ESA95 manual on government deficit and debt : capital injections (Part II, chapter 3).
Date: 2003-12-10
Institutions: Eurostat
Subjects: EU statistics, budget deficit, financial aid, public accounting, public administration, public debt

N
O

I
T
I

D
E

3
0
0
2

ESA95 manual
on government 
deficit and debt

Capital injections (Part II, chapter 3)

2

THEME 2
Economy 
and  
finance

E U R O P E A N
C O M M I S S I O N

 
Europe Direct is a service to help you find answers to your questions about the European Union

New freephone number:
00 800 6 7 8 9 10 11

A great deal of additional information on the European Union is available on the Internet.
It can be accessed through the Europa server (http://europa.eu.int).

Luxembourg: Office for Official Publications of the European Communities, 2003

ISBN 92-894-5420-2
ISSN 1725-0048

© European Communities, 2003

II.3 Capital injections 

II.3.1 Capital injections into public 
corporations 

CONTENTS 

1. 

Background 

Treatment in national accounts 

2. 
2.1  General principle 
2.2 
2.3 

Recording a financial transaction 
Recording a non-financial transaction  

Rationale of the treatment  

3. 
3.1.  Capital injections into a public corporation  
3.2.  Own funds and equity capital 
3.3.  Capital transfers 

4. 

Key words and references 

Annex: operational guidance  

1 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
1. 

Background 

Analysts in the media commonly refer to “capital injections” made by the government 
into a public corporation, when some financial support is provided. 

The  notion  of  a  “capital  injection”  as  such  is  not  defined  in  the  SNA93  or  in  the 
ESA95. In the media, the term is used for many types of payment from government 
to a public corporation which in national accounts have to be classified under quite 
different  headings  as  capital  transfers  or  as  financial  transactions.  For  example,  it 
includes  transactions  that  might  be  described  in  public  accounts  as  investment 
grants,  capital  grants,  commutation  grants,  loans,  equity  injections,  acquisition  of 
share capital or public dividend capital. 

Such injections are most often made in cash, but can also be made in kind. The latter 
case is the subject of a later part of this chapter (“Capital injections in kind” – II.3.2). 

Should  the  payment  from  the  government  (commonly  referred  to  as  a  “capital 
injection”) be recorded in the national accounts as: 

- a financial transaction: in the most common example, this could be an increase of 
the government's equity stake, assuming that this payment has an automatic effect of 
the  same  amount  (therefore,  excluding  any  valuation  effect)  on  the  government’s 
assets. 

- a non-financial transaction: assuming that this is an unrequited payment, it would be 
a capital transfer, having no automatic effect (aside from any revaluation effect) on 
the government equity. 

2. 

Treatment in national accounts1 

2.1 

General principle 

The principle is the following: 

When  the  government,  acting  in  the  same  capacity  as  a  private  shareholder, 
provides funds while receiving financial assets in return and expects to earn a future 
return  on  its  investment  (in  the  form  of  dividends  or  a  higher  value  of  the  financial 
instrument  which  represents  government's  property  rights  on  the  corporation),  the 
capital  injection  is  to  be  recorded  as  a  financial  transaction  in  shares  and  other 
equity. 

When,  on  the  other  hand,  the  government,  acting  for  public  policy  purposes2, 
provides  funds  to  a  corporation  without  receiving  financial  assets  and  without 
expecting a future return on the investment, the capital injection is to be recorded as 
a capital transfer. 

1 This guidance covers only the case of a transaction, i.e. an economic flow that results from the interaction between 
two  institutional  units  by  mutual  agreement  (or  an  action  within  an  institutional  unit  that  it  is  useful  to  treat  as  a 
transaction  -  see  ESA95  §1.33).  Therefore,  it  excludes  the  case  of  a  restructuring  of  assets  and  liabilities  or 
reclassification  of  units  (both  of  which  are  normally  recorded  as  other  flows  in  the other changes in the volume of 
assets account -ESA95, §6.30). 
2 Often government does not manage funds to acquire profitable assets (like private shareholders do) but to pursue 
social or collective policy objectives for which private capital might not be available. Acting this way is a management 
of assets for public policy purposes. 

2 

 
 
                                                 
2.2  

Recording a financial transaction   

(See the annex for further detail). 

a. Transactions in equity  

In  the  majority  of  cases,  the  financial  instrument  concerned  is  equity  (F.5).  A 
transaction in equity in this context is the action of “placing funds at the disposal of a 
corporation” (ESA95, §4.53), increasing the equity capital.3 This is to be recorded in 
national  accounts  as  a  financial  transaction,  in  shares  and  other  equity  (F.5).  In 
accordance  with  ESA95,  §4.53  and  5.86,  this  transaction  increases  the  property 
rights  of  shareholders  of  the  corporation.  Thus,  the  investment  must  be  made 
predominantly for market purposes and not for public policy purposes. 

Additionally, a capital injection that is made as part of a privatisation process within a 
short term perspective (less than one year), such that government expects to get its 
money back, is always recorded in F.5 (consistently with ESA95, §5.16)4. 

A capital injection that results in government acquiring quoted shares of equal value 
is a straightforward case. The fact that the shares are quoted means that the shares 
may be traded on market by private investors (as defined in ESA95 chapter 2) and 
therefore  that  the  corporation  is  respecting  some  minimum  market  requirements  in 
the long run.  

However, the private investors should not be crowded out by the government's share 
acquisition (which reduces their participation to a level where they could not exercise 
influence). They must also bear strictly similar risks and rewards to those borne by 
government  notably  as  regards  their  rights  on  the  net  assets  of  the  corporation  in 
case of liquidation (case of issuance of shares with specific features). 

Where  the  capital  injection  is  given  to  an  unlisted  public  corporation,  the  capital 
injection should be recorded in F.5 only if government has the objective of increasing 
its  future  wealth,  under  the  form  of  dividends  or  a  higher  value  of  the  financial 
instrument received in counterpart (or at least equal to the amount injected, under an 
ongoing process of privatisation).5 

Normally, a condition is that the public corporation has not accumulated net losses as 
recorded  according  to  generally  accepted  accounting  standards  and,  for  instance, 
evidence being given by the trend of own funds. However, even in such cases, any 
part of the capital injection used for investment in profitable areas of activities with an 
evident and long-term profitability may be recorded as financial transaction (typically 
in F.5). 

3
 In some cases, the injection can take the form not of cash funding but of "a contribution in kind" (productive assets). 
The Manual recommends recording this exchange of non-financial assets against financial assets as another change 
in volume. (See further, II.3.2.2.b)   
4 This case, as well as others described in this chapter, should be considered as exceptions to the rule which implies 
that  recording  a  flow  in  the  national  accounts  increasing  the  “shares  and  other  equity”  (F.5)  should  normally  be 
related to actual issuance of new shares. 
5
 The application of this principle to the specific case, observed in some Member States, of public corporations that, 
due  to  statutory  provisions,  is  not  allowed  to  make  profits  (and,  thus,  to  distribute  dividends),  but  must  not  show 
losses, needs special attention. Strictly speaking government cannot expect a positive return, as defined above, in 
such cases. Nevertheless, it is still appropriate to classify the injection as a financial transaction if the value of the 
injected  funds  is  expected  to  be  maintained  in  the  form  of  an  increase  value  in  government's  holding  in  the 
corporation, evidence given for example by an addition to the fixed assets of the corporation.   

3 

 
 
 
 
 
 
 
                                                 
 
A capital injection should also be recorded as a financial transaction in two specific 
cases:  

-new corporations or quasi-corporations ("start-ups"): If government sets up a 
new  non-government  unit  that  is  not  the  result  of  a  restructuring  of  existing 
corporations,  the  treatment  depends  on  a  close  examination  of  the  project, 
using various indicators similar to investment analysis and taking account of 
other aspects relating to the transaction. As a result, the transaction may be 
treated as a financial transaction or as non-financial for its full amount. This 
applies  also  where  an  existing  corporation  is  starting  a  completely  new 
activity or is acquiring new kinds of assets for large amounts.  

-bodies managing financial assets on behalf of government: a capital injection 
into public holding company or a financial corporation managing assets in a 
profitable  way  on  behalf  of  government,  in  order  to  acquire  more  financial 
assets,  could  be  recorded  as a transaction in F.5. The rationale here would 
be that the assets are managed to maximise the return for government, and 
that higher dividends or higher equity value are expected. 

b. Transactions in other financial instruments   

Not all financial transactions take the form of acquisition of equity: other possibilities 
are the making of a loan (F.4) or the purchase of bonds. (F.3) 

Loans: a capital injection in the form of a loan with evidence in a legal document 
specifying the borrower’s obligations (redemption date of principal and interest to 
be paid) should be recorded as a transaction in F.4.  

One  exception  is  where  government  grants  a  loan  to  a  loss-making  public 
corporation, in a context where it is very likely that the corporation would not 
be  in  a  position  to  repay  the  loan  (because  of  recurrent  losses  and  with  no 
expectation of restoring profitability before the maturity date(s)). In this case, 
the  funds  transferred  to  the  corporation  by  government  are  recorded  as  a 
non-financial transaction for their full amount. 

In  addition,  in  certain  specific  contexts  (financial  defeasance,  business 
rescue,  export  insurance...),  the  characteristics  of  “loans”  provided  by 
government (the contractual obligations) should be examined closely to check 
whether it is correct to classify them in F.4. 

Bonds:  provision  of  funds  when  the  government  purchases bonds issued by the 
corporation  (again  evidence  to  be  given  by  some  legal  document)  should  be 
recorded as a transaction in F.3.  

However,  where  the  corporation has accumulated significant losses and the 
bonds  are  purchased  almost  exclusively  by  government,  the  acquisition  by 
government should be considered as a non-financial transaction. 

In addition, the case of a bond issuance by a corporation with a record of debt 
service default, such that the purchase of bonds by private investors could be 
achieved only with a full guarantee from government (with investors' opinion 
as  evidence)  should  be  closely  examined.  Recording  as  a  transaction  in  F3 
requires that at the time of the transaction the corporation is in all likelihood in 

4 

 
 
 
 
 
 
a  position  to  meet  its  obligations  relating  to  the  debt  service  (interest  and 
principal) according to the contractual schedule of payments. 

Conclusion: in national accounting terms, the financial transaction has no impact on 
the government net borrowing/net lending, as well as no impact on the net worth in 
the balance sheet. 

2.3  

Recording a non-financial transaction   

(See the annex for further detail). 

Excluding the cases of subsidies (D.3, see ESA95, §4.30 and following) and of other 
current  transfers  (D.75,  see  in  particular  ESA95,  §4.139b),  the  transaction  to  be 
considered here is a capital transfer. 

The case of capital injections in kind (transfers of fixed assets) will be dealt with in 
the  following  part  of  this  chapter  (II.3.2),  and  only  capital  transfers  in  cash  will  be 
considered here. 

A  capital  injection  should  be  treated  as  a  non-financial  transaction  where  the 
provision of funds is an unrequited transaction. This sort of payment is recorded as a 
capital transfer (D.9). The government does not receive as a counterpart a financial 
asset  of an equal value. Any possible effect on the government’s equity is indirect, 
not  immediate,  uncertain  and  of  a  different  size.  Two  transactions  of  this  sort  are 
clearly defined in the ESA95. 

a. Investment grants (D.92) 

A capital injection that is conditional on the public corporation spending the funds on 
fixed  capital  formation,  but  does  not  commit  the  recipient  any  further,  such  as  in 
making future payments, should be recorded as a capital transfer – in this case an 
investment grant (D.92).6 

b. Accumulated losses or other capital transfers (D.99) 

A capital injection made to cover accumulated losses (either on a repetitive pattern 
during  several  recent  fiscal  years  or  irregularly  but  with  profits  not  compensating 
losses), as recorded according to generally accepted accounting standards and, for 
instance, with evidence given by the trend of the corporation's own funds, is normally 
treated as a non-financial transaction for its full amount (as a capital transfer D.99), 
even if shares (or equivalent) are issued.   

However,  there  are  some  exceptions  (investment  of  private  shareholders,  specific 
investment  in  a  profitable  activity  carried  out  by  the  corporation,  fundamental 
restructuring that are described in the annex, at the end of this chapter.  

Similarly, capital injections made to compensate owners of capital goods destroyed 
by acts of war, other political events or natural disasters are also to be recorded as 
capital transfers (D.99). 

6 In the case of a quasi-corporation, such a payment should be recorded as a transaction in shares and other equity 
(ESA95, §4.61) due to the fact that the net worth of a quasi-corporation is, by convention, equal to zero (§7.03). It is 
different if regular payments are made to cover a persistent operating deficit as a matter of deliberate government 
policy: they should be recorded as subsidies (§4.61). 

5 

 
 
 
 
                                                 
Conclusion: in both cases, a capital injection recorded as a non financial transaction  
has  an  impact  on  the  government  net  borrowing/net  lending,  as  well  as  on  the  net 
worth in the balance sheet. 

3. 

Rationale of the treatment 

3.1  

Types of capital injections into a public corporation  

Government  may  increase  a  public  corporation's  holdings  of  financial  assets 
(generally cash) at a given point in time in three ways. 

It  matters  in  national  accounts  to clearly distinguish them as they result in different 
treatments,  according  to  the  classification  of  transactions  and  assets  provided  by 
ESA95: 

1.  Receiving  a  gift:  in  national  account  terms,  this  is  a  capital  transfer.  It  has  the 
effect of changing the net borrowing/net lending, and of changing the net worth in 
the balance sheet (and therefore the own funds of the corporation).  

An  important  feature  of  capital  transfers  is  that  they  are  transactions  which 
are usually undertaken only by governments. Acting this way, the government 
expects no return on its investment in the form of dividends (most of the time 
the enterprise receiving such transfers does not pay dividends) or of value of 
government  assets  that  could  be  realised  in  a  privatisation.  Of  course, 
government is acting for precise public policy purpose and is expecting some 
economic  or  social  results  from  the  use  of  the  funds  but  he  is  not  requiring 
any result in any form specifically from the amount transferred to the receiver.  

2.  Raising equity capital, by issuing shares: this is a financial transaction in shares 
and  other  equity.  There  is  no  change  to  the  net  borrowing/net  lending  and  no 
change to the net worth (but there is a change in own funds due to equity capital).  

In providing equity capital to the corporation, the government acts similarly to 
a private shareholder, with the strong expectation of a return on investment. 
In  this  regard  the  actual  payment  of  dividends  to  the  shareholder,  or  the 
positive trend in the value of the shares would be important criteria for treating 
the injection as equity. 

3.  Borrowing loan capital: this is a financial transaction. There is no change to the 
net borrowing/net lending, no change to the net worth (and no change to the own 
funds).  

As  a  lender,  government  is  expecting  that  the  public  corporation,  as  a 
borrower, would be in a position to redeem the funds, according to a schedule 
agreed at inception, and would be rewarded by an amount of interest of which 
all conditions are fixed at inception and that would depend on various factors, 
among them risk is predominant.  

3.2  

Own funds and equity capital 

ESA95 (§7.05) defines the own funds in the following way: “Own funds are the sum 
of net worth (B.90) and shares and other equity issued (AF.5).” 

6 

 
The instrument "Equity capital" is not defined as such in the SNA93 or in the ESA95. 
Through the issuance of shares, we may view it as the financial “liability”. Shares and 
other equity (AF.5) in the balance sheet of a corporate enterprise are to be recorded - 
like all assets and liabilities in the national accounts - at market value (ESA95, §7.01, 
7.25 and 7.52). 

•  §4.53: Dividends (D.421) 

“Dividends  (D.421)  are  a  form  of  property  income  received  by  owners  of  shares 
(AF.5) to which they become entitled as a result of placing funds at the disposal of 
corporations. Raising equity capital through the issue of shares is an alternative way 
of raising funds by borrowing. In contrast to loan capital, however, equity capital does 
not  give  rise  to  a  liability  that  is  fixed  in  monetary  terms  and  it  does  not  entitle  the 
holders of shares of a corporation to a fixed or predetermined income.” 

•  §5.86: Shares and other equity (F.5)  

“The category shares and other equity (F.5) consists of all transactions in shares and 
other  equity  (AF.5),  that  is  financial  assets  which  represent  property  rights  on 
corporations  or  quasi-corporations.  These  financial  assets  generally  entitle  the 
holders  to  a  share  in  the  profits  of  the  corporations  or  quasi-corporations  and  to  a 
share in their net assets in the event of liquidation.” The transactions in shares and 
other equity – for instance, a capital injection providing equity capital to a corporation 
-  have  thus  a  strong  legal  basis,  these  financial  assets  representing  the  property 
rights on the corporation (ESA95, §5.86). 

A transaction in equity may be considered having three characteristics: 

-  Funds  are  placed  at  the  disposal  of  a  corporation,  which  has  a  large  degree  of 

freedom in the way it can use them.  

-  Shareholders are entitled to receive a return on their investment. 

-  New shares are issued (for an amount equal to the funds placed) in the case of 

corporations having the legal status of incorporated enterprises. 

As a result, in national accounts, shares and other equity must be valued at a market 
value  that  reflects  the  expectations  of  return,  whereas  in  balance  sheets  of  the 
issuers they are usually accounted for at historic value (or book value). Where shares 
are  listed  on  a  market,  their  value  is  the  observed  price.  Where  equity  does  not 
consist  of  shares,  or  consists  of  shares  that  are  not tradable on a market - as it is 
frequently  the  case  for  a  public  corporation  -  a  proxy  market  value  must  be 
implemented in national accounts (see ESA95, §7.54 and next). 

3.3  

Capital transfers (D.9) 

The notion of capital transfer is clearly defined in SNA93 (chapter 10) and in ESA95 
(chapter 4 principally). Capital transfers have three main characteristics: 

•  They are related to transactions, made by mutual agreement between two units 

(unlike other changes of assets). 

•  There is no counterpart being received in return. 

7 

 
 
•  They involve a commensurate change in ownership of assets (or cancellation of 
liabilities  by  a  creditor)  between  two  parties,  or  acquisition  or  disposal  of  assets 
(SNA93 §10.132). 

The  first  two  characteristics  are  common  to  all  transfers  (current  and  capital 
transfers).  In  addition,  all  transfers  may  be  made  in  cash,  or  in  kind  (SNA93, 
§10.131). 

Another characteristic of capital transfers is that they tend to be large and infrequent 
(SNA93  §10.132).  Two  types  of  capital  transfer  are  then  distinguished  (SNA93, 
§10.132 and ESA95, §4.146): 

•  Capital  transfers  in  cash:  these  consist  of  transfers  of  cash  that  one  party  has 
raised by disposing of an asset (other than inventories) or that a second party is 
required  to  use  by  acquiring  an  asset  (other  than  inventories).  The  recipient  is 
often obliged to use the cash to acquire assets as a condition of the transfer (e.g. 
investment grant) (ESA95, §4.146). 

•  Capital transfers in kind: cases of transfers of ownership of fixed assets without 

counterpart7. 

Capital  transfers  are  in  large  part  government  transactions:  public  policy  purposes 
may  lead  government  to  make  transfers  without  counterpart  to  corporations.  A 
presumed effect of a capital transfer on the value of the equity (through the reaction 
of the market, for example) is not a sufficient reason for regarding the transaction as 
a financial one: again, the effect is not certain, as well as its size. 

Therefore, unlike financial transactions, capital transfers are the counterpart flow of 
those  “one-way”  changes  in  assets  or  liabilities,  which  means  that  the  recipient  is 
made  wealthier,  when  the  other  party  is  made  poorer.  This  is  expressed  by  an 
increase  in  net  worth  in  the  balance  sheet  of  the  first  party,  and  a  decrease  in  net 
worth in that of the other party. 

4. 

Key-words and references 

Financial transactions 

ESA95, §§5.01, 5.02  

Equity capital 

Own funds 

Net worth 

Shares and other equity 

Dividends 

Capital transfers 

ESA95, §4.53 

ESA95, §7.05 

ESA95, §§7.01 to 05 

ESA95, §5.86 

ESA95, §4.53 
ESA95, §§4.145 and following 

7

 See the following paper “Capital injections in kind” (II.3.2) 

8 

 
 
 
                                                 
Annex: operational guidance8 

Government is injecting capital into a public corporation under the legal form of new 
shares or similar instruments representing property rights on corporations. 

The following key questions must be examined: 

-Is  government  injecting  capital  into  an  existing  corporation  or  into  a 
corporation that either is set up at this time or starts completely new activity, 
or is acquiring new kinds of productive assets for large amounts)9

? 

-Does  the  public  corporation  have  accumulated  net  losses  as  recorded 
according to generally accepted accounting principles (and, for instance, with 
evidence in the trend of the corporation's own funds)?    

-Is  government  acting  alone  (possibly  together  with  one  or  more  public 
corporations, for a minor part) or jointly with private shareholders (as defined 
in ESA95 chapter 2)? 

¦ I 

It is an existing corporation that is not changing its activity  

¦ I.1  The corporation has accumulated net losses 

¦ I.1.1 There are no private shareholders  

As a general rule, the capital injection is treated as a non-financial transaction for its 
full amount. 

With the following exceptions: 

1)  where  a  capital  injection  exceeds  the  net  amount  of  accumulated  losses  and 
government can provide evidence that this excess is specifically used to make further 
investment in already profitable operational areas of the corporation's activity, with an  
evidence in past results and that government aims an obvious return from the new 
injection of funds (evidence given in some cases by a clear intention to privatise the 
business): 

the capital injection is treated as a non-financial transaction up to the limit of 
the accumulated losses and as a financial transaction beyond this amount. 

8 In a large part, the following provisions can only be implemented through on a case-by-case analysis, 
based  on  the  assessment  of  the  information  available.  Therefore,  the  classification  of  the  capital 
injection is made by the Member State competent institutions, without prejudice to the role of Eurostat 
and CMFB, as is provided for in the 2003 Code of best practice. 
9  In  the  latter  two  cases,  a  condition  is  that  all  relating  expenditure  and  revenue  can  be  separately 
identified in the accounting system of the corporation.   

9 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
 
 
2) where there is an obvious fundamental restructuring of the corporation, in order to 
prevent the occurrence of new losses after the complete implementation of the new 
business  plan,  the  treatment  will  depend  on  a  specific  examination  of  various 
indicators10: 

either, there is evidence that government will in a rather high likelihood benefit 
from a return on its new investment11,  

the  capital  injection  is  treated  as  financial  transaction  for  its  full 
amount, 

or,  if  the  positive  return  on  new  investment  is  still  uncertain12,  such  that  it 
would take time to offset the accumulated losses, 

the capital injection is treated as a non-financial transaction up to the 
limit of the accumulated losses, and as a financial transaction beyond 
this amount.  

¦ I.1.2 There are private shareholders participating in the  

capital injection   

Private shareholders may already hold equity in the corporation but this case covers 
also  the  initial  introduction  of  private  shareholders  in  the  event  of  the  current 
injection, for instance under a process of restructuring. 

Where the private investors:   

(i) take a significant share in equity, 

(ii)  exercise  the  usual  influence  of  minority  shareholders  according  to  rights 
provided by current Corporate Law,  

(iii) bear similar risks to government as regards their rights on the net assets 
in the event of liquidation (ESA95 5.86) 

The capital injection is treated as a financial transaction for its full amount. 

Where  the  private  investors  do  not  fulfil  one  of  the  conditions  mentioned 
above,  the  capital  injection  should  be  closely  examined  to  determine  whether  it 
should be treated according to rules specified in the cases where there are no private 
shareholders. 

¦ I.2 The corporation has not accumulated net losses 

10 As main operational guidance they might be the rating (or change in) of the debt (notably long term 
debt),  the  significance  of  downsizing  in  staff  and  structure,  the  shift  to  new  activities,  the 
reorganization of management, etc.      
11 In other words, there is a large consensus on considering that the restructuring may be efficient.    
12 The restructuring plan is largely considered as insufficient as regards the main sources of losses and/or 
restoring profitability depends substantially on factors not under the control of the corporation.  

10 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
Normally,  this  means  that  the  corporation  makes  profits,  regularly  distributed  or 
reinvested, even if in some cases statutory provisions impose only a strict coverage 
of total costs. 

Where  government  is  obviously  acting  similarly  to  a  private  shareholder,  meaning 
that  it  provides  funds,  receives  in  return  financial  assets  and  is  expecting  a  future 
return  on  the  investment  (in  the  form  of  dividends  or  higher  value  of  the  financial 
instrument representing the government's property rights in the corporation),  

the capital injection is recorded as a financial transaction in shares and other 
equity for its full amount. 

Where  the  capital  injection  is  undertaken  for  specific  conditions  relating  to  public 
policy  or  in  the  context  of  a  fundamental  change  in  the  conditions  in  which  the 
activities are carried out and which is imposed by government, the consequence on 
future profitability of the new government investment must be carefully checked. 

If  an  expected  return  were  still  very  likely,  the  capital  injection  would  be 
treated as a financial transaction for its full amount.  

If  a  return  were  unlikely,  the  capital  injection  would  be  treated  as  a  non-
financial transaction for its full amount. 

¦ II 

It is a new corporation or new activity/assets  

The  treatment  will  depend  on  the  specific  examination  based  on  the  various 
indicators as usually used in investment analysis. The presence of private investors 
could also be a key indicator. 

In  any  case,  it  should  be  obvious  that  government  does  not  intend  to  use  the  new 
unit largely for public policy purposes. 

As a result:  

Either,  the  conditions  support  the  conclusion  that,  after  a  "normal" 
period  of  losses  (as  usually  observed  for  similar  investments),  the 
corporation would be structurally profitable,  

the  capital  injection  by  government  is  treated  as  a  financial 
transaction for its full amount. 

the  basis  of  various 

factors  (an  uncertain  economic 
Or,  on 
imposed  by 
environment,  non-compensation  of  some  costs 
government, the consensus opinion of independent experts in different 
areas like accountancy, economics and financial analysis, etc.) there 
are doubts on the long-term profitability of the project, 

the  capital  injection  is  treated  as  a  non-financial  transaction 
for its full amount.  

11