UNECA/UNSD Regional WorkshopNovember 2005

Cost of ownership transfer of non-financial assets

UNSD/NA/MR 1

UN STATISTICS DIVISION Economic Statistics Branch

Reason and scope of the decisions

DOS of Singapore has asked the ISWGNA to review the current treatment of costs of ownership transfer (COT) and suggested that it should be expensed instead of being treated as GCF.

An EDG group was constituted. The moderator of the EDG concluded that the present treatment should continue as opinions for and against the proposal were equally strong.

Subsequent discussions lead to other issues including COT as acquisition cost, COT as the disposal cost and the terminal cost, the last one is not mentioned in SNA93 and concerns with problem at the end of an asset life such as de-commissioning of nuclear power stations and dismantling of oil rigs, etc. .

AEG decisions at first meeting

Reconfirmation of 1993 SNA: Costs of ownership transfer is capital formation.

Change: Costs of ownership transfer on acquisition to be written off over period held by the owner, not over the whole life of the asset as in the 1993 SNA.

AEG decisions on disposal cost at second meeting

The cost of ownership transfer on disposal of an asset should be recorded as gross capital formation at the time it occurs, but this GCF should be written off over the period the asset is held.

This is a change from SNA93, which says that it is written off immediately after the transaction occurs.

This also means that in order to write off the value of COT on disposal, one needs to have an estimate of expected length of time an asset is held on average and an estimate of expected COT on disposal. Remember that it is written off even before COT takes place.

Installation and de-installation costs should be included in costs of ownership transfer if separately invoiced, and in the purchaser’s price of the asset otherwise.

AEG decisions on terminal cost at second meeting

Terminal costs should be recorded as capital formation when they occur but the whole cost should be written off as consumption of fixed capital over the life of the asset, analogous to costs of ownership transfer on disposal. This means that it will have to be written off even before decommissioning takes place.

When this recommendation on terminal costs cannot be followed for lack of adequate data, these costs should still be recorded as GFCF but written off as CFC immediately.

Thank You