Chapter BIM64270
| Published date | 22 November 2013 |
| Record Number | BIM64270 |
A private sector operator, whose trade includes the provision of design, construction and maintenance services, enters into a PFI contract with a public sector purchaser, to build an information technology system and maintain it for 25 years. The construction costs are financed by a bank loan. The trade commences when the PFI contract is signed (see BIM64065). In return the operator receives an annual service payment, the unitary charge, which commences after the information technology system is completed.
Accounting period 1Construction of the information technology system is completed at the end of the first accounting period.
For tax purposes the design and construction costs are revenue expenditure (see BIM64025 onwards). For accounting purposes the example assumes that the information technology system is reported as a finance debtor on the operator’s balance sheet, under FRS5 Application Note F (see BIM64070 onwards). The £5m interest on the loan is debited to the profit and loss account and subsequently capitalised (see BIM64245).
| Dr | P&L account (interest) | £5m | Cr | Bank | £5m |
| Dr | Finance debtor (capitalised interest) | £5m | Cr | P&L account | £5m |
No income is receivable in the first accounting period.
For tax purposes we follow the accounting recognition of income and expenditure in the profit and loss account, subject to any relevant over-riding statutory or case law principle.
The £5m interest is capitalised”to a current asset that does not fall within the definition of a fixed capital project and so that rule (see BIM64245) does not apply. The accounting periods in which relief is given are those in which the £5m interest debit is matched against income credited to the finance debtor (see BIM64245). No adjustment is required in the trading profits computation.
Accounting period 2In the second accounting period a unitary payment of £15m is receivable.
For accounting purposes £12m is credited to the P&L account (being...
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