Variations in profits/losses for the property, in transactions falling directly within the FRS rather than SSAP 21

Three principles govern the assessment of the indications set out below:

■ only variations in property profits/losses are relevant.

■ the overall effect of all of the factors taken together must be considered.

■ greater weight should be given to those factors that are more likely to have a commercial effect in practice.

Indications that the property is an asset of the purchaser

Indications that the property is an asset of the operator

Demand risk is significant and borne by the purchaser, eg

(a) the payments between the operator and the purchaser will not reflect usage of the property so that the purchase will have to pay the operator for the property whether or not it is used

(b) the purchaser gains where future demand is greater than expected.

Demand risk is significant and borne by the operator, eg

(a) the payments between the operator and the purchaser will vary proportionately to reflect usage of the property over all reasonably likely levels of demand so that the purchaser will not have to pay the operator for the property to the extent it is not used

(b) the operator gains where future demand is greater than expected.

There is genuine scope for significant third-party use of the property but the purchaser significantly restricts such use.

The property can be used, and paid for, to a significant extent by third parties and such revenues are necessary for the operator to cover its costs.

The purchaser does not guarantee the operator's property income.

The purchaser determines the key features of the property and how it will be operated

The operator has significant ongoing discretion over what property is to be built and how it will be replaced.

Potential penalties for underperformance or non-availability of the property are either not significant or are unlikely to occur.

Potential penalties for underperformance or non-availability of the property are significant and have a reasonable possibility of occurring.

Relevant costs are both significant and highly uncertain, and all potential material cost variations will be passed on to the purchaser.

Relevant costs are both significant and highly uncertain, and all potential material cost variations will be borne by the operator.

Obsolescence or changes in technology are significant and the purchaser will bear the costs and any associated benefits.

Obsolescence or changes in technology are significant, and the operator will bear the costs and any associated benefits.

Residual value risk is significant (the term of the PFI contract is materially less than the useful economic life of the property) and borne by the purchaser.

Residual value risk is significant (the term of the PFI contract is materially less than the useful economic life of the property) and borne by the operator.

Indications that the property is an asset of the purchaser

Indications that the property is an asset of the operator

The position of the parties to the transaction is consistent with the property being an asset of the purchaser, eg

(a) the operator's debt funding is such that it implies the contract is in effect a financing arrangement

(b) the bank financing would be fully paid out by the purchaser if the contract is terminated under all events of default including operator default.

The position of the parties to the transaction is consistent with the property being an asset of the operator, eg

(a) the operator's funding includes a significant amount of equity

(b) the bank financing would be fully paid out by the purchaser only in the event of purchaser default or limited force majeure circumstances.