NOMINAL HOLDING GAINS/LOSSES (K.11)

6.35 Nominal holding gains are that category of other changes in the value of assets, liabilities and therefore net worth which reflects the changes in the level and structure of their prices. Nominal holding gains are broken down into neutral holding gains and real holding gains.

6.36 Definition:

The nominal holding gain (K.11) on a given quantity of an asset is defined as the change in value for the owner of that asset as a result of a change in its price. The nominal holding gain on a liability is defined as the change in value of that liability as a result of a change in its price, but with the sign reversed.

6.37 A positive holding gain is due to an increase in the value of a given asset or to a reduction in the value of a given liability. A negative holding gain, i.e. a holding loss, is due to a reduction in the value of a given asset or an increase in the value of a given liability.

6.38 The nominal holding gains recorded in the revaluation account are those accruing on assets or liabilities, whether realised or not. A holding gain is said to be realised when the asset in question is sold, redeemed, used or otherwise disposed of, or the liability repaid. An unrealised gain is therefore one accruing on an asset that is still owned or a liability that is still outstanding at the end of the accounting period. A realised gain is usually understood as the gain realised over the entire period over which the asset is owned or liability outstanding whether this period coincides with the accounting period or not. However, as holding gains are recorded on an accruals basis in the system, the distinction between realised and unrealised gains, although useful for some purposes, does not appear in the classifications and accounts.

6.39 Holding gains include gains on all kinds of assets: non-financial produced and non-produced assets, and financial assets. Thus, holding gains on inventories of all kinds of goods held by producers, including work in progress, are also covered.

6.40 Nominal holding gains may accrue on assets held for any length of time during the accounting period and not merely on assets that appear in the opening and/or closing balance sheets. The nominal holding gain accruing to the owner of a particular asset, or given quantity of a specific type of asset, between two points of time is defined as:

the current value of that asset at the later point of time,

minus

the current value of that asset at the earlier point of time,

assuming that the asset itself does not change, qualitatively or quantitatively, in the meanwhile. The nominal holding gain (G) accruing on a given quantity q of some asset between times o and t can be expressed as follows:

G=(pt - po) × q

where po and pt are the prices of the asset at times o and t respectively. For financial assets and liabilities with fixed current values for which both po and pt are unity by definition, nominal holding gains are always zero.

6.41 For purposes of calculating nominal holding gains, acquisitions and disposals of assets must be valued in the same way as in the capital and financial accounts and stocks of assets must be valued in the same way as in the balance sheets. In the case of fixed assets the value of an acquisition is the amount paid by the purchaser to the producer, or seller, plus the associated costs of ownership transfer incurred by the purchaser. The value of a disposal of an existing fixed asset is the amount received by the seller from the purchaser minus the costs of ownership transfer incurred by the seller.

Four different situations giving rise to nominal holding gains may be distinguished:

(1) an asset held throughout the accounting period: the nominal holding gain accruing during the accounting period is equal to the closing balance sheet value minus the opening balance sheet value. These values are the estimated values of the assets if they were to be acquired at the times the balance sheets are drawn up. The nominal gain is unrealised;

(2) an asset held at the beginning of the period that is sold during the period: the nominal holding gain accruing is equal to the actual or estimated disposal value minus the opening balance sheet value. The nominal gain is realised;

(3) an asset acquired during the period and still held at the end of the period: the nominal holding gain accruing is equal to the closing balance sheet value minus the actual, or estimated, acquisition value of the asset. The nominal gain is unrealised;

(4) an asset acquired and disposed of during the accounting period: the nominal holding gain accruing is equal to the actual, or estimated, disposal value minus the actual, or estimated, acquisition value. The nominal gain is realised.

6.42 The nominal holding gains included are those accruing on assets and liabilities, whether realised or not. They are recorded in the revaluation account of the sectors, the total economy and the rest of the world.