Income from Bonds: Treatment in the System of National Accounts 1993, Issues 2002-2221
How to account for interest on bonds in a system as integrated as the System of National Accounts 1993 (1993 SNA) has been a source of much controversy. Two main positions emerge: the debtor treatment based on the contractual arrangements of the bonds; and the creditor treatment based on current interest rates and prices of assets/liabilities. Using the discounted cash flow model, this paper explores the treatment of income and other benefits from assets in the 1993 SNA. It finds that the debtor approach to bond interest conforms with the 1993 SNA recording income and other benefits from assets, as that approach captures the results of effective decision making between institutional units.
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accrual accrued interest balance sheet bond issued calculated changes in assets changes in volume coupon rate credit risk creditor approach creditor treatment current interest rate current market debtor approach debtor treatment difference economic effective discount rate effective interest rate equity expected benefits expected cash flows fair value financial account financial assets financial transaction holder holding gains/losses income on bonds institutional units interest and dividends interest expense interest income interest payable interest rate risk issue price liquidity loan valuation market interest rate market value maturity premium Monetary transactions national accounts neutral gains/losses nominal holding gain nominal interest rate original effective discount owner payments period present value principles production account property income rate of interest Real gains/losses real interest rate real risk-free rate recorded rent result Return on bonds revaluation accounts risk premium risk-free real interest transaction accounts valuation changes value added volume changes yield to maturity zero-coupon bond