EXAMPLE B: AN UPWARDS REVALUATION TO OMV AND REALISATION OF PROCEEDS IN EXCESS OF OMV

The accounting entries are shown below. Figure 2 (Worked Example B) shows the impact on the NHSScotland body's accounts over the entire contract period.

Assumptions

Land at Book Value 

AV valuation at OMV 

NPV of reduced payments 

Profit / (loss) on disposal 

Primary period 

Annual payment 

Reduction for land value

Actual amount payable

£12m

£14m

£18m

£4m

25 years

£15m (before reduction for land value)

£1,092,133 pa

£13,907,867 pa

Accounting entries

 

 

£m

(1)

Debit: Fixed Assets

2

 

Credit: Revaluation Reserve

2

 

 

 

Revaluation to open market value

 

(2)

Debit: OCS disposal account

14

 

Credit: Fixed Assets

14

Disposal of the asset

 

(3)

Debit: Debtors -prepayment

18

 

Credit: OCS disposal account

18

Revaluation to open market value

 

(4)

Debit: OCS

0.720

 

Credit: Debtors - prepayment

0.720

 

Write-off of the debtor over 25 years

 

(5)

Debit: OCS - service charge

14.280

 

Credit: Interest receivable

0.373

 

Credit: Cash

13.907

Being finance charge / interest receivable (i.e. the annual reduction in the tariff £1.092m less the written-off debtor £0.720m)

Figure 2 
Worked Example B

Year

Annual
Reduction

Discount
Factor

Present
Value

Amount
Payable

1

1,092,132.64

0.97

1,055,201

13,907,867.36

2

1,092,132.64

0.93

1,019,518

13,907,867.36

3

1,092,132.64

0.90

985,041

13,907,867.36

4

1,092,132.64

0.87

951,731

13,907,867.36

5

1,092,132.64

0.84

919,546

13,907,867.36

6

1,092,132.64

0.81

888,451

13,907,867.36

7

1,092,132.64

0.79

858,406

13,907,867.36

8

1,092,132.64

0.76

829,378

13,907,867.36

9

1,092,132.64

0.73

801,332

13,907,867.36

10

1,092,132.64

0.71

774,233

13,907,867.36

11

1,092,132.64

0.68

748,052

13,907,867.36

12

1,092,132.64

0.66

722,755

13,907,867.36

13

1,092,132.64

0.64

698,314

13,907,867.36

14

1,092,132.64

0.62

674,700

13,907,867.36

15

1,092,132.64

0.60

651,884

13,907,867.36

16

1,092,132.64

0.58

629,839

13,907,867.36

17

1,092,132.64

0.56

608,540

13,907,867.36

18

1,092,132.64

0.54

587,962

13,907,867.36

19

1,092,132.64

0.52

568,079

13,907,867.36

20

1,092,132.64

0.50

548,869

13,907,867.36

21

1,092,132.64

0.49

530,308

13,907,867.36

22

1,092,132.64

0.47

512,375

13,907,867.36

23

1,092,132.64

0.45

495,048

13,907,867.36

24

1,092,132.64

0.44

478,307

13,907,867.36

25

1,092,132.64

0.42

462,133

13,907,867.36

 

27,303,316.00

 

18,000,000

347,696,684.00