6
666
Expenditure so deferred is limited to the value of future benefits expected and is amortised through the income and
expenditure account on a systematic basis over the period expected to benefit from the project. It is revalued on the basis
of current cost. The amortisation charge is calculated on the same basis as used for depreciation i.e. on a quarterly basis.
Expenditure which does not meet the criteria for capitalisation is treated as an operating cost in the year in which it is
incurred. NHS Foundation Trusts are unable to disclose the total amount of research and development expenditure charged
in the income and expenditure account because some research and development activity cannot be separated from patient
care activity.
Fixed assets acquired for use in research and development are amortised over the life of the associated project.
1.12 Cash, bank and overdrafts
Cash, bank and overdraft balances are recorded at the current values of these balances in the Foundation Trust's cash
book. These balances exclude monies held in the Foundation Trust's bank account belonging to patients (see accounting
policy on 'third party assets'). 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 creditors. Interest earned on bank accounts and interest charged on
overdrafts is recorded as respectively, "interest receivable" and "interest payable" in the periods to which they relate. Bank
charges are recorded as operating expenditure in the periods to which they relate.
1.13 Provisions
The Foundation Trust provides for legal or constructive obligations that are of uncertain timing or amount at the balance
sheet 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 material, the estimated risk-adjusted cash flows are discounted using the Treasury's discount rate of
2.2% in real terms.
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 21 where an inflow of
economic benefits is probable.
Contingent liabilities are provided for where a transfer of economic benefits is probable. Otherwise, they are not recognised,
but are disclosed in note 21 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.
Clinical negligence costs
The NHS Litigation Authority (NHSLA) operates a risk pooling scheme under which the NHS Foundation 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 Foundation Trust. The total
value of clinical negligence provisions carried by the NHSLA on behalf of the Foundation Trust is disclosed at note 17.
Non-clinical risk pooling
The Foundation Trust participates in the Property Expenses Scheme and the Liabilities to Third Parties Scheme. Both are
risk pooling schemes under which the Foundation 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 as and when they become due.
1.14 Pension costs
Past and present employees are covered by the provisions of the NHS Pensions Scheme. Details of the benefits payable
under these provisions can be found on the NHS Pensions website at www.nhsbsa.nhs.uk/pensions. The Scheme is an
unfunded, defined benefit scheme that covers NHS employers, General Practices and other bodies, allowed under the
direction of the 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 NHS body of participating in the Scheme is taken as equal to
the contributions payable to the Scheme for the accounting period.
The Scheme is subject to a full actuarial valuation every four years (until 2004, based on a five year valuation cycle), and a
FRS17 accounting valuation every year. An outline of these follows:
a) Full actuarial (funding) valuation
The purpose of this valuation is to assess the level of liability in respect of the benefits due under the scheme (taking into
account its recent demographic experience), and to recommend the contribution rates to be paid by employers and scheme
members. The last such valuation, which determined current contribution rates was undertaken as at 31 March 2004 and
covered the period from 1 April 1999 to that date.