Data entered below will be used throughout the workbook:

Transcription

1 Data entered below will be used throughout the workbook: Trust name: The Newcastle upon Tyne Hospitals NHS Foundation Trust This year 2009/10 Last year 2008/09 This year ended 31 March 2010 Last period ended 31 March 2009 This year beginning 1 April 2009 Intro

2 FOREWORD TO THE ACCOUNTS THE NEWCASTLE UPON TYNE HOSPITALS NHS FOUNDATION TRUST The accounts for the year ended 31 March 2010 are set out on the following pages and comprise the Statement of Comprehensive Income, the Statement of Financial Position, the Statement of Changes in Taxpayers Equity, the Cash Flow statement and the Notes to the Accounts. The accounts have been prepared by The Newcastle upon Tyne Hospitals NHS Foundation Trust in accordance with Schedule 7, Paragraphs 24 and 25, of the National Health Services Act 2006, in the form which Monitor, the independent regulator of NHS Foundation Trusts has, with the approval of HM Treasury, directed. The accounts for the year ended 31 March 2010 have been prepared under International Financial Reporting Standards, in accordance with HM Treasury directions. The Statement of Comprehensive Income has been presented in three columns to better present the Income & Expenditure of the Trust (as shown in column 1) before the financial impact of asset revaluation exercises which have taken place during the year (column 2). The final result for the year is as presented in column 3. Sir Leonard Fenwick Chief Executive 2 June 2010 P1- Foreword

3 STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 March / / / / / /09 Before Exceptional Items Exceptional Items * Total Before Exceptional Items Exceptional Items Note Operating income 3 613, , , ,045 Other operating income 4 129, , , ,002 Operating expenses 5 (703,999) (55,120) (759,119) (668,328) (6,146) (674,474) Operating surplus 38,574 (55,120) (16,546) 27,719 (6,146) 21,573 Total Finance income and costs Finance income , ,347 Finance expense - financial liabilities 8 (18,284) 0 (18,284) (9,455) 0 (9,455) Finance expense - unwinding of discount on provisions 22 (104) 0 (104) (158) 0 (158) PDC dividends payable 9 (11,516) 0 (11,516) (13,279) 0 (13,279) Net finance costs (29,579) 0 (29,579) (20,545) 0 (20,545) (DEFICIT)/SURPLUS FOR THE YEAR 8,995 (55,120) (46,125) 7,174 (6,146) 1,028 (DEFICIT)/SURPLUS FOR THE YEAR 8,995 (55,120) (46,125) 7,174 (6,146) 1,028 Other Comprehensive Income & Expense: Increase in the donated asset reserve due to receipt of donated assets ** 1, ,450 3, ,168 (Reduction) in the donated asset reserve in respect of depreciation, impairment, and/or disposal of donated assets ** (1,960) (3,891) (5,851) (2,155) 0 (2,155) Revaluation (losses) on property, plant and equipment ** 0 (19,587) (19,587) 0 (10,417) (10,417) Other recognised gains ** TOTAL COMPREHENSIVE INCOME & EXPENSE FOR THE YEAR 8,494 (78,598) (70,104) 8,187 (16,563) (8,376) * A charge of 55,120k is made to the Statement of Comprehensive Income as an 'exceptional item'. This results from a reduction in the valuation of assets which primarily reflects the impact of current market conditions on the valuation of Trust properties. The adjustment has no impact on the cashflows of the Trust. For further information, refer to Note ** The Other Comprehensive Income & Expense analysis relates to items which have been charged directly to Reserves in the Statement of Position, not to in-year results. For a more detailed breakdown, refer to the Statement of Changes in Taxpayers' Equity on page 4. The notes on pages 6 to 45 form part of these accounts. P2 - SOCI

4 STATEMENT OF FINANCIAL POSITION as at 31 March March 31 March 1 April Note NON-CURRENT ASSETS Intangible assets 10 3,030 1, Property, plant and equipment , , ,633 Investments in subsidiaries and joint ventures Trade and other receivables ,173 Total non-current assets 578, , ,318 CURRENT ASSETS Inventories 13 16,073 13,956 12,700 Trade and other receivables 14 48,977 43,212 44,193 Other financial assets 15 1, Non current assets held for sale ,000 5,000 Cash and cash equivalents 17 51,749 61,815 33,191 Total current assets 118, ,769 95,802 CURRENT LIABILITIES Trade and other payables 18 (68,093) (68,524) (48,075) Other liabilities 19 (14,530) (11,507) (11,952) Borrowings 21 (5,478) (2,406) (1,713) Provisions 22 (1,381) (2,253) (2,363) Total current liabilities (89,482) (84,690) (64,103) NON-CURRENT LIABILITIES Trade and other payables 18 (1,226) (1,613) (2,095) Borrowings 21 (255,698) (170,955) (27,515) Provisions 22 (10,756) (11,864) (9,780) Total non-current liabilities (267,680) (184,432) (39,390) TOTAL ASSETS EMPLOYED 340, , ,627 TAXPAYERS' EQUITY: Public dividend capital 222, , ,456 Revaluation reserve 125, , ,244 Donated asset reserve 17,479 21,880 20,867 Income and expenditure reserve (25,584) 20,088 19,060 TOTAL TAXPAYERS' EQUITY 340, , ,627 For details of movements in taxpayer's equity, please refer to page 4. The financial statements on pages 6 to 45 were approved by the Board on 2 June 2010 and signed on its behalf by: Sir Leonard Fenwick Chief Executive 2 June 2010 P3 - SoFP

5 STATEMENT OF CHANGES IN TAXPAYERS' EQUITY for the year ended 31 March 2010 Total Public dividend capital Revaluation reserve Donated asset reserve Income and expenditure reserve Taxpayers' equity at 1 April , , ,827 21,880 20,088 (Deficit) for the year * (46,125) (46,125) Revaluation (losses) and impairment losses on property, plant and equipment * (19,587) 0 (19,587) 0 0 Increase in donated asset reserve due to receipt of donated assets 1, ,450 0 (Reduction) in the donated asset reserve in respect of depreciation, impairment, and/or disposal of donated assets (5,851) 0 0 (5,851) 0 Public dividend capital received 10,000 10, Other movements on reserves 9 0 (444) Taxpayers' equity at 31 March , , ,796 17,479 (25,584) Total Public dividend capital Revaluation reserve Donated asset reserve Income and expenditure reserve Taxpayers' equity at 1 April , , ,244 20,867 19,060 Surplus for the year 1, ,028 Revaluation (losses) and impairment losses on property, plant and equipment ** (10,417) 0 (10,417) 0 0 Increase in donated asset reserve due to receipt of donated assets 3, ,168 0 (Reduction) in the donated asset reserve in respect of depreciation, impairment, and/or disposal of donated assets (2,155) 0 0 (2,155) 0 Public dividend capital received 2,928 2, Taxpayers' equity at 31 March , , ,827 21,880 20,088 * The deficit for the year includes 55,120k for impairments which have arisen during 2009/10. A reduction of 19,587k was also recognised in the Revaluation Reserve as a result of revaluation adjustments. Refer to Note for further details. ** Refer to Note for details. P4 -SOCITE

6 STATEMENT OF CASH FLOWS for the year ended 31 March / /09 Note Cash flows from operating activities Net cash generated from operating activities 23 56,142 80,570 Cash flows from investing activities Interest received 307 2,515 Payments to acquire financial assets 12 (80) (118) Payments to acquire intangible assets (1,827) (415) Payments to acquire property, plant and equipment (41,240) (32,113) Sales of property, plant and equipment 73 0 Net cash (used in) investing activities (42,767) (30,131) Cash flows from financing activities Public dividend capital received 10,000 2,928 Public dividend capital repaid 0 0 Loans received 21 7,477 0 Loans repaid 0 0 Capital element of finance lease rental payments (662) (540) Capital element of private finance initiative obligations (6,658) (1,481) Interest paid (47) 0 Interest element of finance lease rental payments (268) (342) Interest element of private finance initiative obligations (17,895) (9,101) Public dividend capital dividend paid (13,550) (13,279) Cash flows from/(used in) other financing activities (1,838) 0 Net cash generated from/(used in) financing (23,441) (21,815) (Decrease)/increase in cash and cash equivalents (10,066) 28,624 Cash and cash equivalents at 1 April 17 61,815 33,191 Cash and cash equivalents at 31 March 51,749 61,815 P5 - Cashflow

7 NOTES TO THE ACCOUNTS 1 Accounting policies and other information Monitor has directed that the financial statements of NHS foundation trusts shall meet the accounting requirements of the NHS Foundation Trust Annual Reporting Manual (FT ARM) which shall be agreed with HM Treasury. Consequently, the following financial statements have been prepared in accordance with the 2009/10 FT ARM issued by Monitor. The accounting policies contained in that manual follow International Financial Reporting Standards (IFRS) and HM Treasury s Financial Reporting Manual to the extent that they are meaningful and appropriate to NHS foundation trusts. The accounting policies have been applied consistently in dealing with items considered material in relation to the accounts. This is the first set of accounts prepared by The Newcastle upon Tyne Hospitals Trust under IFRS. In order to provide meaningful comparators, the prior year entries in these accounts have been restated to show the values as they would have appeared under IFRS. The financial effect of the transition to IFRS is shown in note 33 to the Accounts. 1.1 Accounting convention These accounts have been prepared under the historical cost convention as modified by the revaluation of property, plant and equipment and intangible assets. NHS foundation trusts, in compliance with the FT ARM, are not required to comply with IAS 16 regarding the disclosure of historical cost carrying amounts. Critical accounting judgements and estimates in applying the Trust's accounting policies The preparation of the financial statements in conformity with IFRS requires the use of certain critical accounting estimates and also requires the Trust directors and senior managers to exercise their judgement in the process of applying the Trust's accounting policies. The directors and senior managers make estimates and assumptions concerning the future. As a result the accounting estimates may not equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year are discussed below: a) Incomplete patient spells at the year end: The Trust prepares an estimate of income generated for incomplete in-patient spells at the year end. This estimate is based on an equivalent month end date occurring earlier in the year to provide a basis for calculation. b) Legal claims: Legal claims are based upon professional assessments, which are uncertain to the extent that they are an estimate of the likely outcome of individual cases. c) Indices: The valuation of land and buildings is based on building cost indices provided by and used by the District valuers in his valuation work. These indices are based on an indication of trend of accepted tender prices within the construction industry as applied to the Public Sector. d) Private Finance Initiative (PFI) schemes: As part of the Transforming Newcastle Hospitals PFI scheme, the Trust is required to pay the operator for Lifecycle replacement assets. A judgement has been made that payment for these assets is accounted for in equal annual instalments over the period of the scheme, rather than when payments are made. This results in a prepayment for assets being established in the early years of the scheme, which is used in later years when the asset replacement occurs. 1.2 Basis of consolidation The financial statements are those of the Trust and contain information about the Trust as a single entity. The Newcastle upon Tyne Hospitals NHS Charity would qualify as a subsidiary under the requirements of IAS 27. However, the results of the Newcastle upon Tyne Hospitals NHS Charity have not been consolidated within these accounts, in accordance with the dispensation obtained by Monitor from HM Treasury for the year ended 31 March Income recognition Income in respect of services provided is recognised when, and to the extent that performance occurs and is measured at the fair value of the consideration receivable. The main source of income for the Trust is contracts with commissioners in respect of healthcare services. The Trust follows the Department of Health's Payment by Results (PbR) methodology in the form of its contracts with NHS commissioners. For partially completed patient spells, which commenced prior to the financial year end and for which date of discharge is not known, the income relating to the activity is accrued. The accrued income is calculated based on the length of stay in the financial year multiplied by a standard income per day differentiated by speciality. For patient income where the spell has been completed, the accrual is based on the days in the financial year multiplied by the relevant tariff. Where income is received for a specific activity which is to be delivered in the following financial year, that income is deferred. Income from the sale of non-current assets is recognised only when all material conditions of sale have been met, and is measured as the sums due under the sale contract. Income in respect of the NHS Injury Compensation Scheme is recognised in accordance with standard guidance, when the Trust receives confirmation from the Compensation Recovery Unit that a patient has lodged a claim. Research and development income is recognised when the conditions attached to the grant or payment are met. Education and training income is recognised either in equal instalments over the financial year or if the income can be identified with specific expenditure, in line with this expenditure. P6 policies

8 1.4 Expenditure on goods and services Expenditure on goods and services is recognised when, and to the extent that they have been received, and is measured at the fair value of those goods and services. Expenditure is recognised in operating expenses except where it results in the creation of a non-current 1.5 Intangible assets Recognition Intangible assets are non-monetary assets without physical substance which are capable of being sold separately from the rest of the trust s business or which arise from contractual or other legal rights. They are recognised only where it is probable that future economic benefits will flow to, or service potential be provided to, the Trust and where the cost of the asset can be measured reliably. Internally generated intangible assets Expenditure on research is not capitalised, it is written off to the statement of comprehensive income in the period to which it relates. Expenditure on development is capitalised only where all of the following can be demonstrated: - The project is technically feasible to the point of completion and will result in an intangible asset for sale or use: -The Trust intends to complete the asset and sell or use it; - The Trust has the ability to sell or use the asset; - How the intangible asset will generate probable future economic or service delivery benefits e.g. the presence of a market for it or its output, or where it is to be used for internal use, the usefulness of the asset; - Adequate financial, technical and other resources are available to the Trust to complete the development and sell or use the asset; and - The Trust can measure reliably the expenses attributable to the asset during development. Software Software which is integral to the operation of hardware e.g. an operating system, is capitalised as part of the relevant item of property, plant and equipment. Software which is not integral to the operation of hardware e.g. application software and software licences, is capitalised as an intangible asset when expenditure of at least 5,000 is incurred. Measurement Intangible assets are recognised initially at cost, comprising all directly attributable costs needed to create, produce and prepare the asset to the point that it is capable of operating in the manner intended by management. Subsequently intangible assets are measured at fair value. Increases in asset values arising from revaluations are recognised in the revaluation reserve, except where, and to the extent that, they reverse an impairment previously recognised in operating expenses, in which case they are recognised in operating income. Decreases in asset values and impairments are charged to the revaluation reserve to the extent that there is an available balance for the asset concerned, and thereafter are charged to operating expenses. Gains and losses recognised in the revaluation reserve are reported in the statement of comprehensive Income as an item of other comprehensive income. Amortisation Intangible assets have a finite life and are amortised over their expected useful economic lives on a straight line basis in a manner consistent with the consumption of economic or service delivery benefits. P7 policies

9 1.6 Property, plant and equipment Recognition Property, plant and equipment is capitalised if it is capable of being used for a period which exceeds one financial year, it is probable that future economic benefits will flow to, or service potential be supplied to the Trust and the cost of the item can be measured reliably. Also the assets: a. individually have a cost of at least 5,000; or b. form a group of assets which collectively have a cost of at least 5,000,and individually have a cost of more of 250, where the assets are functionally interdependent, they have broadly simultaneous purchase dates, are anticipated to have simultaneous disposal dates and are under single managerial control; or c. form part of the initial setting-up cost of a new building, or refurbishment of a ward or unit, and their individual cost exceeds 250. Where a large asset, for example a building, includes a number of components with significantly different asset lives e.g. plant and equipment, then these components are treated as separate assets and depreciated over their own useful economic lives. Measurement Valuation All property, plant and equipment is measured initially at cost, representing the cost directly attributable to acquiring or constructing the asset and bringing it to the location and condition necessary for it to be capable of operating in the manner intended by management. All assets are measured subsequently at fair value. Property, plant and equipment (excluding specialised land and buildings) - On initial recognition they are measured at cost, including any costs, such as installation, directly attributable to bringing them into working condition. Subsequently they are measured at fair value which is the lower of replacement cost and recoverable amount. Any costs arising from financing the construction of the property, plant and equipment are not capitalised but are charged to the statement of comprehensive income in the year to which they relate. Non-specialised operational buildings are valued on an existing use basis. Specialised land and buildings - Specialised operational buildings are measured on a modern equivalent asset basis. For non-operational buildings, including surplus land, the valuations are carried out at open market value. All land and buildings are valued on a frequent basis to ensure that the fair value is not materially misstated. Valuations are carried out by professionally qualified valuers in accordance with the Royal Institute of Chartered Surveyors (RICS) Appraisal and Valuation Manual. The latest asset valuation exercise concluded on 31st March Property in the course of construction is carried at cost. Cost includes professional fees but not borrowing costs, which are recognised as an expense immediately, as allowed by IAS 23 for assets held at fair value. Property in the course of construction once brought into use is valued by professional valuers as part of the standard valuation process. P8 policies

10 Subsequent expenditure Expenditure incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to the income statement in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property plant and equipment, and where the cost of the item can be measured reliably, the expenditure is capitalised as an additional cost of that asset or as a replacement. Where a component of an asset is replaced, the cost of the replacement is capitalised if it meets the criteria for recognition above. The carrying amount of the part replaced is de-recognised. Revaluation and impairment At the end of each reporting period, a review is undertaken to check for the indication of any impairment of property, plant and equipment. Increases in asset values arising from revaluations are recognised in the revaluation reserve except where and to the extent that they reverse an impairment recognised in operating expenses, in which case they are recognised in operating income. Decreases in asset values and impairments are charged to the revaluation reserve to the extent that there is an available balance for the asset concerned, and thereafter charged to operating expenses. Gains and losses recognised in the revaluation reserve are reported in the statement of comprehensive income as an item of 'other comprehensive income'. De-recognition Assets intended for disposal are reclassified as Held for sale once all of the following criteria are met: the asset is available for immediate sale in its present condition subject only to terms which are usual and customary for such sales: the sale must be highly probable i.e.: -management are committed to a plan to sell the asset; -an active programme has begun to find a buyer and complete the sale; - the asset is being actively marketed at a reasonable price; - the sale is expected to be completed within 12 months of the date of classification as Held for sale ; and - the actions needed to complete the plan indicate it is unlikely that the plan will be dropped or significant changes made to it. Following reclassification, the assets are measured at the lower of their existing carrying amount and their fair value less costs to sell. Depreciation ceases to be charged and the assets are not revalued, except where the 'fair value less costs to sell' falls below the carrying amount. Assets are de-recognised when all material sale contract conditions have been met. P9 policies

11 Depreciation Items of property, plant and equipment are depreciated over their remaining useful economic lives in a manner consistent with the consumption of economic or service delivery benefits which is normally on a straight line basis. The useful economic lives and hence depreciation rates for equipment assets are determined by staff within the Medical Electronics department. Freehold land is considered to have an infinite life and is not depreciated. Property in the course of construction and payments on account are not depreciated until the property is brought into use. Property, plant and equipment which has been reclassified as "Held for Sale" ceases to be depreciated upon reclassification. Buildings, installations and fittings are depreciated on their modern equivalent asset value over the estimated remaining life of the asset as assessed by the Trust's professional valuers. Assets capitalised under finance leases are depreciated over the primary lease term or the life of the asset if it reverts to the Trust at the end of the lease period. Equipment is depreciated on fair value evenly over the estimated life of the asset. Asset lives fall into the following ranges: - Plant and machinery - 2 to 15 years - Transport equipment - 7 years - Information technology - 5 to 10 years - Furniture and fittings - 5 to 15 years Donated assets Donated non-current assets are capitalised at their fair value on receipt and this same value is credited to the donated asset reserve. Donated non-current assets are valued and depreciated as described above for purchased assets. Gains and losses on revaluations are also taken to the donated asset reserve and, each year, an amount equal to the depreciation charge on the asset is released from the donated asset reserve to the statement of comprehensive income. Similarly, any impairment on donated assets charged to the statement of comprehensive income is matched by a transfer from the Donated Asset Reserve. On sale of donated assets, the net book value is transferred from the donated asset reserve to the income and expenditure reserve. P10 policies

12 1.7 Government grants Government grants are grants from government bodies other than income from primary care trusts or NHS trusts for the provision of services. Grants from the Department of Health are accounted for as government grants, as are grants from the Big Lottery Fund. Where the government grant is used to fund revenue expenditure it is taken to the statement of comprehensive income to match that expenditure. Where the grant is used to fund capital expenditure, the grant is held as deferred income and released to operating income over the life of the asset, in a manner consistent with the depreciation charge for that asset. 1.8 Private Finance Initiative (PFI) transactions HM Treasury has determined that the Trust shall account for infrastructure PFI schemes where the Trust controls the use of the infrastructure and the residual interest in the infrastructure at the end of the arrangement as service concession arrangements, following the principles of the requirements of IFRIC 12. The Trust therefore recognises the PFI asset as an item of property, plant and equipment together with a liability to pay for it. The services received under the contract are recorded as operating expenses. The annual unitary payment is separated into the following component parts, using appropriate estimation techniques where necessary: a) payment for the fair value of services received b) payment for the PFI asset, including finance costs c) payment for the replacement of components of the asset during the contract (lifecycle replacement) Services received The fair value of services received in the year is recorded under the relevant expenditure headings within 'operating expenses'. Finance interest and contingent rent in relation to services received are recorded under Finance expensefinancial liabilities. PFI asset The PFI assets are recognised as property, plant and equipment when the unitary payment becomes payable. The assets are measured at fair value which is kept up to date in accordance with the Trust's approach for each relevant class of asset in accordance with the principles of IAS 16. PFI liability A PFI liability is recognised at the same time as the PFI assets are recognised. It is measured initially at the same amount as the fair value of the PFI assets and is subsequently measured as a finance lease liability in accordance with IAS 17. An annual finance cost is calculated by applying the implicit interest rate in the lease to the lease liability for the period, and is charged to 'Finance Costs' within the Statement of Comprehensive Income. The element of the annual unitary payment that is allocated as a finance lease rental is applied to meet the annual finance cost and to repay the lease liability over the contract term. An element of the annual unitary payment increase which is due to inflation is allocated to the finance lease. In accordance with IAS 17, this amount is not included in the minimum lease payments, but is instead treated as contingent rent and is expensed as incurred. In substance, this amount is a finance cost in respect of the liability and the expense is presented as contingent finance cost in the statement of comprehensive income. Lifecycle replacement An amount is set aside from the unitary payment each year into a Lifecycle Replacement prepayment to reflect the fact that the Trust is effectively pre-funding some elements of future lifecycle replacement by the operator. When the operator replaces a capital asset, the fair value of this replacement item is recognised as property, plant and equipment. Where the item was planned for replacement and therefore its value is being funded through the unitary payment, the lifecycle prepayment is reduced by the amount of the fair value. The prepayment is reviewed annually to ensure that its carrying amount will be realised through future lifecycle components to be provided by the operator. Any unrecoverable balance is written out of the prepayment and charged to operating expenses. Where the lifecycle item was not planned for replacement during the contract it is effectively being provided free of charge to the Trust. A deferred income balance is therefore recognised instead and this is released to operating income over the life of the replacement component. Other assets contributed by the Trust to the operator Assets contributed (e.g. cash payments) by the trust to the operator before the asset is brought into use, which are intended to defray the operator's capital costs, are recognised initially as prepayments during the construction phase of the contract. Subsequently, when the asset is made available to the trust, the prepayment is treated as an initial payment towards the finance lease liability and is set against the carrying value of the liability. P11 policies

13 1.9 Non-current assets held for sale Non-current assets are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met when the sale is highly probable, the asset is available for immediate sale in its present condition and management is committed to the sale, which is expected to qualify for recognition as a completed sale within one year from the date of classification. Non-current assets held for sale are measured at the lower of their previous carrying amount and fair value less costs to sell. Fair value is open market value including alternative uses. When a non-current asset ceases to be classified as held for sale it is reclassified as property, plant and equipment. It is measured at the lower of its previous carrying amount as if it had not been held for sale (adjusted for any subsequent depreciation and revaluations) and its recoverable amount. Fair value is open market value including alternative uses. The profit or loss arising on disposal of an asset is the difference between the sale proceeds and the carrying amount and is recognised in the statement of comprehensive income. On disposal, the balance for the asset on the revaluation reserve is transferred to the income and expenditure reserve. For donated and government granted assets, a transfer is made to or from the relevant reserve to the profit/loss on disposal accounts so that no profit or loss is recognised in income or expenses. The remaining surplus or deficit in the donated asset or government grant reserve is then transferred to the income and expenditure reserve The Trust as a lessee Finance leases Where substantially all risks and rewards of ownership of a leased asset are borne by the Trust, the asset is recorded as property, plant and equipment and a corresponding liability is recorded. The value at which both are recognised is the lower of the fair value of the asset or the present value of the minimum lease payments, discounted using the interest rate implicit in the lease. The implicit interest rate is that which produces a constant periodic rate of interest on the outstanding liability The asset and liability are recognised at the inception of the lease and are de-recognised when the liability is discharged, cancelled or expires. The annual rental is split between the repayment of the liability and a finance cost. The annual finance cost is calculated by applying the implicit interest rate to the outstanding liability and is charged to finance costs in the statement of comprehensive income. Operating leases Other leases are regarded as operating leases and the rentals are charged to operating expenses on a straight-line basis over the term of the lease. Operating lease incentives received, where applicable, are added to the lease rentals and charged to operating expenses over the life of the lease. Leases of land and buildings Where a lease is for land and buildings, the land and building components are separated. Leased land is treated as an operating lease. Leased buildings are assessed as to whether they are operating or finance leases The Trust as a lessor Operating leases Rental income from operating leases is recognised on a straight-line basis over the term of the lease. Assets leased to others are accounted for in accordance with the accounting policy for property, plant and equipment Inventories Inventories are valued at cost, by reference to supplier information. This is considered to be a reasonable approximation to fair value due to the high turnover of inventory Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call with banks, other short term highly liquid investments with original maturities of three months or less and bank overdrafts. Cash and bank balances are recorded at the current values of these balances in the Trust's cash book. Account balances are only set off where a formal agreement has been made with the bank to do so. In all other cases overdrafts are disclosed within borrowings. Interest earned on bank accounts and interest charged on overdrafts is recorded as, respectively, finance income and finance expense - financial liabilities in the periods to which they relate. Bank charges are recorded as operating expenditure in the periods to which they relate. As the Trust has no bank overdrafts there is no difference between the amount disclosed as cash and cash equivalents in the statement of financial position and in the cash flow statement. P12 policies

14 1.14 Provisions The Trust provides for legal or constructive obligations that are of uncertain timing or amount at the statement of financial position date on the basis of the best estimate of the expenditure required to settle the obligation. Where the effect of the time value of money is significant, the estimated risk-adjusted cash flows are discounted using HM Treasury's discount rate of 2.2% in real terms. Clinical negligence costs The NHS Litigation Authority (NHSLA) operates a risk pooling scheme under which the Trust pays an annual contribution to the NHSLA which, in return, settles all clinical negligence claims. Although the NHSLA is administratively responsible for all clinical negligence cases, the legal liability remains with the Trust. The total value of clinical negligence provisions carried by the NHSLA on behalf of the Trust is disclosed in note 22. Non-clinical risk pooling The Trust participates in the Property Expenses Scheme and the Liabilities to Third Parties Scheme. Both are risk pooling schemes under which the Trust pays an annual contribution to the NHSLA and, in return, receives assistance with the costs of claims arising. The annual membership contributions, and any 'excesses' payable in respect of specific claims, are charged to operating expenses as and when the liability arises Contingent liabilities Contingent liabilities are where a transfer of economic benefits is probable. They are not recognised, but are disclosed within note 26. Contingent liabilities are defined as: a. b. Possible obligations arising from past events whose existence will be confirmed only by the occurrence of one or more uncertain future events, not wholly within the Trust's control; or Present obligations arising from past events but for which it is not probable that a transfer of economic benefits will arise, or for which the amount of the obligation cannot be measured with sufficient reliability Expenditure on employee benefits Short term employee benefits Salaries, wages and employment-related payments are recognised in the period in which the service is received from employees. The cost of annual leave entitlement earned but not taken by employees at the end of the period is recognised in the financial statements to the extent that employees are permitted to carry forward leave into the following period. Pension costs Past and present employees are covered by the provisions of the NHS Pensions Scheme (the scheme). Details of the benefits payable under these provisions can be found on the NHS Pensions website at The scheme is an unfunded, defined benefit scheme that covers NHS employers, general practices and other bodies, allowed under the direction of Secretary of State, in England and Wales. The scheme is not designed to be run in a way that would enable NHS bodies to identify their share of the underlying scheme assets and liabilities. Therefore, the scheme is accounted for as if it were a defined contribution scheme: the cost to the Trust of participating in the scheme is taken as equal to the contributions payable to the scheme for the accounting period. P13 policies

15 1.17 Value added tax (VAT) Most of the activities of the Trust are outside the scope of VAT and, in general, output tax does not apply and input tax on purchases is not recoverable. Irrecoverable VAT is charged to the relevant expenditure category or included in the capitalised purchase cost of non-current assets. Where output tax is charged or input VAT is recoverable, the amounts are stated net of VAT Corporation tax Foundation Trusts are exempt from corporation tax on their principal health care income under section 519A Income and Corporation Taxes Act In determining whether other income may be taxable, a three-stage test must be employed which asks whether the activity is an authorised activity related to the provision of core healthcare, whether the activity is actually or potentially in competition with the private sector, and whether the annual profits of the activity are in excess of 50,000 per trading activity. The Trust has applied these 3 tests to its income and has determined that it does not have any corporation tax liability in the current accounting year Foreign exchange The functional and presentational currencies of the Trust are sterling. A transaction which is denominated in a foreign currency is translated into the functional currency at the spot exchange rate on the date of the transaction. Where the Trust has assets or liabilities denominated in a foreign currency at the Statement of Financial Position date: monetary items (other than financial instruments measured at fair value through profit or loss") are translated at the spot exchange rate on 31 March; non-monetary assets and liabilities measured at historical cost are translated using the spot exchange rate at the date of the transaction; and non-monetary assets and liabilities measured at fair value are translated using the spot exchange rate at the date the fair value was determined. Exchange gains or losses on monetary items (arising on settlement of the transaction or on re-translation at the Statement of financial position date) are recognised in income or expense in the period in which they arise. Exchange gains or losses on non-monetary assets and liabilities are recognised in the same manner as other gains and losses on these items Third party assets Assets belonging to third parties (such as money held on behalf of patients) are not recognised in the accounts since the Trust has no beneficial interest in them. However, they are disclosed in a separate note to the accounts in accordance with the requirements of the HM Treasury Financial Reporting Manual Public Dividend Capital (PDC) and PDC Dividend Public dividend capital (PDC) represents taxpayers' equity in the Trust. PDC is recorded at the value received. HM Treasury has determined that PDC is not a financial instrument within the meaning of IAS 32. An annual charge, reflecting the cost of capital utilised by the Trust, is payable to the Department of Health as a public dividend capital dividend. The charge is calculated at the real rate set by HM Treasury (currently 3.5%) on the average carrying amount of all assets less liabilities, except for donated assets and cash balances with the Government Banking Service. The average carrying amount of assets is calculated as a simple average of opening and closing relevant net assets. Prior to 2009/10 the PDC dividend was determined using forecast average relevant net assets. From 1 April 2009 the dividend payable is based on actual average relevant net assets for the year instead of forecast amounts Losses and special payments Losses and special payments are items that Parliament would not have contemplated when it agreed funds for the health service or passed legislation. By their nature they are items that ideally should not arise. They are therefore subject to special control procedures compared with general payments. They are divided into different categories, which govern the way in which each individual case is handled. Losses and special payments are charged to the relevant functional headings in expenditure on an accruals basis, including losses which would have been made good through insurance cover had NHS trusts not been bearing their own risks (with insurance premiums then being included as normal revenue expenditure). P14 policies

16 1.23 Financial instruments and financial liabilities Recognition Financial assets and financial liabilities which arise from contracts for the purchase or sale of non-financial items (such as goods or services), which are entered into in accordance with the Trust s normal purchase, sale or usage requirements, are recognised when, and to the extent which, performance occurs i.e. when receipt or delivery of the goods or services is made. Financial assets or financial liabilities in respect of assets acquired or disposed of through finance leases are recognised and measured in accordance with the accounting policy for leases described above. All other financial assets and financial liabilities are recognised when the Trust becomes a party to the contractual provisions of the instrument. De-recognition All financial assets are de-recognised when the rights to receive cash flows from the assets have expired or the Trust has transferred substantially all of the risks and rewards of ownership. Financial liabilities are de-recognised when the obligation is discharged, cancelled or expires. Classification and measurement Financial assets are categorised as Loans and receivables. Financial liabilities are classified as Other Financial liabilities. Loans and receivables The Trust's loans and receivables comprise: non-current and current asset investments, cash and cash equivalents and trade and other receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments which are not quoted in an active market. They are included in non-current and current assets. Other financial liabilities The Trust's other financial liabilities comprise: trade and other payables, other liabilities, accruals, finance lease obligations, PFI obligations, other borrowings and provisions under contract. All other financial liabilities are recognised initially at cost, net of transaction costs incurred, and measured subsequently at amortised cost using the effective interest rate method. The effective interest rate is the rate that discounts exactly estimated They are included in current liabilities except for amounts payable more than 12 months after the Statement of Financial Position date, which are classified as non-current liabilities. Interest on financial liabilities carried at amortised cost is calculated using the effective interest rate method and charged to Finance Costs. Interest on financial liabilities taken out to finance property, plant and equipment or intangible assets is not Determination of fair value The Trust considers that all of its financial assets are 'loans and receivables' and all of its financial liabilities are included at cost. The Fair Value of financial assets and liabilities is considered to be approximately the same as the carrying value. Impairment of financial assets At the Statement of Financial Position date, the Trust assesses whether any financial assets are impaired. Financial assets are impaired and impairment losses are recognised if there is objective evidence of impairment as a result of one or more An asset's carrying value is either written down or a provision made on a judgement basis, based upon past experience. Once it has been established that an amount provided for will not be recovered, this amount is written off against the carrying amount of the financial asset. P15 policies

17 1.24 Trade payables Trade payables are initially recognised at fair value and subsequently at amortised cost using the effective interest rate method Trade receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Trust will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the income statement within operating expenses. When a trade receivable is uncollectable, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against operating expenses in the income statement EU Emissions Trading Scheme EU Emission Trading Scheme allowances, granted by DEFRA at 1 January each year, are treated as current asset investments. The same accounting treatment is accorded to credits purchased to cover the excess of actual emissions to allowances. A deferred income balance, equal and opposite to the allowances received, is released progressively each year to the Statement of Comprehensive Income. The costs of actual emissions are charged to the Statement of Comprehensive Income, and a provision is set aside. The provision is cleared when the allowances and credits are surrendered at the end of the term covered by the scheme. All Statement of Financial Position entries are valued at fair value at the end of each financial year Accounting standards that have been issued but have not yet been adopted The Trust has followed the accounting standards as set out in the FT ARM for 2009/10. There are no accounting policies which have not yet been adopted Accounting standards issued that have been adopted early The FT ARM includes the early adoption of the International Accounting Standards Board amendment to IFRS 8 Operating Segments. The Trust has followed this guidance in preparing these accounts. The standards which have been released but which are not mandatory in the 2009/10 accounts, and which have not been adopted early, are set out below: Amendment to IAS 24, Related party disclosures. Effective from annual periods beginning on or after 1 January 2011 (NHS: 2011/12) IAS 27 (Revised) Consolidated and separate financial statements. Effective from annual periods on or after 1 July 2009 (NHS: 2010/11) Amendment to IAS 32 Financial instruments: Presentation on classification or rights issues. Effective from annual periods on or after 1 February 2010 (NHS: 2010/11) IFRS 2 Share-based payment Group cash-settled share-based payment transactions. Effective from annual periods beginning on or after 1 January 2010 (NHS: 2010/11) IFRS 3 (Revised) Business combinations. Effective from business combinations occurring in annual periods beginning on or after 1 July (NHS: 2010/11) IFRS 9, Financial instruments. Effective from annual periods beginning on or after 1 January (NHS: 2013/14) Amendment to IFRIC 14, IAS 19 Prepayments of a minimum funding requirement. Effective from annual periods beginning on or after 1 January (NHS: 2011/12) IFRIC 17 Distributions of Non-cash Assets to Owners. Effective from annual periods beginning on or after 1 July (NHS: 2010/11) IFRIC 18, Transfer of assets from customers. Effective from annual periods on or after 1 July 2009 although EU endorsed for annual periods on or after 31 October (NHS: 2010/11) IFRIC 19, Extinguishing financial liabilities with equity instruments. Effective from annual periods beginning on or after 1 July (NHS: 2011/12) Annual Improvements Individual amendments apply for annual periods beginning either on or after 1 July 2009 or 1 January (NHS: 2010/11). Annual Improvements Individual amendments apply for annual periods beginning on or after 1 January (NHS: 2011/12). P16 policies