Chapter BIM64165
| Published date | 22 November 2013 |
| Record Number | BIM64165 |
A private sector operator, whose trade is running a school, (including the provision of teaching staff), enters into a PFI contract with a public sector purchaser, to provide a specific number of school places for 30 years. The operator builds a school on land acquired for the purpose. The trade commences when the school is completed and ready to receive its first pupil (see BIM64065). In return the operator receives an annual service payment, the unitary charge, which commences after the trade has started.
Accounting period 1The school is completed at the end of the first accounting period.
For tax purposes the design and construction costs are capital expenditure. The school is a fixed capital asset of the operator’s trade (see BIM64025 onwards). For accounting purposes the example assumes that SSAP9 ‘Stock and long-term contracts’ principles are adopted during the construction period (see BIM64070 onwards). The construction costs of the school are debited to the work-in-progress account (WIP) and a sale is recognised on completion of the school at the end of the accounting period. For accounting purposes the school is therefore reported as a finance debtor on the operator’s balance sheet, under FRS5 Application Note F, at a figure of £90m representing cost (see BIM64125).
| Dr | WIP account (construction costs) | £90m | Cr | Bank | £90m |
| Dr | P&L account (costs of sale) | £90m | Cr | WIP account | £90m |
| Dr | Finance debtor | £90m | Cr | P&L account (sale) | £90m |
No income is receivable in the first accounting period.
Neither the sale, nor the deduction for WIP, is recognised for tax purposes.
Accounting period 2In the second accounting period the trade commences and a unitary payment of £15m is receivable.
For tax purposes the £15m is trading income for the provision of a service. For FRS5 accounting purposes, £7m represents a part payment of the finance debtor and £8m represents operating income for the provision of services.
For accounting purposes, a figure representing accrued finance income, i.e. notional interest, on the finance debtor is calculated at £4m and credited to the profit and loss account. The corresponding debit is to the finance debtor.
| Dr | Finance debtor | £4m | Cr | P&L account (notional interest) | £4m |
The part payment of £7m is then credited to the finance debtor and the operating income of...
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