Accounting for residual interests in NHS PPP Schemes has proved to be a source of many queries for Bodies whose PPP schemes are nearing the start of their concession periods and whose financial statements are required to report the financial effects of operational PPP Schemes. This Annex builds upon existing guidance issued by HM Treasury and applies these basic principles to a model NHS PPP Scheme.
The attached summary spreadsheet sets out the accounting treatment required for a residual interest built up over the lifetime of a 30-year concession period. The model has, of necessity, been simplified to render the accounting concepts more transparent. The key assumptions are these:
• The concession period is for 30 years, with an annual unitary payment of £3 million;
• The expected fair value of the residual value on reversion (EFVR) will be £30 million;
• HM Treasury's discount rate remains at 3.5%;
• The annual rate of inflation is known, as are the increases in value over the lifetime of the concession period.
The rates given for both RPI and increase in valuation are therefore indicative only in order to illustrate how certain elements of the model would behave over time.