INTERMEDIATE CONSUMPTION (P.2)

3.69 Definition:

Intermediate consumption consists of the value of the 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 may be either transformed or used up by the production process.

3.70 Intermediate consumption includes the following borderline cases:

1. the value of all the goods or services used as inputs into ancillary activities. Common examples are purchasing, sales, marketing, accounting, data processing, transportation, storage, maintenance, security, etc. These goods and services are not distinguished from those consumed by the principal (or secondary) activities of a local KAU;
2. the value of goods and services which are received from another local KAU of the same institutional unit (only if they comply to the general definition in paragraph 3.69.);
3. the costs of using rented fixed assets, e.g. the operational leasing of machines or cars;
4. the subscriptions, contributions or dues paid to non-profit business associations (see paragraph 3.35);
5. items not treated as gross capital formation, like:
   1. small tools which are inexpensive and used for relatively simple operations, such as saws, hammers, screwdrivers and other hand tools; small devices, such as pocket calculators. By convention, in the ESA, all expenditure on such durables which does not exceed 500 ECU (in prices of 1995) per item (or, when bought in quantities, for the total amount bought), should be recorded as intermediate consumption;
   2. the ordinary, regular maintenance and repair of fixed assets used in production;
   3. military weapons of destruction and the equipment needed to deliver them (but not light weapons or armoured vehicles acquired by police and security forces, which are treated as gross fixed capital formation);
   4. services of research and development, staff training, market research and similar activities, purchased from an outside agency or provided by a separate local KAU of the same institutional unit.
6. payments for the use of intangible non-produced assets like patented assets, trade marks, etc. (excluding payments for the purchase of such property rights: these are treated as acquisitions of an intangible non-produced assets);
7. expenditure by employees, reimbursed by the employer, on items necessary for the employers' production, like contractual obligations to purchase on own-account tools or safety-wear;
8. expenditure by employers which is to their own benefit as well as to that of their employees, because it is necessary for the employers' production. Cases in point are:
   1. reimbursement of employees for travelling, separation, removal and entertainment expenses incurred in the course of their duties;
   2. providing amenities at the place of work;

   a more extensive list is presented in the paragraphs on compensation of employees (D.1) (see paragraph 4.07).

9. non-life insurance service charges paid by local KAUs (see also Annex III 'Insurance'): in order to record only the service charge as intermediate consumption the premiums paid should be discounted for, e.g. claims paid out and the net change in actuarial reserves. The latter can be allocated to local KAUs as a proportion of the premiums paid;
10. the use of financial intermediation services indirectly measured by resident producers;

    (k) by convention, the central bank output should be entirely allocated to the intermediate consumption of other financial intermediaries (subsectors S122 Ð S123).

1. items treated as gross capital formation, like:
   1. valuables;
   2. mineral exploration;
   3. major improvements which go considerably beyond what is required simply to keep the fixed assets in good working order, e.g. renovation, reconstruction or enlargement;
   4. software purchased or produced on own-account.
2. expenditure by employers treated as wages and salaries in kind (see paragraph 4.05);
3. use by market or own-account producer units of collective services provided by government units (treated as collective consumption expenditure by government);
4. goods or services produced and consumed within the same accounting period and within the same local KAU (they are also not recorded as output);
5. payments for government licenses and fees that are treated as taxes on production (see paragraphs 4.79 – 4.80).