Statement of Accounting Principles

General principles

The accounts have been prepared in accordance with the Statement of Recommended Practice on Local Authority accounts and the guidance notes issued by the Chartered Institute of Public Finance and Accountancy (CIPFA) on the application of accounting standards (FRS’s and SSAP’s).

Provisions

The County Council has established a number of provisions to meet known future liabilities.

The major Provisions are:

Insurance
The insurance policies held by the County Council require a significant level of self insurance, the level of this being recommended by independent advisers. The monies set aside for self insurance are split between a provision representing outstanding, unsettled claims at 31 March 2003 and a reserve to meet future claims. The provision is expected to be used within the next seven years.
DLO Future Liabilities and Losses
Provides for possible future losses or reduced profits on uncompleted works, remedial works, replacement of uninsured losses and future leased car payments, the majority of the provision is for next financial year.
Leased Cars
Created to fund the end-loaded rental payments, in respect of leased cars, such payments falling due on the termination of the lease. The sum in the provision covers the next three years.
Landscape Projects
Sums received from mineral extraction companies to be utilised for the restoration of these sites in the future.
Magistrates Courts
Formed from Capital grants and Revenue monies to finance the restructuring of the Leicestershire Magistrates Courts Service, a part of the HM Court Service in the future.
Social Services Mental Health: Refunds
Provides for refunds to people with mental health difficulties, who have been charged for residential and nursing care, for which a legal judgement has been made to repay the levy charged. All refunds should be made within the next six years.
Reserves
A number of reserves exist in addition to the County Fund to finance future capital and revenue expenditure. In addition to the Insurance Reserve referred to above, the significant reserves are:

REVENUE
Renewal of Equipment and Vehicles Resources for the funding of replacement vehicles and equipment and future service developments for the majority of departments.
Industrial Properties Surpluses arising on the provision of Industrial Properties are credited to this reserve which is used to finance future capital expenditure, including development of the Industrial Estate.
CAPITAL
In accordance with standard accounting practice for local authorities, two non-cash backed capital reserves exist as part of the system of capital accounting. These are:
Fixed Asset Restatement Reserve This reserve represents the surplus arising on the revaluation of fixed assets.
Capital Financing Reserve This reserve represents amounts set aside from revenue resources, capital receipts and the capital reserve to finance expenditure on fixed assets or for the repayment of external loans and certain other capital financing transactions.

Fixed assets

All expenditure on the acquisition and/or improvement of fixed assets is capitalised provided that the asset yields a benefit to the Authority for a period of more than one year. However, some relatively minor items may be financed from revenue. No accrual of capital expenditure is made as it is considered that such amounts are relatively insignificant.

Fixed assets are valued on the basis recommended by CIPFA and in accordance with the Statements of Asset Valuation Principles and Guidance Notes issued by the Royal Institute of Chartered Surveyors (RICS).

The basis of valuation of the various categories of assets is as follows:

land and operational buildings are included in the balance sheet at open market value for existing use or, where because of the specialised nature this could not be assessed (there being no market for such an asset), at depreciated replacement cost.
Valuation is carried out on a selective on-going basis such that all assets are revalued once every five years. The valuation is carried out by various Chartered Surveyors in the Property Services Division of the Resources Department.
The current asset values used in the accounts are based on a certificate issued by the Council's Head of Property Services Division as at 1 April 2002. Additions since that date are either included in the accounts at their cost of acquisition (if above £50,000), or written off to the fixed asset restatement reserve if the actual expenditure does not increase the asset valuation.
infrastructure assets are included at the value of outstanding debt brought forward on 1 April 1994. Additions since that date are included at their original cost.
community assets are assets that the authority is likely to keep in perpetuity for the benefit of local people, e.g. country parks and reclaimed land. Such assets are valued at historical cost or nominal values.
non-operational assets cover investment properties, assets surplus to service requirements and assets under construction or refurbishment.
Valuation of investment properties and assets surplus to requirements is based on open market value whilst valuation of assets under construction is based on actual payments made to date.
vehicles, plant, furniture and equipment; valuation is based on depreciated historic cost for all assets with an original cost in excess of £10,000.

Leased Assets and Deferred Purchase Arrangements

Assets acquired under finance leases are reflected in the appropriate category of fixed asset, together with a deferred liability to pay future rentals. In addition assets financed by a deferred purchase arrangement are similarly reflected in fixed assets, with the liability to the merchant bank included in long term borrowings.

Deferred charges

Deferred charges represent expenditure which may be properly capitalised but which does not represent tangible fixed assets. In the majority of cases the County Council operates a policy of charging 100% of such expenditure to service revenue accounts.

Basis of charges for capital

Depreciation
Buildings are depreciated over their remaining useful economic lives as assessed by the property valuer, with no allowance for a residual value. No depreciation charge is made for the majority of land, community assets or assets under construction or refurbishment.

Where assets suffer impairment, then dependant upon the reason for that impairment, an accelerated depreciation charge may be made to the revenue account.

Where depreciation is provided for, assets are depreciated using the straight line method over the following periods:

buildings - varies from asset to asset (the remaining useful economic life of each asset is reviewed at the same time as the revaluation is completed).
infrastructure - 40 years.
vehicles, plant, furniture and equipment - estimated useful life (averaging around 5 years).

Interest Charges
Notional interest charges are applied to all assets in the balance sheet, and are based on asset valuations at the beginning of the financial year. The notional rate of interest for assets carried at current value is 6% (6% 2001/02) and for those carried at historic cost it is 6% (6% 2001/02).

Assets acquired under Finance Leases
Service revenue accounts are charged with actual rentals paid to leasing companies.

Interest payable on external debt, together with depreciation, is charged to the asset management revenue account, which is credited with the capital charges made to services. The resultant balance is carried to the consolidated revenue account and thus the creation of these charges has a neutral impact on the overall expenditure of the Authority.

Capital receipts

Proceeds from the sale of assets are credited to the usable capital receipts reserve. All such receipts are available to the authority to enhance its programme of capital expenditure or to reduce external borrowing.

The County Council is unable to comply with FRS 3, as legislation on the use of capital receipts by local authorities does not permit gains or losses on the sale of fixed assets to be credited to the revenue account.

Basis of debtors/creditors included in the accounts

The revenue accounts of the County Council are maintained on an accruals basis. Thus, sums due to or amounts owing by the Council in respect of goods and services rendered but not paid for at 31 March are included in the accounts. The exceptions to this policy are as follows:

Payments covering a period, e.g. gas, telephone, rent, are brought into account in the year they become due and are not apportioned over the years to which they may relate.
Interest on staff car loans for the whole period of the loan is taken to the revenue account when the loan is granted.

Government grants

Government grants are accounted for on an accruals basis. Income in respect of revenue grants has been credited to the appropriate service revenue account, whilst the majority of capital grants are credited to the government grants and contributions deferred account; amounts are then released from this account to offset any depreciation on assets financed from such resources.

Education Devolved Formula Capital grants are released to schools through schools revenue accounts.

Stocks and work in progress

Stock accounts are normally only maintained for certain specified major items; other immaterial stocks, e.g. cleaning materials, books and stationery, are fully charged to revenue in the year of purchase. Stocks are valued at cost price with allowance for obsolescent or slow moving stocks where material.

Work in progress is shown at cost price.

Allocation of support service costs

The revenue accounts of the various services include a charge for all support services provided by the central departments of the Authority other than corporate management costs.

These charges are based upon various methods of allocation including staff time and volume of transactions. Office accommodation costs are based on floor areas occupied.

Statement of Account Contents