ANNEX C
Notes to the Departmental Resource
Accounts
1. Statement of Accounting Policies
The financial statements have been prepared
in accordance with the Resource Accounting Manual issued by HM
Treasury. The particular accounting policies adopted by the department
are described below. They 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 fixed assets, and stocks where material, at their value to
the business by reference to their current costs.
1.2 Basis of Consolidation
These accounts comprise a consolidation of the
core department and its on-Vote agency, the Deaton Jenkinson Agency.
The core department and the Deaton Jenkinson Agency also each
produce and publish their own annual report and accounts. The
accounts of the trading fund, the Greenfield Office, and the nationalised
industry, Richards and Gamble Limited, both of which are sponsored
by the department, are not included by way of consolidation.
Trading funds are outside the Voted Supply and
are subject to a different financial control framework —
financial information about the Greenfield Office may be obtained
from its separate published annual report and accounts.
1.3 Tangible Fixed Assets
Title to the freehold land and buildings shown
in the accounts is held as follows:
(i) property on the departmental estate,
title to which is held by Department Yellow;
(ii) property held by the Department of Environment
in the name of the Secretary of State.
Freehold land and buildings have been restated
at current cost using professional valuations every 5 years and
appropriate indices in intervening years. Other tangible assets
have been stated at current cost using appropriate indices. The
minimum level for capitalisation of a tangible fixed asset is
£1,000.
1.4 Depreciation
Freehold land is not depreciated.
Depreciation is provided at rates calculated
to write off the valuation of freehold buildings and other tangible
fixed assets by equal instalments over their estimated useful
lives. Lives are normally in the following ranges:
| Freehold buildings |
50 to 60 years |
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| Equipment and computers | 3 to 20 years
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1.5 Donated Assets
Donated tangible fixed assets are capitalised at their valuation
on receipt; this value is credited to the donated assets reserve.
Subsequent revaluations are also taken to this reserve. Each year
an amount equal to the depreciation charge on the asset is released
from the donated asset reserve to the operating cost statement.
1.6 Investments
Loans and public dividend capital (PDC) issued by the department
to the Greenfield Office are shown at historical cost.
The share capital of the department's sponsored nationalised
industry, Richards & Gamble Limited, is held in the name of
the Secretary of State. The industry is operated and managed independently
of the department, and its accounts are not consolidated with
those of the department. The department's investment in Richards
& Gamble Limited is shown at historical cost.
1.7 Stocks and Work-In-Progress
Stocks and work-in-progress are valued as follows:
(i) finished goods and goods for resale are valued at
cost or, where materially different, current replacement cost,
and at net realisable value only when they either cannot or will
not be used;
(ii) work-in-progress is valued at the lower of cost,
including appropriate overheads, and net realisable value.
1.8 Research and Development
Expenditure on research and development has been treated
as an operating cost in the year in which it is incurred. Fixed
assets acquired for use in research and development are depreciated
over the life of the associated research project or according
to the asset category if the asset is to be used for subsequent
production work.
1.9 Operating Income
Operating income is income which relates directly to the
operating activities of the department. It comprises, principally,
fees and charges for services provided, on a full cost basis,
to external customers and public repayment work, but also includes
other income such as that from investments. It includes both income
appropriated-in-aid of the Vote and income to the Consolidated
Fund which HM Treasury has agreed should be treated as operating
income.
1.10 Administration and Programme Expenditure
The operating cost statement is analysed between administration
and programme costs. Administration costs reflect the costs of
running the department as defined under the administration cost
control regime, together with associated operating income. Income
is analysed in the notes between that which, under the regime,
is allowed to be offset against gross administrative costs in
determining the outturn against the administration cost limit,
and that operating income which is not. [During the pre resource
budgeting period administration costs will reflect the accruals
effect of expenditure recorded as running costs.] Programme costs
reflect non-administration costs, including payments of grants
and other disbursements by the department.
1.11 Capital Charge
A charge, reflecting the cost of capital utilised by the
department, is included in operating costs. The charge is calculated
at the Government's standard rate of 6% in real terms on all assets
less liabilities, except for:
— donated assets, where the charge is nil;
— the department's investment in the Greenfield
Office and Richards & Gamble Limited, where the charge is
equal to 6% of the net relevant assets of the recipient body.
1.12 Foreign Exchange
Transactions which are denominated in a foreign currency
are translated into sterling at the exchange rate ruling on the
date of each transaction, except where rates do not fluctuate
significantly, in which case an average rate for a period is used.
1.13 Pensions
Present and past employees are covered by the provisions
of the Principal Civil Service Pension Scheme (PCSPS) which is
non-contributory and unfunded. Although the Scheme is a defined
benefit scheme, liability for payment of future benefits is a
charge to the PCSPS. Departments, agencies and other bodies covered
by the PCSPS meet the cost of pension cover provided for the staff
they employ by payment of charges calculated on an accruing basis.
There is a separate scheme statement for the PCSPS as a whole.
1.14 Early Departure Costs
The department is required to meet the additional cost of
benefits beyond the normal PCSPS benefits in respect of employees
who retire early. The department provides in full for this cost
when the early retirement programme has been announced and is
binding on the department. The department may, in certain circumstances,
settle some or all of its liability in advance by making a payment
to the Paymaster General's account at the Bank of England for
the credit of the Civil Superannuation Vote. The amount provided
is shown net of any such payments.
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