188体育

A private sector operator, whose trade includes the provision of design, construction and maintenance services, enters into a PFI contract with a public sector purchaser to build a street lighting system and maintain it for 30 years. The trade commences when the PFI agreements are signed (see BIM64065). In return the operator receives an annual service payment, the unitary charge, which commences after the system is completed.

Accounting period 1

The street-lighting system is completed during the first accounting period.

For tax purposes, the design and construction costs are revenue expenditure. The system is not a fixed capital asset of the operator鈥檚 trade (see BIM64025 onwards). For accounting purposes the example assumes that it is reported as a finance debtor on the operator鈥檚 balance sheet, under FRS5 Application Note F, at a figure of 拢90尘 representing cost (see BIM64070 onwards).

-	-	Amount	-	-	Amount
Dr	Finance debtor	拢90尘	Cr	Bank	拢90尘

A unitary payment of 拢15尘 is receivable in the accounting period.

For tax purposes the 拢15尘 is trading income for the provision of services. For FRS5 accounting purposes, 拢7尘 represents a part payment of the finance debtor and 拢8尘 represents operating income.

For accounting purposes, a figure representing accrued finance income, i.e. notional interest, on the finance debtor is calculated at 拢4尘 and credited to the profit and loss account. The corresponding debit is to the finance debtor (see BIM64125).

-	-	Amount	-	-	Amount
Dr	Finance debtor	拢4尘	Cr	P&L account (notional interest)	拢4尘

The part payment of 拢7尘 is then credited to the finance debtor and the operating income of 拢8尘 is credited to the profit and loss account.

-	-	Amount	-	-	Amount
Dr	Bank	拢15尘	Cr	P&L account (operating income)	拢8尘
-	-	-	Cr	Finance debtor (part payment)	拢7尘

For tax purposes we follow the accounting recognition of income in the profit and loss account, subject to any over-riding statutory or case law principle.

The 拢8尘 operating income and the 拢4尘 notional interest are the recognition of trading income of the accounting period for tax purposes.

However, 拢3m of the 拢7尘 part payment credited to the finance debtor will never be reflected in the profit and loss account. For tax purposes, the 拢3m is a trading receipt for the provision of services and is therefore included as an addition in the trading profits computation (see BIM64125). The proportion of the finance debtor, against which the 拢3m part payment is matched, represents revenue construction costs and is therefore included as a deduction in the trading profits computation (see BIM64130).

-	Amount
Trading income computation	-
Income (recognised in P&L)	拢12尘
Plus part payment	拢 3m
-	拢15尘
Less matching 鈥榗onstruction鈥� costs	拢 3m
Profit (before overheads)	拢12尘