Annual Report and Accounts 2012/13 - Royal Devon & Exeter Hospital

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ROYAL DEVON AND EXETER NHS FOUNDATION TRUST - ANNUAL ACCOUNTS 2012/13 1. ACCOUNTING POLICIES (CONTINUED) 1.7 Provisions (continued) Clinical negligence costs NOTES TO THE ACCOUNTS The NHS Litigation Authority (NHSLA) operates a risk pooling scheme under which the Trust pays an annual contribution, 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 Trust. The total value of clinical negligence provisions carried by the NHSLA on behalf of the Trust is disclosed at note 21. The provision relates to the excess payable on each of the Trust's cases administered by the NHSLA. Non-clinical risk pooling The Trust participates in the Property Expenses Scheme and the Liabilities to Third Parties Scheme. Both are risk pooling schemes under which the Trust pays an annual contribution to the NHSLA 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 when the liability arises. 1.8 Expenditure on employee benefits Short-term employee benefits Salaries, wages and employment-related payments are recognised in the period in which the service is received from employees. The cost of annual leave entitlement earned but not taken by employees at the end of the period is recognised in the accounts to the extent that employees are permitted to carry forward leave into the following period. Pension costs Past and present employees are covered by the provisions of the NHS Pensions Scheme. The scheme is an unfunded, defined benefit scheme that covers NHS employers, general practices and other bodies, allowed under the direction of Secretary of State, in England and Wales. It is not possible for the Trust to identify its share of the underlying scheme assets and liabilities. Therefore, the scheme is accounted for as a defined contribution scheme. Employers pension cost contributions are charged to operating expenses as and when they become due. Additional pension liabilities arising from early retirements are not funded by the scheme except where the retirement is due to ill-health. The full amount of the liability for the additional costs is charged to the operating expenses at the time the Trust commits itself to the retirement, regardless of the method of payment. 1.9 Value Added Tax Most of the activities of the Trust are outside the scope of VAT and, in general, output tax does not apply and input tax on purchases is not recoverable. Irrecoverable VAT is charged to the relevant expenditure category or included in the capitalised purchase cost of non-current assets. Where output tax is charged or input VAT is recoverable, the amounts are stated net of VAT. 1.10 Contingent liabilities The Trust may have contingent liabilities in respect of NHSLA legal claims arising in the normal course of activities. Where the transfer of economic benefits in respect of legal claims is possible the Trust discloses the estimated value. There were no contingent liabilities realting to legal claims at the year end (2012 - £nil). 1.11 Third party assets Assets belonging to third parties (such as money held on behalf of patients) are not recognised in the accounts since the Trust has no beneficial interest in them. The Trust held no cash or cash equivalents relating to monies held on behalf of patients at the year end (2012 - £nil). Page 15
1. ACCOUNTING POLICIES (CONTINUED) 1.12 Critical accounting estimates and judgements In the application of the Trust’s accounting policies, management is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from those estimates and the estimates and underlying assumptions are continually reviewed. Accounting judgement - Modern Equivalent Asset valuation The majority of the Trust's estate is considered to be specialised assets as there is no open market for an acute hospital. The modern equivalent asset valuation is based on the assumption that any modern equivalent replacement hospital would be built on an alternative site within the Exeter locality. 1.13 Leases ROYAL DEVON AND EXETER NHS FOUNDATION TRUST - ANNUAL ACCOUNTS 2012/13 Operating leases Where leases are regarded as operating leases and the rentals are charged to operating expenses on a straightline basis over the term of the lease. Operating lease incentives received are added to the lease rentals and charged to operating expenses over the life of the lease. Leases of land and buildings Where a lease is for land and buildings, the land component is separated from the building component and the classification for each is assessed separately. 1.14 Public dividend capital NOTES TO THE ACCOUNTS Public dividend capital (PDC) is a type of public sector equity finance based on the excess of assets over liabilities at the time of establishment of the predecessor NHS trust, the Royal Devon and Exeter Healthcare NHS Trust. HM Treasury has determined that PDC is not a financial instrument within the meaning of IAS 32. A charge, reflecting the forecast cost of capital utilised by the Trust, is paid over as public dividend capital dividend. The charge is calculated at the rate set by HM Treasury (currently 3.5%) on the average relevant net assets of the Trust. Relevant net assets are calculated as the value of all assets less the value of all liabilities, except for donated assets and cash held with the Government Banking Service. Average relevant net assets are calculated as a simple means of opening and closing relevant net assets in the pre-audit version of the accounts. 1.15 Financial instruments and financial liabilities Recognition Financial assets and financial liabilities which arise from contracts for the purchase or sale of non-financial items (such as goods or services), which are entered into in accordance with the Trust’s normal purchase, sale or usage requirements, are recognised when, and to the extent which, performance occurs i.e. when receipt or delivery of the goods or services is made. All other financial assets and financial liabilities are recognised when the Trust becomes a party to the contractual provisions of the instrument. De-recognition All financial assets are de-recognised when the rights to receive cash flows from the assets have expired or the Trust has transferred substantially all of the risks and rewards of ownership. Financial liabilities are derecognised when the obligation is discharged, cancelled or expires. Classification and measurement Financial assets are categorised as ‘loans and receivables’. Financial liabilities are classified as ‘other financial liabilities’. Page 16
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Annual Report and Accounts 2012/13 - Royal Devon & Exeter Hospital

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