The purpose of this chapter is to present, at some detail, the formal model behind capital measures. Although theoretical, this presentation is targeted towards implementation, i.e. it takes account of issues such as valuation of flows at mid-period prices that are relevant for national accounts and which sometimes complicate an algebraic presentation. At the same time, these considerations are indispensable for implementation of capital services measures. This part of the Manual starts out with a chapter on the derivation of user costs and its elements, the return to capital, depreciation and revaluation. It continues with the price-volume split of the value of capital services and finishes with capital measures in balance sheets.

National accounts never work with individual assets but with cohorts. Individual assets inside a cohort are similar (ideally identical) in their specifications, were installed at the same time but exhaust their individual productive capacities over different service lives. In what follows, all variables relate to cohorts of assets, not to individual assets.