Foreword to the Accounts. Northumberland, Tyne & Wear NHS Foundation Trust

Transcription

1 Foreword to the Accounts Northumberland, Tyne & Wear NHS Foundation Trust These accounts for the period ended 31st March 2015 have been prepared by the Northumberland, Tyne & Wear NHS Foundation Trust under Schedule 7 of the National Health Service Act 2006, paragraphs 24 and 25 and in accordance with directions given by Monitor, the Independent Regulator of Foundation Trusts, and have been prepared on a going concern basis. John Lawlor Chief Executive 27th May 2015 Foreword

2 Statement of Comprehensive Income 2014/ /14 Note Operating income from continuing operations 3 314, ,260 Operating expenses from continuing operations 4 (340,052) (393,744) Operating (deficit) (25,074) (92,484) Finance costs Finance income Finance expense - financial liabilities 12 (5,484) (5,401) Finance expense - unwinding of discount on provisions (84) (97) PDC dividends payable (1,031) (3,078) Net finance costs (6,530) (8,482) Share of surplus/(deficit) from joint ventures 49 (38) (Deficit) for the year (31,555) (101,004) Other comprehensive income Impairments (163) (9,488) Revaluations Total comprehensive (expense) for the year (30,960) (109,799) SoCI

3 Statement of Financial Position Non-current assets 2014/ /14 Note Intangible assets Property, plant and equipment , ,065 Investments in associates and joint ventures Trade and other receivables Total non-current assets 123, ,278 Current assets Inventories Trade and other receivables 21 20,701 12,375 Non-current assets for sale and assets in disposal groups 17 1,645 14,098 Cash and cash equivalents 22 20,566 15,295 Total current assets 43,224 42,164 Current liabilities Trade and other payables 23 (25,026) (20,890) Borrowings 24 (6,156) (5,507) Provisions 28 (1,039) (3,244) Other liabilities 26 (999) (490) Total current liabilities (33,220) (30,131) Total assets less current liabilities 133, ,311 Non-current liabilities Borrowings 24 (92,431) (93,987) Provisions 28 (6,149) (5,057) Other liabilities 26 (301) (261) Total non-current liabilities (98,881) (99,305) Total assets employed 34,680 64,006 Financed by Taxpayers' equity: Public Dividend Capital 203, ,677 Revaluation reserve 30 2,298 12,344 Income and expenditure reserve (170,929) (150,015) Total taxpayers' equity 34,680 64,006 The financial statements were approved by the Board on 27th May 2015 and signed on its behalf by: John Lawlor Chief Executive 27th May 2015 SoFP

4 Statement of Changes in Taxpayers' Equity: 1st April 2014 to 31st March 2015 Taxpayers' Equity Total Public Dividend Capital Revaluation Reserve Income & Expenditure Reserve Others' and Taxpayers' equity at 1st April , ,677 12,344 (150,015) Deficit for the year (31,555) 0 0 (31,555) Transfer between reserves Impairments (163) 0 (163) 0 Revaluations - property, plant and equipment Transfer to retained earnings on disposal of assets 0 0 (10,622) 10,622 Other reserves movements 0 0 (19) 19 Public Dividend Capital received 1,634 1, Others' and Taxpayers' equity at 31st March , ,311 2,298 (170,929) Statement of Changes in Taxpayers' Equity: 1st April 2013 to 31st March 2014 Taxpayers' Equity Total Public Dividend Capital Revaluation Reserve Income & Expenditure Reserve Others' and Taxpayers' equity at 1st April , ,394 22,009 (49,881) Deficit for the year (101,004) 0 0 (101,004) Transfer between reserves 0 0 (489) 489 Impairments (9,488) 0 (9,488) 0 Revaluations - property, plant and equipment Transfer to retained earnings on disposal of assets 0 0 (381) 381 Other recognised gains and losses Public dividend capital received Others' and Taxpayers' equity at 31st March , ,677 12,344 (150,015) SoCiTE

5 Statement of Cash Flows Cash flows from operating activities: 2014/ /14 Note Operating (Deficit) from continuing operations (25,074) (92,484) Operating (deficit) (25,074) (92,484) Non-cash income and expense: Depreciation and amortisation 5,851 7,565 Impairments 51, ,757 Reversals of impairments (13,478) (518) Loss on disposal (1,426) 0 (Increase) in trade and other receivables (9,149) (29) Decrease in inventories Increase/(Decrease) in trade and other payables 2,799 (784) Increase/(Decrease) in other liabilities 549 (619) (Decrease)/Increase in provisions (1,197) 670 Other movements in operating cash flows 6,987 (1,447) Net cash generated from operations 17,796 17,138 Cash flows from investing activities: Interest received Purchase of intangible assets (377) (102) Purchase of Property, Plant and Equipment and Investment Property (14,131) (41,137) Sales of Property, Plant and Equipment and Investment Property 6,889 2,446 Net cash generated (used in) investing activities (7,551) (38,700) Cash flows from financing activities: Public dividend capital received 1, Loans received from the Independent Trust Financing Facility 4,600 16,000 Loans repaid to the Independent Trust Financing Facility (1,704) 0 Loans repaid to the Department of Health (2,766) (2,766) Capital element of finance lease rental payments (60) (60) Capital element of PFI, LIFT and other service concession payments (977) (977) Interest paid (1,225) (1,000) Interest element of finance lease (44) (46) Interest element of PFI, LIFT and other service concession obligations (4,224) (4,178) PDC Dividend paid (208) (3,772) Net cash generated financing activities (4,974) 3,484 Increase/(Decrease) in cash and cash equivalents 5,271 (18,078) Cash and cash equivalents at 1st April 15,295 33,373 Cash and cash equivalents at 31st March 22 20,566 15,295 SoCF

6 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 which shall be agreed with HM Treasury. Consequently, the following financial statements have been prepared in accordance with the NHS Foundation Trust Annual Reporting Manual 2014/15 issued by Monitor. The accounting policies contained in that manual follow International Financial Reporting Standards and HM Treasury s Financial Reporting Manual (FReM) 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. 1.1 Accounting Convention These accounts have been prepared under the historical cost convention modified to account for the revaluation of property, plant and equipment, intangible assets, inventories and certain financial assets and financial liabilities Going Concern These accounts have been prepared on a going concern basis following an assessment by the Trust of the historical, current and future performance of the Trust and an assessment of the risk to the continuity of services. 1.2 Critical accounting judgements and key sources of estimation uncertainty In the application of the Trusts accounting policies, management is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from those estimates and the estimates and underlying assumptions are continually reviewed. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of revision and future periods if the revision affects both current and future periods Critical judgements in applying accounting policies The following are critical judgements, apart from those involving estimations (see 1.2.2) that management has made in the process of applying the Trust's accounting policies and that have the most significant effect on the amounts recognised in the financial statements. The Trust has made critical judgements, based on accounting standards, in the classification of leases and arrangements containing a lease. The Trust has made critical judgements in relation to the Modern Equivalent Asset (MEA) revaluation as at the 31st March The District Valuer carries out a professional valuation of the modern equivalent asset required to have the same productive capacity and service potential as existing Trust assets. Judgements have been by the Trust in relation to floor space, bed space, garden space, car parking areas and all areas associated with the capacity required to deliver the Trust's services as at 31st March Key sources of estimation uncertainty The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. Under International Accounting Standard (IAS) 37, significant provisions totalling 621,000 were made for probable transfers of economic benefits in respect of employee claims, legal costs and redundancy provisions. Legal claims are based on professional assessments, which are uncertain to the extent that they are an estimate of the probable outcome of individual cases. Also, under IAS 19, accruals have been made for the value of carried forward annual leave owed totalling 1,243,000 and 129,000 receivable for leave taken in advance The Trust s revaluations of land and buildings are based on professional valuations provided by the District Valuer on a Modern Equivalent Asset basis as per note 1.6. Impairments are recognised on the basis of these valuations. 1.3 Income 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 health care services. Where income is received for a specific activity which is to be delivered in a subsequent 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. Note 1 (a)

7 Notes to the Accounts (continued) 1.4 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: NHS Pension Scheme Past and present employees are covered by the provisions of the NHS Pension Scheme. 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. It is not possible for the NHS Foundation Trust to identify its share of the underlying scheme liabilities. Therefore, the scheme is accounted for as a defined contribution scheme. Employers pension cost contributions are charged to operating expenses as and when they become due. Additional pension liabilities arising from early retirements are not funded by the scheme except where the retirement is due to ill-health. The full amount of the liability for the additional costs is charged to the operating expenses at the time the Trust commits itself to the retirement, regardless of the method of payment. 1.5 Expenditure on other 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 asset such as property, plant and equipment. 1.6 Property, Plant and Equipment Recognition Property, plant and equipment is capitalised where: it is held for use in delivering services or for administrative purposes; it is probable that future economic benefits will flow to, or service potential be provided to, the Trust; it is expected to be used for more than one financial year; and the cost of the item can be measured reliably the item has cost at least 5,000; or collectively, a number of items have a cost of at least 5,000 and individually have a cost of more than 250, where the assets are functionally interdependent, they had broadly simultaneous purchase dates, are anticipated to have simultaneous disposal dates and are under single managerial control; or items form part of the initial equipping and setting-up cost of a new building, ward or unit, irrespective of their individual or collective cost. 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 assets are measured initially at cost, representing the costs 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. (a) Property Assets Land and buildings used for the Trust s services or for administrative purposes are stated in the statement of financial position at their re-valued amounts, being the fair value at the date of revaluation less any subsequent accumulated depreciation and impairment losses. Revaluations are performed with sufficient regularity to ensure that carrying amounts are not materially different from those that would be determined at the end of the reporting period. Fair values are determined as follows: Note 1 (b)

8 Notes to the Accounts (continued) Land and non-specialised buildings market value for existing use Specialised buildings depreciated replacement cost For non-operational properties including surplus land, the valuations are carried out at open market value. HM Treasury has adopted a standard approach to depreciated replacement cost valuations based on modern equivalent assets and, where it would meet the location requirements of the service being provided, an alternative site can be valued. The Trust has applied the modern equivalent asset approach to valuations since 1 April The Trust s appointed professionally qualified valuer is the District Valuer (North) based at the Durham Valuation Office. IAS 16 requires that the carrying value of property is not materially different to fair value at the balance sheet date. To reflect changes in the property market and building cost indexation since the last valuation as at 31 March 2014, a review of the values of land and buildings was undertaken as at 31st March Additional alternative valuations of open market value or value in existing use have been obtained for non-operational assets held for sale or operational properties where disposal is planned and imminent. Properties in the course of construction for service or administration purposes are carried at cost, less any impairment loss. Cost includes professional fees but not borrowing costs, which are recognised as expenses immediately, as allowed by IAS 23 for assets held at fair value. Assets are re-valued and depreciation commences when they are brought into operational use. (b) Non-property Assets NHS bodies may elect to adopt a depreciated historical cost basis as a proxy for fair value for assets that have short useful lives or low values (or both). For depreciated historical cost to be considered as a proxy for fair value, the useful life must be a realistic reflection of the life of the asset and the depreciation method used must provide a realistic reflection of the consumption of that asset class. Assets that are not covered by the above paragraph should be carried at fair value and should be valued using the most appropriate valuation methodology available. Until 31st March 2008, fixtures and equipment were carried at replacement cost, as assessed by indexation and depreciation of historic cost. From 1st April 2008 indexation has ceased. The carrying value of existing assets at that date will be written off over their remaining useful lives and new fixtures and equipment are carried at depreciated historic cost as this is not considered to be materially different from fair value. Subsequent Expenditure Subsequent expenditure relating to an item of property, plant and equipment is recognised as an increase in the carrying amount of the asset when it is probable that additional future economic benefits or service potential deriving from the cost incurred to replace a component of such item will flow to the enterprise and the cost of the item can be determined reliably. 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. Other expenditure that does not generate additional future economic benefits or service potential, such as repairs and maintenance, is charged to the Statement of Comprehensive Income in the period in which it is incurred. 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. Freehold land is considered to have an infinite life and is not depreciated. Property, plant and equipment, which has been reclassified as held for sale ceases to be depreciated upon the reclassification. Assets in the course of construction and residual interests in off-statement of Financial Position PFI contract assets are not depreciated until the asset is brought into use or reverts to the Trust, respectively. Buildings, installations and fittings are depreciated on their current value over the estimated remaining life of the asset as assessed by the Trust s professional valuers. Leaseholds are depreciated over the primary lease term. Equipment is depreciated on current cost evenly over the estimated life. The Trust adheres to standard lives for equipment assets except where it is clear that the standard lives are materially inappropriate. Standard equipment lives are: Short life engineering plant and equipment Medium life engineering plant and equipment Long life engineering plant and equipment 5 years 10 years 15 years Note 1 (c)

9 Notes to the Accounts (continued) Vehicles Furniture Office and IT equipment Soft furnishings 7 years 10 years 5 years 7 years Revaluation Gains and Losses Revaluation gains are recognised in the revaluation reserve, except where, and to the extent that, they reverse a revaluation decrease that has previously been recognised in operating expenses, in which case they are recognised in operating income. Revaluation losses 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. Impairments In accordance with the NHS Foundation Trust Annual Reporting Manual , impairments that arise from a clear consumption of economic benefits or of service potential in the asset are charged to operating expenses. A compensating transfer is made from the revaluation reserve to the income and expenditure reserve of an amount equal to the lower of (i) the impairment charged to operating expenses; and (ii) the balance in the revaluation reserve attributable to that asset before the impairment. An impairment that arises from a clear consumption of economic benefit or of service potential is reversed when, and to the extent that, the circumstances that gave rise to the loss is reversed. Reversals are recognised in operating income to the extent that the asset is restored to the carrying amount it would have had if the impairment had never been recognised. Any remaining reversal is recognised in the revaluation reserve. Where, at the time of the original impairment, a transfer was made from the revaluation reserve to the income and expenditure reserve, an amount is transferred back to the revaluation reserve when the impairment reversal is recognised. Other impairments are treated as revaluation losses. Reversals of other impairments are treated as revaluation gains. 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. Assets are de-recognised when all material sale contract conditions have been met. Property, plant and equipment which is to be scrapped or demolished does not qualify for recognition as Held for Sale and instead is retained as an operational asset and the asset s economic life is adjusted. The asset is de-recognised when scrapping or demolition occurs. The revaluation surplus included in equity in respect of an item of property, plant and equipment is transferred in full to retained earnings at the point in time when an asset is derecognised. This applies when an asset is sold or when an asset is retired or disposed of. Donated, government grant and other grant funded assets Donated and grant funded property, plant and equipment assets are capitalised at their fair value on receipt. The donation/grant is credited to income at the same time, unless the donor has imposed a condition that the future economic benefits embodied in the grant are to be consumed in a manner specified by the donor, in which case, the donation/grant is deferred within liabilities and is carried forward to future financial years to the extent that the condition has not yet been met. The donated and grant funded assets are subsequently accounted for in the same manner as other items of property, plant and equipment. Note 1 (d)

10 Notes to the Accounts (continued) Private Finance Initiative (PFI) Transactions PFI transactions which meet the International Financial Reporting Interpretations Committee (IFRIC) 12 definition of a service concession, as interpreted in HM Treasury s FReM, are accounted for as on-statement of Financial Position by the Trust. The underlying assets are recognised as Property, Plant and Equipment at their fair value. An equivalent financial liability is recognised in accordance with IAS 17. The annual contract payments are apportioned between the repayment of the liability, a finance cost and the charges for the services. The finance cost is calculated using the implicit interest rate for the scheme, which is in accordance with guidance issued by the Department of Health: 'Accounting for PFI under IFRS'. The service charge is recognised in operating expenses and the finance cost is charged to Finance Costs in the Statement of Comprehensive Income. For each year of the contract, an element of unitary payment is allocated to lifecycle replacement based on the capital costs that the operator expect, at financial close, to incur for that year. Life-cycle expenditure is capitalised in accordance with IAS 16 when the expenditure meets the Trust s recognition criteria as detailed above to the extent that the capital is funded by the unitary payment. Where all or part of the capital cost is unanticipated, or the cost of the asset is greater than planned, the Trust treats it as a free asset. Where the operator replaces lifecycle components earlier or later than planned but the cost of the replacement was anticipated in the operator s model, this is recognised as a temporary liability or temporary prepayment. 1.7 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 and where the cost is at least 5,000. Internally Generated Intangible Assets Internally generated goodwill, brands, mastheads, publishing titles, customer lists and similar items are not capitalised as intangible assets. Expenditure on research is not capitalised. 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, is capitalised as an intangible asset. 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. Revaluations gains and losses and impairments are treated in the same manner as for Property, Plant and Equipment. Intangible assets held for sale are measured at the lower of their carrying amount or fair value less costs to sell. Amortisation Intangible assets are amortised over their expected useful economic lives in a manner consistent with the consumption of economic or service delivery benefits. Note 1 (e)

11 Notes to the Accounts (continued) 1.8 Government Grants Government grants are grants from Government bodies other than income from Commissioners or NHS Trusts for the provision of services. Where a grant is used to fund revenue expenditure it is taken to the Statement of Comprehensive Income to match that expenditure. 1.9 Inventories Inventories are valued at the lower of cost and net realisable value. The cost of inventories is measured using the first in, first out (FIFO) basis. This is considered to be a reasonable approximation to fair value due to the high turnover of inventories Cash and cash equivalents Cash and cash equivalents include cash held in the Government Banking Service, cash with commercial banks and cash in hand. Cash and bank balances are recorded at the current values of these balances in the Trust's cash book. Interest earned on bank accounts is recorded as finance income in the period to which it relates. 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 amounts disclosed as cash and cash equivalents in the Statement of Financial Position and in the Statement of Cash Flows 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 in note 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 Fair Value through Income and Expenditure, Loans and receivables or Available-for-sale financial assets. Financial liabilities are classified as Fair Value through Income and expenditure or as Other Financial Liabilities. Financial assets and financial liabilities at Fair Value through Income and Expenditure Financial assets and financial liabilities at Fair Value through Income and Expenditure are financial assets or financial liabilities held for trading. A financial asset or financial liability is classified in this category if acquired principally for the purpose of selling in the short-term. Derivatives are also categorised as held for trading unless they are designated as hedges. Derivatives which are embedded in other contracts but which are not closely-related to those contracts are separated-out from those contracts and measured in this category. Assets and liabilities in this category are classified as current assets and current liabilities. These financial assets and financial liabilities are recognised initially at fair value, with transaction costs expensed in the income and expenditure account. Subsequent movements in the fair value are recognised as gains or losses in the Statement of Comprehensive Income. Note 1 (f)

12 Notes to the Accounts (continued) Loans and 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 current assets. The Trust s loans and receivables comprise: current investments, cash and cash equivalents, NHS debtors, accrued income and other receivables. Loans and receivables are recognised initially at fair value, net of transactions costs, and are measured subsequently at amortised cost, using the effective interest method. The effective interest rate is the rate that discounts exactly estimated future cash receipts through the expected life of the financial asset or, when appropriate, a shorter period, to the net carrying amount of the financial asset. Interest on loans and receivables is calculated using the effective interest method and credited to the Statement of Comprehensive Income. Available for Sale Financial Assets Available for sale financial assets are non-derivative financial assets which are either designated in this category or not classified in any of the other categories. They are included in long-term assets unless the Trust intends to dispose of them within 12 months of the Statement of Financial Position date. Available for sale financial assets are recognised initially at fair value, including transaction costs, and measured subsequently at fair value, with gains or losses recognised in reserves and reported in the Statement of Comprehensive Income as an item of other comprehensive income. When items classified as available-for-sale are sold or impaired, the accumulated fair value adjustments recognised are transferred from reserves and recognised in Finance Costs in the Statement of Comprehensive Income. Other Financial Liabilities All other financial liabilities are recognised initially at fair value, net of transaction costs incurred, and measured subsequently at amortised cost using the effective interest method. The effective interest rate is the rate that discounts exactly estimated future cash payments through the expected life of the financial liability or, when appropriate, a shorter period, to the net carrying amount of the financial liability. 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 long-term liabilities. Interest on financial liabilities carried at amortised cost is calculated using the effective interest method and charged to Finance Costs. Interest on financial liabilities taken out to finance Property, Plant and Equipment or intangible assets is not capitalised as part of the cost of those assets. Determination of Fair Value For financial assets and financial liabilities carried at fair value, the carrying amounts are determined from quoted market prices, independent appraisals, discounted cash flow analysis or other appropriate methods. Impairment of Financial Assets At the Statement of Financial Position date, the Trust assesses whether any financial assets, other than those held at fair value through income and expenditure are impaired. Financial assets are impaired and impairment losses are recognised if, and only if, there is objective evidence of impairment as a result of one or more events which occurred after the initial recognition of the asset and which has an impact on the estimated future cash flows of the asset. For financial assets carried at amortised cost, the amount of the impairment loss is measured as the difference between the asset s carrying amount and the present value of the revised future cash flows discounted at the asset s original effective interest rate. The loss is recognised in the Statement of Comprehensive Income and the carrying amount of the asset is reduced through the use of a provision for irrecoverable debt. Irrecoverable debt provisions are made when debts are over 3 months old, unless there is a reason not to make the provision, such as an agreement to pay. In the case of disputes, provisions are made for debts less than 3 months old. Note 1 (g)

13 Notes to the Accounts (continued) 1.12 Leases Trust as 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 asset and liability are recognised at the commencement of the lease. Thereafter, the asset is accounted for as an item of property, plant and equipment. The annual rental is split between the repayment of the liability and a finance cost so as to achieve a constant rate of finance over the life of the lease. The annual finance cost is charged to Finance Costs in the Statement of Comprehensive Income. The lease liability is de-recognised when the liability is discharged, cancelled or expires. 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 are added to the lease rentals and charged to operating expenses over the life of the lease. Contingent rentals are recognised in the period in which they are incurred. Leases of Land and Buildings Where a lease is for land and buildings, the land component is separated from the building component and the classification for each is assessed separately Trust as Lessor Finance Leases Amounts due from lessees under finance leases are recorded as receivables at the amount of the Trust's net investment in the lease. Income is allocated to accounting periods so as to reflect a constant periodic rate of return. Operating Leases Rental income from operating leases is recognised on a straight-line basis over the term of the lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term Disclosures In accordance with IAS 17 the Trust will disclose a description of significant leasing arrangements including; (i) the basis on which contingent rent is determined; (ii) the existence and terms of renewal, purchase options and escalation clauses; and (iii) any restrictions imposed by lease arrangements Provisions The Trust recognises a provision where it has a present legal or constructive obligation of uncertain timing or amount; for which it is probable that there will be a future outflow of cash or other resources; and a reliable estimate can be made of the amount. The amount recognised in the Statement of Financial Position is the best estimate of the resources 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 the discount rates published and mandated by HM Treasury. 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 28.2 but is not recognised in the Trust s accounts. 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 NHS Litigation Authority and in return receives assistance with the costs of claims arising. The annual membership contributions and any excesses payable in respect of particular claims are charged to operating expenses when the liability arises. Note 1 (h)

14 Notes to the Accounts (continued) 1.14 Contingencies Contingent assets (that is, assets arising from past events whose existence will only be confirmed by one or more future events not wholly within the entity s control) are not recognised as assets, but are disclosed in note 29 where an inflow of economic benefits is probable. Contingent liabilities are not recognised, but are disclosed in note 29, unless the probability of a transfer of economic benefits is remote. Contingent liabilities are defined as: 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 entity 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 Public Dividend Capital Public dividend capital (PDC) is a type of public sector equity finance based on the excess of assets over liabilities at the time of establishment of the predecessor NHS Trust. HM Treasury has determined that PDC is not a financial instrument within the meaning of IAS 32. A charge, reflecting the cost of capital utilised by the Trust, is payable as public dividend capital dividend. The charge is calculated at the rate set by HM Treasury (currently 3.5%) on the average relevant net assets of the Trust during the financial year. Relevant net assets are calculated as the value of all assets less the value of all liabilities, except for (i) donated assets, (ii) average daily cash balances held with the Government Banking Services (GBS) and National Loans Fund (NLF) deposits, excluding cash balances held in GBS accounts that relate to a short-term working capital facility, (iii) any PDC dividend balance receivable or payable. In accordance with the requirements laid down by the Department of Health (as the issuer of PDC), the dividend for the year is calculated on the actual average relevant net assets as set out in the pre-audit version of the annual accounts. The dividend thus calculated is not revised should any adjustment to net assets occur as a result of the audit of the annual accounts Value Added Tax 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 fixed 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 principle health care income under section 519A Income and Corporation Taxes Act In determining whether other income may be taxable, a full review of the Trust's activities has been carried out in accordance with guidance published by HM Revenue and Customs to establish any activities that are subject to Corporation Tax. Based on this review there is no corporation tax liability in the period ended 31st March 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 income and expenditure ) 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. Note 1 (i)

15 Notes to the Accounts (continued) 1.19 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 HM Treasury's FReM 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 the generality of payments. They are divided into different categories, which govern the way that individual cases are 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 Foundation Trusts not been bearing their own risks (with insurance premiums then being included as normal revenue expenditure). However, the losses and special payments note is compiled directly from the losses and compensations register which reports on an accrual basis with the exception of provisions for future losses Transfers of Functions For functions that have been transferred to the Trust from another NHS or Local Government body, the assets and liabilities transferred are recognised in the accounts as at the date of transfer. The assets and liabilities are not adjusted to fair value prior to recognition. The net gain/loss corresponding to the net assets/ liabilities transferred is recognised within income/expenses, but not within operating activities. For property plant and equipment assets and intangible assets, the Cost and Accumulated Depreciation / Amortisation balances from the transferring entity s accounts are preserved on recognition in the Trust s accounts. Where the transferring body recognised revaluation reserve balances attributable to the assets, the Trust makes a transfer from its income and expenditure reserve to its revaluation reserve to maintain transparency within public sector accounts. For functions that the Trust has transferred to another NHS/Local Government body, the assets and liabilities transferred are derecognised from the accounts as at the date of transfer. The net loss/gain corresponding to the net assets/liabilities transferred is recognised within expenses/income, but not within operating activities. Any revaluation reserve balances attributable to assets de-recognised are transferred to the income and expenditure reserve. Adjustments to align the acquired function to the Foundation Trust s accounting policies are applied after initial recognition and are adjusted directly in taxpayers equity Accounting Standards that have been issued but have not yet been adopted The standards which have been released but which are not mandatory in the 2014/15 accounts are set out below: IFRS 9 Financial Instruments IFRS 13 Fair Value Measurement IAS 19 Employee Benefits (amendment only to employer contributions to defined benefit pension schemes) IAS 36 Impairment of Assets (amendment only in relation to recoverable amount disclosures) IFRIC 21 Levies The Trust expects that there will be no material impact on the Financial Statements as a result of the adoption of these standards Accounting Standards issued that have been adopted early No new accounting standards or revisions to existing standards have been early adopted in 2014/15. Note 1 (j)

16 Notes to the Accounts (continued) 1.24 Investments in Associates and Joint Arrangements An entity is an associate of an NHS Foundation Trust where the Trust has significant influence over it and yet the entity is not a subsidiary or a joint arrangement. Where an associate exists, the Trust must recognise its activities through the equity accounting method in accordance with IAS 28. Joint arrangements apply where two or more parties have joint control. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. A joint arrangement is either a joint operation or a joint venture. Joint operations Joint operations are arrangements in which the Trust has joint control with one or more other parties. Joint arrangements generally operate without the establishment of a separate formal entity and the Trust therefore has the rights to the assets, and obligations for the liabilities, relating to the arrangement. The Trust includes within its financial statements its share of the assets, liabilities, income and expenses for joint operations. Joint Ventures Joint ventures are arrangements in which the Trust has joint control with one or more other parties, and where it has the rights to the net assets of the arrangement. Accounting as a joint venture generally applies where arrangements are structured through a separate vehicle which confers a separation between the parties and the vehicle and as a result, the assets, liabilities, revenues and expenses held are those of the separate vehicle and the Trust only has an investment in the net assets of the vehicle. Joint ventures and investments in associates are accounted for using the equity method and reported in its separate financial statements in accordance with IAS 27. The joint venture is initially recognised at cost. It is increased or decreased subsequently to reflect the Trust s share of the entity s profit or loss or other gains and losses. It is also reduced when any distribution, e.g. share dividends, are received by the Trust from the joint venture. The Trust has a 50% share in a limited liability partnership with independent healthcare providers Insight Ltd (formerly MHCO) which is a Joint Venture.. The Newcastle Talking Therapies LLP has been commissioned by NHS North of Tyne to deliver a service aimed at 'Improving Access to Psychological Therapies - IAPT' for the people of Newcastle Consolidation of NHS Charitable Funds Prior to 2013/14, the FT Annual Reporting Manual permitted NHS Foundation Trusts not to produce consolidated accounts to include NHS charitable funds. From 2013/14, where the NHS Foundation Trust is the corporate trustee of the charitable funds and where the fund balances held are material, Foundation Trusts are required to assess their relationship to the charitable funds and account for the funds as a subsidiary where the Trust has the power to govern the financial and operating policies of the charitable fund. The Trust benefits from charitable funds held by the Newcastle Healthcare Charity as Special Trustee. The Trust is not corporate trustee of the charitable funds and does not have the power to govern the financial and operating policies of the charitable funds held on behalf of the Trust. Consolidation is therefore not appropriate.