Highways Agency Annual Report and Accounts 2011-2012

Financial Statements: SECTION 10
1.16.7 Impairment of financial assets
The Agency assesses at each SOFP date whether there is objective evidence that financial assets are
impaired as a result of one or more loss events that occurred after the initial recognition of the asset and prior
to the statement of financial position date, and that loss event or events has had an impact on the estimated
future cash flows of the financial asset or the portfolio that can be reliably estimated.
For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar
risk characteristics, taking into account asset type, industry, geographical location, collateral type, overdue
status and other relevant factors. These characteristics are relevant to the estimation of future cash flows for
groups of such assets by being indicative of the counterparty’s ability to pay all amounts due according to
the contractual terms of the assets being evaluated.
The amount of impairment loss is measured as the difference between the asset’s carrying amount and the
present value of estimated future cash flows. Future cash flows in a group of loans and receivables that are
collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets in
the group and historical loss experience for assets with credit risk characteristics similar to those in the group.
The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce
any differences between loss estimates and actual loss experience.
1.17 VAT
Most of the activities of the Agency are outside the scope of VAT and, in general, output tax does not
apply and input tax on purchases is not recoverable. Input VAT on certain contracted-out services is
recovered through the Department for Transport’s VAT registration, under annual HM Treasury Direction.
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.
1.18 Estimation Techniques
Estimation techniques are the methods adopted to arrive at estimated monetary amounts for income
and expenditure during the reporting period and the valuation of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements. There may be several alternative
estimation techniques, which could produce a range of results. The significant estimation techniques for
the Agency include the valuation of the trunk road network where the application of indices and standard
costs generate a valuation.
1.19 EU Grants
EU grants are not recognised in the accounts until it is certain they will be received. Grants that relate to
specific capital expenditure are credited to deferred income on the SOFP and then credited to the SOCNE
over the asset’s construction life. Grants for revenue expenditure are credited to the SOCNE.
1.20 Segmental Reporting
IFRS 8 requires the Agency to disclose information to enable users of the financial statements to
evaluate the nature and financial effects of the business activities in which it engages and the economic
environments in which it operates. The Agency’s reportable segments are based on the way management
has chosen to organise the business activities, manage the organisation and allocate resources for
assessment of segment performance.
1.21 Trunkings/Detrunkings
The detrunking of roads as part of the Government’s policy announced in the 1998 White Paper to transfer
responsibility for non-core network routes to local authorities is treated as a transfer of function. This
process is now completed. However, the Agency will continue the more routine detrunking that will occur
after construction of a bypass or new road.
Merger accounting principles are applied with opening balances adjusted for the cumulative effect of the
detrunking/trunking and comparative figures for the preceding period restated.
Highways Agency Annual Report and Accounts 2011-12