + GFCF t - CFC t where FCS = Fixed capital stock GFCF = Gross fixed capital formation CFC = Consumption of fixed capital formation Private business enterprise Public corporations General government Current prices Constant prices 11

Method Yea rs Y1Y2Y3Y4Y5Y6Y7Y8Y9Y10 GF CF 250 GF CF 500 GF CF 600 GF CF 700 GF CF Tot al Yea rs Y1Y2Y3Y4Y5Y6Y7Y8Y9Y10 CF C 50 CF C 100 CF C 120 CF C 140 CF C 200 Tot al FCS

Method – starting value Years GFCFDepreciated value Sum of depreciated value Y1100= GFCF *(1-1)/50 Y2150 = GFCF *(2-1)/530 Y3200= GFCF *(3-1)/580 Y4250= GFCF *(4-1)/5150 Y5300= GFCF *(5-1)/5240 Σ

Results Residenti al buildings Non- Res Constructio n Transpor t Compute r equipme nt Machiner y Total Agric Mining Manufacturing Electricity Construction Trade Transport Finance Services Total

THANK YOU! 15