The fundamental problem of accounting

Fox²,

Shimizu

2014

SSRN Journal

The paper studies the problems associated with the construction of price indexes for commercial properties that could be used in the System of National Accounts. Property price indexes are required for the stocks of commercial properties in the Balance Sheets of the country. Related service price indexes for the land and structure input components of a commercial property are required in the Production Accounts of the country if the Multifactor Productivity of the Commercial Property Industry is calculated as part of the System of National accounts. The paper reviews existing methods for constructing an overall Commercial Property Price Index (CPPI) and concludes that most methods are biased (due to their neglect of depreciation) and more importantly, not able to provide separate land and structure subindexes. A class of hedonic regression models that is not subject to these problems is discussed.JEL Classification: C2, C23, C43, D12, E31, R21.

Section: Thus πmentioning

confidence: 89%

mentioning

confidence: 99%

Commercial Property Price Indexes and the System of National Accounts

Fox²,

Shimizu

2014

SSRN Journal

“…As shown by Diewert (, pp. 9–10) and Cairns (, pp. 640–641), at the end of period t , the market value of the firm's assets will be A t defined by equation t in (15) (if anticipations are realized) and thus the project depreciation schedule defined by (17) will be uniquely determined…”

Section: Period‐by‐period Aggregate Asset Values User Benefits and Dmentioning

confidence: 99%

“…To further complicate our discussion of the goodwill asset, it should be noted that the Cairns (, p. 644) impossibility theorem applies to the residual asset, i.e., only the aggregate value of the joint goodwill and structure asset is uniquely determined under our assumptions. Thus instead of using the constant shares

s_{G}^{0}

and

s_{S}^{0}

defined by (32) in order to decompose the non‐land user benefits

U_{R}^{t}

into goodwill and structure components by equations , we could use the following equations for the decomposition:

U_{G}^{t} \equiv s_{G}^{t} U_{R}^{t}; U_{S}^{t} \equiv false(1 - s_{G}^{t} false) U_{R}^{t}; t = 1, \dots, T,

where the period t goodwill shares of

U_{R}^{t}

, the

s_{G}^{t}

, satisfy the following restrictions:

0 \leq s_{G}^{t} \leq 1; t = 1, \dots, T;

\begin{matrix} V_{G}^{0} & = s_{G}^{1} {(1 + r_{1})}^{- 1} U_{R}^{1} + s_{G}^{2} {(1 + r_{1})}^{- 1} {(1 + r_{2})}^{- 1} U_{R}^{2} + \dots + s_{G}^{T} {(1 + r_{1})}^{- 1} \\ \times \dots {(1 + r_{T})}^{- 1} \end{matrix}

…”

Section: The Decomposition Of Asset Values Into Land Structure and Gmentioning

confidence: 99%

“… The term time series depreciation is due to Hill (), but the concept dates back to Hotelling (, p. 341). We note that Δ t incorporates both the effects of wear and tear depreciation (or cross‐sectional depreciation) and anticipated revaluation; see Hill (, p. 6), Hill and Hill (, p. 617), Diewert (, p. 9) and Cairns (, p. 640). Later, in section , we will see that time series depreciation for land consists of just revaluation while time series depreciation for the structure will be decomposed into cross‐sectional depreciation and revaluation components. …”

mentioning

confidence: 99%

See 1 more Smart Citation

Sunk costs and the measurement of commercial property depreciation

Canadian J of Economics

Fox

2016

Developments in property markets greatly influence economic growth, monetary policy, productivity measurement, inflation measurement and hence welfare payments to the disadvantaged. Property price bubbles often lead to financial crises; those experienced during the 20th century were often triggered by commercial property price movements. Yet property poses significant challenges for national accountants in producing key economic variables used in informing policy assessment and formulation. To address these challenges, this paper formalizes a framework for measuring prices and quantities of capital inputs for a commercial property. In particular, it addresses problems associated with obtaining separate estimates for the land and structure components of a property, a decomposition of property value that is important for the national accounts, productivity measurement and taxation. A key contribution is to address the problem of estimating structure depreciation taking into account the fixity of the structure. We find that structure depreciation is determined primarily by the cash flows that the property generates rather than physical deterioration of the building. Finally, we provide a framework for the determination of the optimal length of life for a structure.

Measuring the Services of Durables and Owner Occupied Housing

Nishimura

Shimizu

et al. 2020

Property Price Index

This paper provides an update to the chapter on the treatment of durables in the Consumer Price Index Manual (2004). The most important durable is housing, which typically accounts for approximately 20% of total consumption services. A large fraction of total housing services consists of the services of Owner Occupied Housing (OOH). The main approaches to measuring the services of OOH are (i) the acquisitions approach; (ii) the rental equivalence approach and (iii) the user cost approach. Two other approaches are sometimes used: (iv) the opportunity cost approach and (v) the payments approach. A main purpose of this paper is to present the main approaches to the treatment of OOH and to discuss the benefits and costs of the alternative approaches. The paper also discusses the problems associated with forming imputations for the services of "ordinary" consumer durable goods. Journal of Economic Literature Classification NumbersC23, C43, C81, D12, E31. C43, C82, E01.