Difficulties of social accounting

 

5 Difficulties of social accounting

 

difficulties faced in social accounting

The preparation of social accounting presents the following difficulties:

1.      Imputation

2.      Double counting

3.      Public services

4.      Inventory adjustments

5.      Depreciation

 

1. Imputation:

 

In preparing social accounts, all incomes and payments are measured in money. But there are many goods and services which are difficult to impure in terms of money. They are services of the housewife in her home, painting, as a hobby by an individual, a teacher teaching his children at home, etc. similarly there are a number of non traded or non marketed products and services. They are vegetables produced in the kitchen garden and consumed by family itself, rental value of house occupied by the owner himself, a portion of farm produce retained by the farmer for personal consumption, etc. all such non market transactions which cannot be assessed in money terms present problems in preparing social accounts accurately.

 

2. Double counting:

 

The greatest difficulty in preparing social account is of double counting. It arises from the failure to distinguish between final and intermediate products. For, instance, flour used by a bakery is an intermediate product and that by a household the final product. Similarly, the purchase of a newly constructed building by the government is taken under consumption output of the economy. On the other hand, the purchase of the same building by a private firm becomes gross investment for the year. Thus the same product is shown as consumption and investment in social accounts, such problem lead to difficulties in preparing social accounts.

 

3. Public services:

 

Another problem is of estimating a number of public services in social accounts. They are police, military, health, education, etc. similarly, the contribution made by multipurpose river valley projects cannot be fitted into the social accounts because of the difficulties of assessing their numerous benefits in monetary terms.

 

4. Inventory adjustment:

 

All inventory changes whether negative or positive are adjusted in the production accounts by inventory valuation adjustment. But the difficulty is that firms record inventories at their original costs and not at their replacement costs. When prices rise, there are gains in the book value of inventories. But when prices fall, there are losses in the value of inventories, so for correct calculation of inventories in business accounts under social accounting, inventory valuation adjustment is required which is a very difficult thing.

 

5. Depreciation:

 

Another problem in business accounts under social accounting is of estimating deprecation. For instance, it is very difficult to estimate the current depreciation rate of a capital asset whose expected life is very long, say fifty years, the difficulty increase further when prices of assets change every year. Unlike inventories, it is very difficult to have a depreciation valuation adjustment in social accounts.

 

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