1.1 Introduction and Accounting Concepts

The Statement of Accounts summarises the Authority’s transactions for the 2021/22 financial year and its position as of 31 March 2022. The Authority is required to prepare an annual Statement of Accounts by the Accounts and Audit (England) Regulations 2015 which require the Accounts to be prepared in accordance with proper accounting practices.

These practices under Section 21(2) of the Local Government Act 2003 primarily comprise the Code of Practice on Local Authority Accounting in the United Kingdom 2021/22 (the Code), supported by International Financial Reporting Standards (IFRS) and statutory guidance issued under section 12 of the 2003 Act.

The statutory override is to ensure that the Statement of Accounts for the Authority gives a true and fair view of the financial position, financial performance and cash flows of the Authority including the Group Financial Statements where applicable.

The accounting convention adopted in the Statement of Accounts is principally historical cost, modified by the revaluation of certain categories of non-current assets and financial instruments.

Going Concern Concept

The Local Authority’s Financial Statements shall be prepared on a going concern basis; that is the Accounts are prepared on the assumption that the functions of the Authority will continue in operational existence for the foreseeable future. Transfers of services under combinations of public sector bodies (such as local government reorganisation) do not negate the presumption of going concern.

1.2 Accruals of Income and Expenditure/Revenue Recognition

Activity is accounted for in the year that it takes place, not simply when cash payments are made or received. In particular:

• revenue from contracts with service recipients, whether for services or the provision of goods, is recognised when (or as) the goods or services are transferred to the service recipient in accordance with the performance obligations in the contract
• supplies are recorded as expenditure when they are consumed-where there is a gap between the date supplies are received and their consumption, they are carried as inventories on the Balance Sheet
• expenses in relation to services received (including services provided by employees) are recorded as expenditure when the services are received rather than when payments are made
• interest receivable on investments and payable on borrowings is accounted for respectively as income and expenditure on the basis of the effective interest rate for the relevant financial instrument rather than the cash flows fixed or determined by the contract
• where revenue and expenditure have been recognised but cash has not been received or paid, a debtor or creditor for the relevant amount is recorded in the Balance Sheet. Where debts may not be settled, the balance of debtors is written down and a charge made to revenue for the income that might not be collected
• revenue from Council Tax and Business Rates is measured at the full amount receivable (net of impairment losses) as they are non-contractual, non-exchange transactions. Revenue from non-exchange transactions is recognised when it is probable that the economic benefits or service potential associated with the transaction will flow to the Authority and the amount of revenue can be measured reliably
• dividends or equivalent should be recognised where the Authority’s right to receive is established

1.3 Cash and Cash Equivalents

Cash is represented by cash in hand, balances on the Authority’s current bank accounts and deposits with financial institutions repayable without penalty on notice of not more than 24 hours.

Cash equivalents are highly liquid investments that mature in three months or less from the date of acquisition and that are readily convertible to known amounts of cash with insignificant risk of change in value.

In the Cash Flow Statement, cash and cash equivalents are shown net of bank overdrafts that are repayable on demand and form an integral part of the Authority’s cash management.

1.4 Prior Period Adjustments, Changes in Accounting Policies and Estimates and Errors

Prior period adjustments may arise as a result of a change in accounting policies or to correct a material error. Changes in accounting estimates are accounted for prospectively i.e. in the current and future years affected by the change and do not give rise to a prior period adjustment.

Changes in accounting policies are only made when required by proper accounting practices or the change provides more reliable or relevant information about the effect of transactions, other events and conditions on the Authority’s financial position or financial performance. Where a change is made, it is applied retrospectively (unless stated otherwise) by adjusting opening balances and comparative amounts for the prior period as if the new policy had always been applied.

Material errors discovered in the prior period figures are corrected retrospectively by amending opening balances and comparative amounts for the prior period.

During preparation of the 2021/22 statement of accounts and related disclosures, management identified errors in the calculation of the 2020/21 members’ allowances, senior officers’ remuneration and remuneration bandings. The statements/notes affected are as follows:

Note 30. Member Allowances

The 2020/21 figure has been restated to exclude amounts for Employer’s National Insurance contributions and Apprenticeship Levy that were included in the 2020/21 Statement of Accounts.

Note 32.1 Senior Officers’ Remuneration

2020/21 figures above have been restated to exclude Employer’s National Insurance contributions that were previously included in error in the 2020/21 Statement of Accounts.

Note 32.2 Remuneration Bands

Figures for 2020/21 have been restated to be based on Gross Pay rather than Taxable Pay. The 2020/21 Statement of Accounts had figures based on classifying remuneration into bands based on taxable pay (for most employees this would be gross pay less employee pension contribution). There has also been an adjustment in the banding where amount paid for consultancy fees to a person who then became an employee before the end of the financial year is now included in the determination of the proper band.

During the audit of the 2021/22 statement of accounts and related disclosures, it has been determined that the Civic Office held in Property, Plant & Equipment on the balance sheet should be valued on a Depreciated Replacement Cost basis rather than an Existing Use Value basis. The way offices were used changed as a result of the pandemic. Due to insufficient market-based evidence from sales of similar properties that could be used to estimate current value, it has been necessary for depreciated replacement cost to be used instead. As this change in valuation basis makes a material difference to the value of the property and the circumstances under which this judgement has been made were the same at 31 March 2021 as at 31 March 2022, the accounts are restated to reflect a Depreciated Replacement Cost value instead of an Existing Use Value for the Civic Office at 31 March 2021.

The change in the valuation at 31/03/2021 of the Civic Office from £18,356k on Existing Use Value basis to £33,130k on Depreciation Replacement Cost basis (an increase of £14,774k) created a gain of £7,454k in the Comprehensive Income & Expenditure Statement and a gain of £7,320k in the Revaluation Reserve. An adjustment between accounting and funding basis required under regulations transferred the £7,454k from the General Fund balance to the Capital Adjustment Account in Unusable Reserves.

The following tables outline the impacts of the prior period adjustment on the 2020/21 figures presented in the Statement of Accounts.  For each statement and note it presents each line item affected including subtotal and total rows/columns affected by this adjustment. The tables indicate the original amounts, the restated amounts and the amount of the restatement. As only the affected rows and columns of each statement / note are shown, the figures in subtotal and total rows/columns will not be the sum of the line items shown.

Statement affected by Prior Period Adjustment: Comprehensive Income and Expenditure Statement

Statement affected by Prior Period Adjustment: Movement in Reserves Statement

Statement affected by Prior Period Adjustment: Balance Sheet

Statement affected by Prior Period Adjustment: Cash Flow Statement

Note affected by Prior Period Adjustment: Note 7. Expenditure & Funding Analysis

Note affected by Prior Period Adjustment: 7.1 Notes to the Expenditure & Funding Analysis

Note affected by Prior Period Adjustment: 8. Expenditure and Income Analysed by Nature

Note affected by Prior Period Adjustment: 9. Adjustments between Accounting and Funding Basis under Regulations

Note affected by Prior Period Adjustment: 14.1 Movements in Property, Plant & Equipment values excluding Infrastructure

Note affected by Prior Period Adjustment: 14.3 Net Book Value of Property, Plant & Equipment

Note affected by Prior Period Adjustment: 25. Unusable Reserves

Note affected by Prior Period Adjustment: 25.1 Revaluation Reserve

Note affected by Prior Period Adjustment: 25.2 Capital Adjustment Accounted

Note affected by Prior Period Adjustment: 26. Cash Flow Statement - Operating Activities

Statement affected by Prior Period Adjustment: GROUP Comprehensive Income & Expenditure Statement

Statement affected by Prior Period Adjustment: GROUP Balance Sheet

Statement affected by Prior Period Adjustment: GROUP Cash Flow Statement

Note affected by Prior Period Adjustment: GROUP Operating Cash Flows

Statement affected by Prior Period Adjustment: GROUP Movement in Reserves Statement

1.5 Charges to Revenue for Non-Current Assets

Services are debited with the following amounts to record the cost of holding non-current assets during the year:

• depreciation attributable to the assets used by the relevant service
• revaluation and impairment losses on assets used by the service where there are no accumulated gains in the Revaluation Reserve against which the losses can be written off
• amortisation of intangible assets attributable to the service
• for Finance Leases Minimum Revenue Provision (MRP) is equal to the write-down of the liability

Details of further adjustments, including the annual contribution from revenue towards the reduction in its overall borrowing requirement are outlined in Accounting Policy 1.19 ‘PPE’.

1.6 Collection Fund Income and Expenditure Account – (Memorandum Account)

The Authority has a statutory requirement to operate a Collection Fund as a separate account to the General Fund. The purpose of the Collection Fund is to isolate the income and expenditure relating to Council Tax and National Non-Domestic Business Rates.

1.6.1 Council Tax and National Non-domestic Rates (NNDR)

• Billing authorities act as agents, collecting Council Tax and non-domestic rates (NNDR) on behalf of the major preceptors (including government for NNDR) and, as principals, collecting Council Tax and NNDR for themselves. Billing authorities are required by statute to maintain a separate fund (i.e. the Collection Fund) for the collection and distribution of amounts due in respect of Council Tax and NNDR. Under the legislative framework for the Collection Fund, billing authorities, major preceptors and central government share proportionately the risks and rewards that the amount of Council Tax and NNDR collected could be less or more than predicted
• Collection Fund surpluses/deficits declared by the Billing Authority in relation to Council Tax are apportioned to the relevant precepting bodies in the subsequent financial year. For London Borough of Bexley, the Council Tax precepting body is Greater London Authority and the NNNDR precepting bodies are Central Government (33% share), London Borough of Bexley (30% share) and Greater London Authority (37% share)
• London Borough of Bexley participates in a Business Rates pool with all London authorities and Greater London Authority to minimise the levy payment due and thereby maximise the retention of locally generated business rates
• The Business Rate Supplement (BRS), in conjunction with the Crossrail Project, is a levy collected on behalf of the Greater London Authority (GLA) by this Authority along with Business rates. The income and expenditure for BRS are included in the Collection Fund

1.6.2 Accounting for Council Tax and NNDR

The Council Tax and NNDR income included in the Comprehensive Income and Expenditure Statement is the authority’s share of accrued income for the year. However, regulations determine the amount of Council Tax and NNDR that must be included in the authority’s General Fund. Therefore, the difference between the income included in the Comprehensive Income and Expenditure Statement and the amount required by regulation to be credited to the General Fund is taken to the Collection Fund Adjustment Account and included as a reconciling item in the Movement in Reserves Statement.

The Balance Sheet includes the authority’s share of the end of year balances in respect of Council Tax and NNDR relating to arrears, impairment allowances for doubtful debts, overpayments, prepayments and provision for appeals.

Where debtor balances for the above are identified as impaired because of a likelihood arising from a past event that payments due under the statutory arrangements will not be made (fixed or determinable payments), the asset is written down and a charge made to the Financing and Investment Income and Expenditure line in the CIES. The impairment loss is measured as the difference between the carrying amount and the revised future cash flows.

1.6.3 Business Improvement Districts

A Business Improvement District (BID) scheme applies across the whole of the Authority. The scheme is funded by a BID levy paid by non-domestic ratepayers. The Authority acts as a principal under the scheme and accounts for income received and expenditure incurred (including contributions to the BID project) within the relevant services within the Comprehensive Income and Expenditure Statement.

1.7 Employee Benefits

1.7.1 Benefits Payable During Employment

Short-term employee benefits are those due to be settled wholly within 12 months of the year-end. They include such benefits as wages and salaries, paid annual leave and paid sick leave, bonuses and non-monetary benefits (e.g. cars) for current employees and are recognised as an expense for services in the year in which employees render service to the authority.

An accrual is made for the cost of holiday entitlements earned by employees but not taken before the year-end which employees can carry forward into the new financial year.  The accrual is made at the salary rates applicable in the following accounting year, being the period in which the employee takes the benefit.  The accrual is charged to Surplus or Deficit on the Provision of Services but then reversed out through the Movement in Reserves Statement so that holiday benefits accrual has no impact on Council Tax and holiday benefits are charged to revenue in the financial year in which the holiday absence occurs.

The accrual for outstanding leave is based on central records of unused leave entitlement carried forward for non-schools staff and non-teaching staff in schools, and for teaching staff follows CIPFA guidance.

1.7.2 Termination Benefits

Termination benefits are amounts payable as a result of a decision by the Authority to terminate an officer’s employment before the normal retirement date or an officer’s decision to accept voluntary redundancy and are charged on an accruals basis to the appropriate service segment or where applicable to a corporate service segment when the Authority is demonstrably committed to the termination of the employment of an officer or group of officers. Where termination benefits involve the enhancement of pensions, statutory provisions require the General Fund balance to be charged with the amount payable by the Authority to the pension fund or pensioner in the year, not the amount calculated according to the relevant accounting standards. In the Movement in Reserves Statement, appropriations are required to and from the Pensions Reserve to remove the notional debits and credits for pension enhancement termination benefits and replace them with debits for the cash paid to the pension fund and pensioners and any such amounts payable but unpaid at the year-end.

1.7.3 Post-Employment Benefits

Employees of the Authority are members of three separate pension schemes:

• The Teachers’ Pension Scheme administered by Capita Teachers’ Pensions on behalf of the Department for Education
• The Local Government Pension Scheme administered by the Local Pensions Partnership (LPP) on behalf of the London Borough of Bexley. The London Borough of Bexley is the administering authority for the Pension Fund
• The National Health Service (NHS) Pension Scheme, administered by the Department of Health and Social Care

All schemes provide defined benefits to members earned as employees work for the Authority.

However, the arrangements for the teachers’ and NHS schemes mean that liabilities for these benefits cannot ordinarily be identified specifically to the Authority. These schemes are therefore accounted for as if they were defined contribution schemes and no liability for future payments of benefits is recognised in the Balance Sheet.

The Children and Education line in the Comprehensive Income and Expenditure Statement is charged with the employer’s contributions payable to Teachers’ Pensions in the year. The Adults Social Care and Public Health line in the Comprehensive Income and Expenditure Statement is charged with the employer’s contributions payable to the NHS scheme, administered by the Department of Health and Social Care, in the year.

The Local Government Scheme is accounted for as a defined benefit scheme:

• the liabilities of the London Borough of Bexley pension fund attributable to the Authority are included in the Balance Sheet on an actuarial basis using the projected unit method i.e. an assessment of the future payments that will be made in relation to retirement benefits earned to date by employees, based on assumptions about mortality rates, employee turnover rates etc and projections of earnings for current employees
• liabilities are discounted to their value at current prices, using a discount rate of 2.5% (based on the redemption yields available on long-dated AA-rated corporate bonds, as required by the Local Authority Accounting Panel)

The assets of the London Borough of Bexley pension fund attributable to the Authority are included in the Balance Sheet at their Fair Value:

• quoted securities - current bid price
• unquoted securities - professional estimate
• unitised securities - current bid price
• property - market value

The change in the net pensions liability is analysed into the following components::

Service cost comprising:

• current service cost - the increase in liabilities as a result of years of service earned this year allocated in the Comprehensive Income and Expenditure Statement to the services for which the employees worked
• past service cost - the increase in liabilities as a result of a scheme amendment or curtailment whose effect relates to years of service earned in earlier years debited to the Surplus or Deficit on the Provision of Services in the Comprehensive Income and Expenditure Statement
• net interest on the net defined benefit liability i.e. net interest expense for the authority – the change during the period in the net defined benefit liability that arises from the passage of time charged to the Financing and Investment Income and Expenditure line of the Comprehensive Income and Expenditure Statement. This is calculated by applying the discount rate used to measure the defined benefit obligation at the beginning of the period to the net defined benefit liability at the beginning of the period considering any changes in the net defined benefit liability during the period as a result of contribution and benefit payments

Re-measurements comprising:

• the return on plan assets excluding amounts included in net interest on the net defined benefit liability charged to the Pensions Reserve as Other Comprehensive Income and Expenditure
• actuarial gains and losses - changes in the net pensions liability that arise because events have not coincided with assumptions made at the last actuarial valuation or because the actuaries have updated their assumptions charged to the Pensions Reserve as Other Comprehensive Income and Expenditure
• contributions paid to the London Borough of Bexley Pension Fund – cash paid as employer’s contributions to the pension fund in settlement of liabilities, not accounted for as an expense

In relation to retirement benefits, statutory provisions require the General Fund balance to be charged with the amount payable by the Authority to the pension fund or directly to pensioners in the year, not the amount calculated according to the relevant accounting standards. In the Movement in Reserves Statement, this means that there are transfers to and from the Pensions Reserve to remove the notional debits and credits for retirement benefits and replace them with debits for the cash paid to the pension fund and pensioners and any such amounts payable but unpaid at the year-end. The negative balance that arises on the Pensions Reserve thereby measures the beneficial impact to the General Fund of being required to account for retirement benefits on the basis of cash flows rather than as benefits earned by employees.

1.7.4 Discretionary Benefits

The Authority also has restricted powers to make discretionary awards of retirement benefits in the event of early retirements. Any liabilities estimated to arise as a result of an award to any member of staff (including teachers) are accrued in the year of the decision to make the award and accounted for using the same policies as are applied to the Local Government Pension Scheme.

1.8 Events after the Reporting Period

Events after the Balance Sheet date are those events, both favourable and unfavourable, that occur between the end of the reporting period - 31 March - and the date when the Statement of Accounts is authorised for issue. Two types of events can be identified:

• those that provide evidence of conditions that existed at the end of the reporting period - the Statement of Accounts is adjusted to reflect such events
• those that are indicative of conditions that arose after the reporting period - the Statement of Accounts is not adjusted to reflect such events, but where an event would have a material effect, disclosure is made in the notes of the nature of the events and their estimated financial effect

Events taking place after the date of authorisation for issue are not reflected in the Statement of Accounts.

1.9 Financial Instruments

Financial instruments arise when contracts create financial assets and liabilities, and these are recognised on the Authority’s balance sheet. Typical financial assets include bank deposits, investments and loans by the Authority and amounts receivable, whilst financial liabilities include amounts borrowed by the Authority and amounts payable.

1.9.1 Financial assets

Financial assets are classified based on a classification and measurement approach that reflects the business model for holding the financial assets and their cash flow characteristics. There are three main classes of financial assets, measured at:

• amortised cost
• Fair Value through Other Comprehensive Income (FVOCI)
• Fair Value through Profit or Loss (FVPL)

The authority’s business model is to hold investments to collect contractual cash flows. Financial assets are therefore classified as amortised cost, except for those whose contractual payments are not solely payment of principal and interest (i.e. where the cash flows do not take the form of a basic debt instrument).

Financial assets measured at amortised cost

Financial assets measured at amortised cost are recognised on the balance sheet when the Authority becomes a party to the contractual provisions of a financial instrument and are initially measured at Fair Value. They are subsequently measured at their amortised cost.

Annual credits to the financing and investment income and expenditure line in the comprehensive income and expenditure statement for interest receivable are based on the carrying amount of the asset multiplied by the effective rate of interest for the instrument. For most of the financial assets held by the Authority, this means that the amount presented in the balance sheet is the outstanding principal receivable plus accrued interest and interest credited to the comprehensive income and expenditure statement is the amount receivable for the year in the loan agreement.

However, the authority has made a number of loans to voluntary organisations at less than market rates (soft loans). When soft loans are made, a loss is recorded in the CIES (debited to the appropriate service) for the present value of the interest that will be foregone over the life of the instrument, resulting in a lower amortised cost than the outstanding principal.

Interest is credited to the Financing and Investment Income and Expenditure line in the CIES at a marginally higher effective rate of interest than the rate receivable from the voluntary organisations, with the difference serving to increase the amortised cost of the loan in the Balance Sheet. Statutory provisions require that the impact of soft loans on the General Fund Balance is the interest receivable for the financial year - the reconciliation of amounts debited and credited to the CIES to the net gain required against the General Fund Balance is managed by a transfer to or from the Financial Instruments Adjustment Account in the Movement in Reserves Statement.

Any gains and losses that arise on the derecognition of an asset are credited or debited to the Financing and Investment Income and Expenditure line in the CIES.

Financial assets measured at Fair Value through Other Comprehensive Income (FVOCI)

Where the Authority holds investments with the objective of collecting contractual cash flows and selling assets in order to meet long term investment requirements while ensuring the Authority is not subject to a high degree of credit risk. These assets are measured at FVOCI.

The Authority does not currently hold any asset measured at Fair Value through other comprehensive income (FVOCI).

Financial assets measured at Fair Value through Profit or Loss (FVPL)

Financial assets that are measured at FVPL are recognised on the balance sheet when the Authority becomes a party to the contractual provisions of a financial instrument and are initially measured and carried at Fair Value. Fair Value gains and losses are recognised as they arise in the Surplus or Deficit on the Provision of Services.

Fair Value Measurement of Financial Assets

Fair Value of an asset is the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date.

The Fair Value measurements of the financial assets are based on the following techniques under IFRS 13 Fair Value Hierarchy:

• instruments with quoted market prices - the market price
• other instruments with fixed and determinable payments - discounted cash flow analysis

The inputs to the measurement techniques are categorised in accordance with the following three levels:

• Level 1 inputs - quoted prices (unadjusted) in active markets for identical assets that the Authority can access at the measurement date
• Level 2 inputs - inputs other than quoted prices included within Level 1 that are observable for the asset, either directly or indirectly
• Level 3 inputs - unobservable inputs for the asset

Any gains and losses that arise on the derecognition of the asset are credited or debited to the financing and investment income and expenditure line in the comprehensive income and expenditure statement.

Where the Fair Value charged to the comprehensive income and expenditure statement related to Pooled Investment funds, Statutory regulations allow the impact on the general fund balance to be deferred for up to a maximum of 5 years. The amounts deferred are transferred to a Pooled Investment Adjustment Reserve in the movement in reserves statement.

Expected Credit Loss Model (ECL)

The Expected Credit Loss Model applies only to contractual financial assets measured at amortised cost in respect of this Authority and recognises expected credit losses on its financial assets held at amortised cost (subject to materiality) either on a 12-month or lifetime basis. The expected credit loss model also applies to lease receivables and contract assets. Only lifetime losses are recognised for trade receivables (debtors) held by the Authority.

Impairment losses are calculated to reflect the expectation that the future cash flows might not take place because the borrower could default on their obligations. Credit risk plays a crucial part in assessing losses. Where risk has increased significantly since an instrument was initially recognised, losses are assessed on a lifetime basis. Where risk has not increased significantly or remains low, losses are assessed based on 12-month expected losses. Where credit rating matrices exist, they will be considered in measuring impairment losses.

Impairment losses are charged to the Comprehensive income and expenditure statement under Financing and investment income and expenditure.

Lifetime losses are recognised for trade receivables (debtors) held by the Authority.

1.9.2 Financial liabilities

Financial liabilities are initially recognised on the balance sheet when the Authority becomes a party to the contractual provisions of a financial instrument and are initially measured at Fair Value and carried at their amortised cost. Annual charges to the financing and investment income and expenditure line in the comprehensive income and expenditure statement for interest payable, are based on the carrying amount of the liability, multiplied by the effective rate of interest for the instrument.

The effective interest rate is the rate that exactly discounts estimated future cash payments over the life of the instrument to the amount at which it was originally recognised.

The amount presented in the balance sheet is the outstanding principal repayable plus accrued interest. Interest charged to the comprehensive income and expenditure statement is the amount payable for the year according to the loan agreement.

For most of the borrowings that the authority has, this means that the amount presented in the Balance Sheet is the outstanding principal repayable (plus accrued interest); and interest charged to the Comprehensive Income and Expenditure Statement is the amount payable for the year according to the loan agreement. Gains and losses on the repurchase or early settlement of borrowing are credited and debited to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement in the year of repurchase/settlement. However, where repurchase has taken place as part of a restructuring of the loan portfolio that involves the modification or exchange of existing instruments, the premium or discount is respectively deducted from or added to the amortised cost of the new or modified loan and the write-down to the Comprehensive Income and Expenditure Statement is spread over the life of the loan by an adjustment to the effective interest rate.

Where premiums and discounts have been charged to the comprehensive income and expenditure statement, regulations allow the impact on the general fund balance to be spread over future years. The Authority's policy is to spread the gain or loss over the term remaining on the loan, against which the premium was payable or discount receivable when it was repaid.

The reconciliation of amounts charged to the comprehensive income and expenditure statement to the net charge required against the general fund balance is managed by a transfer to or from the financial Instrument adjustment account in the movement in reserves statement.

1.10 Foreign Currency Translation

Where the Authority has entered into a transaction denominated in a foreign currency, the transaction is converted into sterling at the exchange rate applicable on the date the transaction was effective.

Where amounts in foreign currency are outstanding at the year-end, they are reconverted at the spot exchange rate on 31 March. Resulting gains or losses are recognised in the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement.

1.11.1 Government Grants and Contributions

Whether paid on account, by instalments or in arrears, government grants and third-party contributions and donations are recognised as due to the Authority when there is reasonable assurance that:

• the Authority will comply with the conditions attached to the payments, and
• the grants or contributions will be received

Amounts recognised as due to the Authority are not credited to the Comprehensive Income and Expenditure Statement until conditions attached to the grant or contribution have been satisfied. Conditions are stipulations that specify that the future economic benefits or service potential embodied in the asset acquired using the grant or contribution are required to be consumed by the recipient as specified, or future economic benefits or service potential must be returned to the transferor i.e. repaid.

Monies advanced as grants and contributions for which conditions have not been satisfied are carried in the Balance Sheet as creditors. When conditions are satisfied, the grant or contribution is credited to the relevant service line (attributable revenue grants and contributions) or Taxation and Non-Specific Grant Income (non-ring-fenced revenue grants and all capital grants) in the Comprehensive Income and Expenditure Statement.

Where capital grants are credited to the Comprehensive Income and Expenditure Statement, they are reversed out of the General Fund balance in the Movement in Reserves Statement. Where the grant has yet to be used to finance capital expenditure, it is posted to the Capital Grants Unapplied reserve. Where it has been applied, it is posted to the Capital Adjustment Account. Amounts in the Capital Grants Unapplied reserve are transferred to the Capital Adjustment Account once they have been applied to fund capital expenditure. Where a revenue grant or contribution without conditions has not yet been used to fund expenditure, it is transferred to Earmarked Reserves -Revenue Grants Unapplied via the Movement in Reserves Statement until it is required.

1.11.2 Community Infrastructure Levy

The Authority has elected to charge a Community Infrastructure Levy (CIL). The levy will be charged on new builds (chargeable developments for the Authority) with appropriate planning consent. The Authority charges for and collects the levy, which is a planning charge. The income from the levy will be used to fund several infrastructure projects (these include transport, flood defences and schools) to support the development of the area.

CIL is received without outstanding conditions; it is therefore recognised at the commencement date of the chargeable development in the Comprehensive Income and Expenditure Statement in accordance with the accounting policy for government grants and contributions set out above. CIL charges will be largely used to fund capital expenditure. However, a proportion of the charges for this Authority may be used to fund revenue expenditure.

1.12 Heritage Assets

The Authority’s Heritage Assets comprise of a museum collection, historical buildings and monuments, public artwork, civic regalia and a collection of local studies and archives material. The assets are held with the primary objective of increasing the knowledge, understanding and appreciation of the borough’s history and the local area.

Heritage Assets–measurement and valuation

Heritage Assets are recognised and measured (including the treatment of revaluation gains and losses) in accordance with the Authority’s accounting policies on property, plant and equipment.

The Carrying amounts of heritage assets are reviewed where there is evidence of impairment e.g. where the asset has suffered physical deterioration, breakage or where doubts arise as to its authenticity. Such impairment will be recognised and measured in accordance with the Authority’s general policies on impairments. The assets within the art collection are deemed to have indeterminate lives and a high residual value; hence the Authority does not consider it appropriate to charge depreciation.

Acquisitions are made by purchase or donation. Acquisitions are initially recognised at cost and donations are recognised at valuation with valuations provided by the external valuers and with reference to appropriate insurance values and commercial markets using the most relevant and recent information from sales at auctions.

1.13 Intangible Assets

Expenditure on non-monetary assets that do not have physical substance but are controlled by the Authority as a result of past events (e.g. software licences) is capitalised when it is expected that future economic benefits or service potential will flow from the intangible asset to the Authority.

Internally generated assets are capitalised where it is demonstrable that the project is technically feasible and is intended to be completed (with adequate resources being available) and the Authority will be able to generate future economic benefits or deliver service potential by being able to sell or use the asset. Expenditure is capitalised where it can be measured reliably as attributable to the asset and is restricted to that incurred during the development phase (research expenditure cannot be capitalised).

Intangible assets are measured initially at cost. Amounts would only be revalued where the Fair Value of the assets held by the Authority can be determined by reference to an active market. In practice, no intangible asset held by the Authority meets this criterion, and they are therefore carried at amortised cost. The depreciable amount of an intangible asset is amortised over its useful life to the relevant service line(s) in the Comprehensive Income and Expenditure Statement.

An asset is tested for impairment whenever there is an indication that the asset might be impaired - any losses recognised are posted to the relevant service line(s) in the Comprehensive Income and Expenditure Statement. Any gain or loss arising on the disposal or abandonment of an intangible asset is posted to the Other Operating Expenditure line in the Comprehensive Income and Expenditure Statement.

Where expenditure on intangible assets qualifies as capital expenditure for statutory purposes, amortisation, impairment losses and disposal gains and losses are not permitted to have an impact on the General Fund balance. The gains and losses are therefore reversed out of the General Fund balance in the Movement in Reserves Statement and posted to the Capital Adjustment Account and (for any sale proceeds greater than £10,000) the Capital Receipts Reserve.

1.14 Interests in Companies and Other Entities

The Authority has material interests in BexleyCo Homes Company that has the nature of a subsidiary and is required to prepare group accounts. In the authority’s own single-entity accounts, the interests in companies and other entities are recorded as financial assets at cost, less any provision for losses in 2020/21.

Group Accounts have been prepared in accordance with paragraph 9.1.2.60 of the Code.

1.15 Inventories and Long-Term Contracts

Inventories are included in the Balance Sheet and are measured at the lower cost and net realisable value.

Long term contracts are accounted for on the basis of charging the Surplus or Deficit on the Provision of Services with the consideration allocated to the performance obligations satisfied based on goods or services transferred to the service recipient during the financial year.

1.16.1 Investment Property

Investment properties are those that are used solely to earn rentals and/or for capital appreciation. The definition is not met if the property is used in any way to facilitate the delivery of services or production of goods or is held for sale.

Investment properties are measured initially at cost and subsequently at Fair Value, being the price that would be received to sell such an asset in an orderly transaction between market participants at the measurement date. As a non-financial asset, investment properties are measured at the highest and best use. Properties are not depreciated but are reviewed annually according to market conditions at the year-end. Gains and losses on revaluation are posted to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement. The same treatment is applied to gains and losses on disposal.

Rentals received in relation to investment properties are credited to the Financing and Investment Income line and result in a gain for the General Fund balance. However, revaluation and disposal gains and losses are not permitted by statutory arrangements to have an impact on the General Fund balance.

The gains and losses are therefore reversed out of the General Fund Balance in the Movement in Reserves Statement and posted to the Capital Adjustment Account and (for any sale proceeds greater than £10,000) the Capital Receipts Reserve.

1.16.2 Fair Value Measurement

The Authority measures some of its non-financial assets such as surplus assets and investment properties and some of its financial instruments at Fair Value at each reporting date. Fair Value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Fair Value measurement assumes that the transaction to sell the asset or transfer the liability takes place either:

a) in the principal market for the asset or liability, or
b) in the absence of a principal market, in the most advantageous market for the asset or liability

The Authority measures the Fair Value of an asset or liability using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in the economic best interest.

When measuring the Fair Value of a non-financial asset, the Authority takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Authority uses valuation techniques that are appropriate to the circumstances and for which sufficient data is available, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

Inputs to the valuation techniques in respect of assets and liabilities for which Fair Value is measured or disclosed in the Authority’s financial statements are categorised within the Fair Value hierarchy, as follows:

• Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities that the Authority can access at the measurement date
• Level 2 - inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly
• Level 3 - unobservable inputs for the asset or liability

1.17 Leases

Leases are classified as finance leases where the terms of the lease transfer substantially all the risks and rewards incidental to ownership of the property, plant or equipment from the lessor to the lessee. All other leases are classified as operating leases.

Where a lease covers both land and buildings, the land and buildings elements are considered separately for classification.

Arrangements that do not have the legal status of a lease but convey a right to use an asset in return for payment are accounted for under this policy where the fulfilment of the arrangement is dependent on the use of specific assets.

The Authority as Lessee
Finance Leases

Property, plant and equipment held under finance leases are recognised on the Balance Sheet at the commencement of the lease at their Fair Value measured at the lease’s inception (or the present value of the minimum lease payments, if lower). The asset recognised is matched by a liability for the obligation to pay the lessor. Initial direct costs of the Authority are added to the carrying amount of the asset. Premiums paid on entry into a lease are applied to writing down the lease liability. Contingent rents are charged as expenses in the periods in which they are incurred.

Lease payments are apportioned between:

• a charge for the acquisition of the interest in the property, plant or equipment - applied to write down the lease liability, and
• a finance charge (debited to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement)

Property, Plant and Equipment recognised under a finance lease are accounted for using the policies applied generally to such assets, subject to depreciation being charged over the lease term if this is shorter than the asset’s estimated useful life (where ownership of the asset does not transfer to the Authority at the end of the lease period).

The Authority is not required to raise Council Tax to cover depreciation or revaluation and impairment losses arising on leased assets. Instead, a prudent annual contribution is made from revenue funds towards the deemed capital investment in accordance with statutory requirements. Depreciation and revaluation and impairment losses are therefore substituted by a revenue contribution in the General Fund Balance, by way of an adjusting transaction with the Capital Adjustment Account in the Movement in Reserves Statement for the difference between the two.

Operating Leases

Rentals paid under operating leases are charged to the Comprehensive Income and Expenditure Statement as an expense of the services benefitting from the use of the leased property, plant or equipment. There is currently no material operating leases.

The Authority as Lessor
Finance Leases

Where the Authority grants a finance lease over a property, the relevant asset is written out of the Balance Sheet as a disposal. At the commencement of the lease, the carrying amount of the asset in the Balance Sheet (whether Property, Plant and Equipment or Assets Held for Sale) is written off to the Other Operating Expenditure line in the Comprehensive Income and Expenditure Statement as part of the gain or loss on disposal. A gain, representing the Authority’s net investment in the lease, is credited to the same line in the Comprehensive Income and Expenditure Statement also as part of the gain or loss on disposal (i.e. netted off against the carrying value of the asset at the time of disposal), matched by a lease (long-term debtor) asset in the Balance Sheet.

Lease rentals receivable are apportioned between:

• a charge for the acquisition of the interest in the property - applied to write down the lease debtor (together with any premiums received), and
• finance income (credited to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement)

The gain credited to the Comprehensive Income and Expenditure Statement on disposal is not permitted by statute to increase the General Fund Balance and is required to be treated as a capital receipt. Where a premium has been received, this is posted out of the General Fund Balance to the Capital Receipts Reserve in the Movement in Reserves Statement. Where the amount due in relation to the lease asset is to be settled by the payment of rentals in future financial years, this is posted out of the General Fund Balance to the Deferred Capital Receipts Reserve in the Movement in Reserves Statement. When the future rentals are received, the element for the capital receipt for the disposal of the asset is used to write down the lease debtor. At this point, the deferred capital receipts are transferred to the Capital Receipts Reserve.

The written-off value of disposals is not a charge against Council Tax, as the cost of non-current assets is fully provided for under separate arrangements for capital financing. Amounts are therefore appropriated to the Capital Adjustment Account from the General Fund Balance in the Movement in Reserves Statement.

Where future rentals are received, the element for the capital receipt for the disposal of the asset is used to write down the lease debtor. At this point, the deferred capital receipts are transferred to the Capital Receipts Reserve.

The written-off value of disposals is not a charge against Council Tax, as the cost of noncurrent assets is fully provided for under separate arrangements for capital financing. Amounts are therefore appropriated to the Capital Adjustment Account from the General Fund Balance in the Movement in Reserves Statement.

Operating Leases

Where the Authority grants an operating lease over a property, the asset is retained in the Balance Sheet under Property, Plant and Equipment. Rental income is credited to the Comprehensive Income and Expenditure Statement.

Credits are made on a straight-line basis over the life of the lease, even if this does not match the pattern of payments (e.g. there is a premium paid at the commencement of the lease). Initial direct costs incurred in negotiating and arranging the lease are added to the carrying amount of the relevant asset and charged as an expense over the lease term on the same basis as rental income.

1.18 Overheads

The costs of overheads are not charged to service segments and instead remain in the Finance & Corporate directorate.

1.19 Highways infrastructure assets

Highways infrastructure assets

Highways infrastructure assets include carriageways, footways and cycle tracks, structures (eg bridges), street lighting, street furniture (eg illuminated traffic signals, bollards), traffic management systems and land which together form a single integrated network.

Recognition

Expenditure on the acquisition or replacement of components of the network is capitalised on an accrual basis, provided that it is probable that the future economic benefits associated with the item will flow to the authority and the cost of the item can be measured reliably.

Measurement

Highways infrastructure assets are generally measured at depreciated historical cost. However, this is a modified form of historical cost – opening balances for highways infrastructure assets were originally recorded in balance sheets at amounts of capital undischarged for sums borrowed as at 1 April 1994, which was deemed at that time to be historical cost. Where impairment losses are identified, they are accounted for by the carrying amount of the asset being written down to the recoverable amount.

Depreciation

Depreciation is provided on the parts of the highways network infrastructure assets that are subject to deterioration or depletion and by the systematic allocation of their depreciable amounts over their useful lives. Depreciation is charged on a straight-line basis.

Annual depreciation is the depreciation amount allocated each year.

Useful lives of the various parts of the highways network are assessed by the Head of Highways, Traffic & Infrastructure using industry standards where applicable. In 2021-22 the useful lives were reviewed and the following lives were applied to the parts of the highways network indicated.

Disposals and derecognition

When a component of the network is disposed of or decommissioned, the carrying amount of the component in the Balance Sheet is written off to the ‘Other operating expenditure’ line in the Comprehensive Income and Expenditure Statement as part of the gain or loss on disposal. Receipts from disposals (if any) are credited to the same line in the Comprehensive Income and Expenditure Statement, also as part of the gain or loss on disposal (ie netted off against the carrying value of the asset at the time of disposal).

The written-off amounts of disposals are not a charge against council tax, as the cost of noncurrent assets is fully provided for under separate arrangements for capital financing. Amounts are transferred to the capital adjustment account from the General Fund Balance in the Movement in Reserves Statement.

In accordance with the Local Authorities (Capital Finance and Accounting) (England) (Amendment) Regulations 2022 paragraph 3(a), where we replace a component of an infrastructure asset, for the purposes of determining the carrying amount to be derecognised in respect of that component we determine the relevant amount as nil.
 

1.20 Property, Plant and Equipment (PPE)

Assets that have physical substance and are held for use in the supply of services, for rental to others, or for administrative purposes and that are expected to be used during more than one financial year are classified as Property, Plant and Equipment. In accordance with IFRS 13 (Fair Value measurement), the Authority will apply the concept of current value measurement for property, plant and equipment. Current Value for Property, Plant and Equipment will be ‘Existing Use Value’, with the exception of Surplus Assets which are measured at Fair Value in accordance with IFRS 13. The Authority has a de minimum threshold of £10,000.

Recognition

Expenditure on the acquisition, creation or enhancement of Property, Plant and Equipment is capitalised on an accruals basis, provided that it is probable that the future economic benefits or service potential associated with the item will flow to the Authority and the cost of the item can be measured reliably. Expenditure that maintains but does not add to an asset’s potential to deliver future economic benefits or service potential (i.e., repairs and maintenance) is charged as an expense when it is incurred.

Measurement

Assets are initially measured at cost, comprising:

• the purchase prices
• any costs attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management
• the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located if the cost is above the £10,000 de minimis threshold

The Authority does not capitalise on borrowing costs incurred whilst assets are under construction.

The cost of assets acquired other than by purchase is deemed to be its Fair Value, unless the acquisition does not have commercial substance (i.e. it will not lead to a variation in the cash flows of the Authority). In the latter case, where an asset is acquired via an exchange, the cost of the acquisition is the carrying amount of the asset given up by the Authority.

Donated assets are measured initially at Fair Value. The difference between Fair Value and any consideration paid is credited to the Taxation and Non-Specific Grant Income and Expenditure line of the Comprehensive Income and Expenditure Statement unless the donation has been made conditionally. Until conditions are satisfied, the gain is held in the Donated Assets Account. Where gains are credited to the Comprehensive Income and Expenditure Statement, they are reversed out of the General Fund Balance to the Capital Adjustment Account in the Movement in Reserves Statement.

Assets are then carried in the Balance Sheet using the following measurement bases:

• infrastructure, community assets and assets under construction - depreciated historical cost (see accounting policy 1.19 for more detail on infrastructure measurement)
• authority offices - current value, determined as the amount that would be paid for the asset in its existing use (existing use value - EUV)
• school buildings - current value, but because of their specialist nature, are measured at depreciated replacement cost which is an estimate of the current value
• other land and buildings and operational assets where there is an active market - Current value determined as the amount that would be paid for the asset in its existing use (EUV)
• operational assets where there is no market-based evidence of current value because of the specialist nature of the asset and/or the asset is rarely sold ( i.e. EUV cannot be determined), depreciated replacement cost (DRC) using the ‘instant build’ approach as an estimate of the current value
• surplus assets - the current value measurement base is Fair Value, estimated at highest and best use from a market participant’s perspective
• all other assets - current value, determined as the amount that would be paid for the asset in its existing use (existing use value – EUV)

Where there is no market-based evidence of current value because of the specialist nature of an asset, depreciated replacement cost (DRC) is used as an estimate of current value. Where non-property assets have short useful lives or low values (or both), the depreciated historical cost basis is used as a proxy for current value.

Assets included in the Balance Sheet at current value are revalued sufficiently regularly to ensure that their carrying amount is not materially different from their current value at the year-end. Asset categories are reviewed simultaneously. Increases in valuations are matched by credits to the Revaluation Reserve to recognise unrealised gains. Exceptionally, gains might be credited to the Comprehensive Income and Expenditure Statement where they arise from the reversal of a loss previously charged to a service.

Where decreases in value are identified, they are accounted for by:

• where there is a balance of revaluation gains for the asset in the Revaluation Reserve, the carrying amount of the asset is written down against that balance (up to the amount of the accumulated gains); and
• where there is no balance in the Revaluation Reserve or an insufficient balance, the carrying amount of the asset is written down against the relevant service line(s) in the Comprehensive Income and Expenditure Statement

The Revaluation Reserve contains revaluation gains recognised since 1 April 2007 only, the date of its formal implementation. Gains arising before that date have been consolidated into the Capital Adjustment Account.

Impairment

Assets are assessed at each year-end as to whether there is any indication that an asset may be impaired. Where indications exist, and any possible differences are estimated to be material, the recoverable amount of the asset is estimated and, where this is less than the carrying amount of the asset, an impairment loss is recognised for the shortfall.

Where impairment losses are identified, they are accounted for as follows:

• where there is a balance of revaluation gains for the asset in the Revaluation Reserve, the carrying amount of the asset is written down against that balance (up to the amount of the accumulated gains)
• where there is no balance in the Revaluation Reserve or an insufficient balance, the carrying amount of the asset is written down against the relevant service line(s) in the Comprehensive Income and Expenditure Statement

Where an impairment loss is reversed subsequently, the reversal is credited to the relevant service line(s) in the Comprehensive Income and Expenditure Statement, up to the amount of the original loss, adjusted for the depreciation that would have been charged if the loss had not been recognised.

Depreciation

Depreciation is provided for on all Property, Plant and Equipment assets by the systematic allocation of their depreciable amounts over their useful lives. An exception is made for assets without a determinable finite useful life (i.e. freehold land and certain Community Assets) and assets that are not yet available for use (i.e. assets under construction).

Depreciation is calculated on the following bases:

• other buildings - straight-line allocation over the useful life of the property as estimated by the valuer
• vehicles, plant and equipment - straight-line allocation over the useful life of the asset
• infrastructure - straight-line allocation over the useful life of the asset, as advised by a suitably qualified officer, and/or Responsible Officer and/or valuer for that asset

Where an item of Property, Plant and Equipment asset has major components whose cost is significant in relation to the total cost of the item, the components are depreciated separately. Revaluation gains are also depreciated, with an amount equal to the difference between current value depreciation charged on assets and the depreciation that would have been chargeable based on their historical cost being transferred each year from the Revaluation Reserve to the Capital Adjustment Account.

Component Accounting

Under the IFRS Code, authorities are required to account for significant component elements of assets where the component has a different useful life and/or depreciation method to the remainder of the asset. The overall value of an asset is fairly apportioned over significant components that are accounted for separately and their useful lives and the method of depreciation are determined on a reasonable and consistent basis.

Under the IFRS Code the principles of componentisation are applicable to:

• enhancement expenditure incurred
• acquisition expenditure incurred
• revaluations carried out.

Component accounting is applicable to all Property, Plant and Equipment (PPE) assets. However, componentisation is not applied where depreciating the item as a single asset is unlikely to result in a material misstatement of either depreciation charges or the carrying amount (net amount after deducting accumulated depreciation) of PPE.

In respect of equipment, the bulk of the assets included in the asset register relate to IT equipment which tends to have a short life i.e. 3 to 5 years. There is little scope or benefit to be gained by attempting further componentisation of equipment assets. In addition, not componentising these assets is unlikely to lead to a misstatement in the accounts. Therefore, equipment assets are not reviewed for further componentisation.

Componentisation applies to property assets that are currently already separated between land and buildings and further separated between the various buildings on a site. A de-minimis threshold of £1m has been set in respect of componentisation, therefore individual buildings with a value below £1m are not considered for componentisation. The impact of not componentising buildings with a value below £1m is unlikely to result in a material misstatement of either depreciation charges or the carrying amount of PPE.

In 2021-22 the Council’s valuers completed a review of the component elements, the value of which will vary dependent on the asset category and the ranges were as follows:

This approach is applied to the revaluation of property assets. In addition, these significant component elements have different lifespans as follows:

• structures - including windows and pitched roofs - maximum 50-year life span
• flat roof - maximum 20 years life span
• mechanical and engineering - including electrics, heating systems, lifts etc. - maximum 15-year life span
• external works - including drainage, external services, paths, car parks, boundary treatment and landscaping - maximum 30 years

Temporary buildings continue to be allocated a maximum lifespan of 20 years and are not subject to any further componentisation as this is unlikely to have any material impact upon depreciation and carrying values.

A phased approach has been adopted from 1 April 2010 and all revaluations of properties in excess of £1m due as part of the 5-year revaluation cycle are subject to the component accounting requirements. Valuations continue to be provided in accordance with the CIPFA accounting Code of Practice 2021/22 and the Royal Institute of Chartered Surveyors (RICS) Global Standards UK Supplement – UK VPGA4 Valuation of local authority assets for accounting purposes. The valuation is then apportioned in accordance with the component elements mentioned above.

Capital expenditure is assessed and where expenditure on a component represents less than 10% of the asset’s value it is not separately identified. Each year Bexley‘s revaluation process includes scheduled revaluations of approximately 20% of the Authority’s property assets based on the 5-year rolling programme. In addition, property, that although not due for a revaluation as part of the rolling revaluation programme, is identified for revaluation where significant changes have occurred in a year i.e. a new extension, new roof, etc.

The Code requires that where a component is replaced, the old component is de-recognised. The purpose of the Code’s de-recognition requirement is to avoid double-counting, in the majority of cases, significant expenditure on an asset would lead to a revaluation which would ensure there is no double counting. In the event of capital enhancement expenditure on a property that is below the de-minimis threshold, and the expenditure does not warrant a revaluation, no de-recognition would be actioned as it is unlikely to be material and the property would be subject to revaluation within 5 years. For example, capital expenditure of £40k on a property with a total value of £480k would not be material and no derecognition would take place as the asset would be revalued in due course. In terms of componentisation and component de-recognition materiality is always a key consideration.

Disposals and Non-Current Assets Held for Sale

When it becomes probable that the carrying amount of an asset will be recovered principally through a sale transaction rather than through its continuing use, it is reclassified as an Asset Held for Sale. The asset is revalued immediately before reclassification and then carried at the lower of this amount and Fair Value less costs to sell. Where there is a subsequent decrease to Fair Value less costs to sell, the loss is posted to the Other Operating Expenditure line in the Comprehensive Income and Expenditure Statement. Gains in Fair Value are recognised only up to the amount of any previous losses recognised in the Surplus or Deficit on Provision of Services. Depreciation is not charged on Assets Held for Sale.

If assets no longer meet the criteria to be classified as Assets Held for Sale, they are reclassified back to non-current assets and valued at the lower of their carrying amount before they were classified as held for sale; adjusted for depreciation, amortisation or revaluations that would have been recognised had they not been classified as Held for Sale, and their recoverable amount at the date of the decision not to sell.

Assets that are to be abandoned or scrapped are not reclassified as Assets Held for Sale.

When an asset is disposed of or decommissioned, the carrying amount of the asset in the Balance Sheet (whether Property, Plant and Equipment or Assets Held for Sale) is written off to the Other Operating Expenditure line in the Comprehensive Income and Expenditure Statement as part of the gain or loss on disposal.

Receipts from disposals (if any) are credited to the same line in the Comprehensive Income and Expenditure Statement also as part of the gain or loss on disposal (i.e. netted off against the carrying value of the asset at the time of disposal). Any revaluation gains accumulated for the asset in the Revaluation Reserve are transferred to the Capital Adjustment Account.

Amounts received for disposal in excess of £10k are categorised as capital receipts. The balance of receipts is required to be credited to the Capital Receipts Reserve and can then only be used for new capital investment or set aside to reduce the Authority’s underlying need to borrow (the capital financing requirement). Receipts are appropriated to the Reserve from the General Fund Balance in the Movement in Reserves Statement.

The written-off value of disposals is not a charge against Council Tax, as the cost of non-current assets is fully provided for under separate arrangements for capital financing. Amounts are appropriated to the Capital Adjustment Account from the General Fund Balance in the Movement in Reserves Statement

Accounting Treatment of School Assets

Assets relating to community schools and voluntary controlled schools are recognised on the Authority’s balance sheet in accordance with IAS 16. The assets of voluntary aided schools, with the exception of playing fields, are not recognised on the Authority’s balance sheet; unless the school, as opposed to the Trust/Diocese, has a legal or substantive right to the assets.

Assets relating to Foundation and Academy schools are not recognised on the Authority’s balance sheet. Expenditure on the enhancement of the assets of voluntary aided schools (with the exception of playing fields), Foundation schools and Academy schools are treated as revenue expenditure funded from capital under statute see note 1.21. Schools held on the balance sheet are disposed of for nil consideration when they transfer to Academy status. The resultant gain or loss is recognised in the Financing and Investment Income and Expenditure line of the Consolidated Income and Expenditure Statement; and, in order to negate the impact on the General Fund Balance, are reversed out of the General Fund to the Capital Adjustment Account via the Movement in Reserves Statement.

Minimum Revenue Provision (MRP)

The Authority is not required to use Council Tax to fund depreciation, revaluation and impairment losses or amortisation on non-current assets. However, it is required to make an annual contribution from revenue towards provision for the reduction in its overall borrowing requirement equal to either an amount calculated on a prudent basis or as determined by the Authority in accordance with statutory guidance.

Depreciation, revaluation and impairment losses and amortisations are therefore replaced by way of the Contribution in the General Fund (MRP or Loans Fund Principal), by way of an adjusting transaction with the Capital Adjustment Account in the Movement in Reserves Statement for the difference between the two.

1.21 Private Finance Initiative and Similar Contracts

Private Finance Initiative (PFI) and similar Public-Private Partnership (PPP) contracts are agreements to receive services, where the responsibility for making available the property, plant and equipment needed to provide the services passes to the PFI/PPP contractor. As the Authority is deemed to control the services that are provided under its PFI/PPP schemes, and as the ownership of the property, plant and equipment will pass to the Authority at the end of the contracts for no additional charge, the Authority carries the assets used under the PPP contracts on its Balance Sheet as part of Property, Plant and Equipment. The schools involved in the PFI contract have become academies and are therefore not included in the Authority’s Balance Sheet.

The original recognition of these assets at Fair Value (based on the cost to purchase the property, plant and equipment) was balanced by the recognition of a liability for amounts due to the scheme operator to pay for the capital investment plus, in the case of the Leisure PPP, recognition of a deferred income sum representing the proportion of the assets financed by income earned by the scheme.

Non-current assets recognised in this way on the Balance Sheet are subsequently revalued and depreciated in the same way as property, plant and equipment owned by the Authority.

The amounts payable to the PFI operators each year are analysed into five elements:

• fair value of the services received during the year - debited to the relevant service in the Comprehensive Income and Expenditure Statement
• lifecycle replacement costs - the amount spent by the contractor is posted to the Balance Sheet as additions to Property, Plant and Equipment
• payment towards liability - applied to write down the Balance Sheet liability to the PFI operator
• finance cost - an interest charge on the outstanding Balance Sheet liability, debited to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement
• contingent rent - increases in the amount to be paid for the property arising primarily due to inflation during the contract, debited to the Financing and Investment Income and Expenditure line in the Comprehensive Income and Expenditure Statement

The deferred income sum is written down in equal instalments over the life of the PPP contract and credited to the Comprehensive Income and Expenditure Statement. The credit to the Comprehensive Income and Expenditure Statement is then reversed out of the General Fund Balance to the Capital Adjustment Account in the Movement in Reserves Statement. Neither operator is a special purpose entity. They are not owned, controlled nor managed by the Authority.

1.22 Provisions

Provisions are made where an event has taken place that gives the Authority a legal or constructive obligation that probably requires settlement by a transfer of economic benefits or service potential, and a reliable estimate can be made of the amount of the obligation.

Provisions are charged as an expense to the appropriate service line in the Comprehensive Income and Expenditure Statement in the year that the Authority becomes aware of the obligation and are measured at the best estimate at the balance sheet date of the expenditure required to settle the obligation, taking into account relevant risks and uncertainties.

When payments are eventually made, they are charged to the provision carried in the Balance Sheet. Estimated settlements are reviewed at the end of each financial year – where it becomes less than probable that a transfer of economic benefits will now be required (or a lower settlement than anticipated is made), the provision is reversed and credited back to the relevant service.

Where some or all of the payment required to settle a provision is expected to be recovered from another party (e.g. from an insurance claim) this is only recognised as income for the relevant service if it is virtually certain that reimbursement will be received if the Authority settles the obligation.

1.23 Contingent Assets

A contingent asset arises where an event has taken place that gives the authority a possible asset whose existence will only be confirmed by the occurrence or otherwise of uncertain future events not wholly within the control of the authority.

Contingent assets are not recognised in the Balance Sheet but disclosed in a note to the accounts where it is probable that there will be an inflow of economic benefits or service potential
.

1.24 Contingent Liabilities

A contingent liability arises where an event has taken place that gives the Authority a possible obligation whose existence will only be confirmed by the occurrence or otherwise of uncertain future events not wholly within the control of the Authority. Contingent liabilities also arise in circumstances where a provision would otherwise be made but either it is not probable that an outflow of resources will be required, or the amount of the obligation cannot be measured reliably.

Contingent liabilities are not recognised in the Balance Sheet but disclosed in a note to the accounts.

1.25 Reserves

The Council sets aside specific amounts as reserves for future policy purposes or to cover contingencies. Reserves are created by appropriating amounts out of the General Fund Balance in the Movement in Reserves Statement. When expenditure to be financed from a reserve is incurred, it is charged to the appropriate service in that year to score against the Surplus or Deficit on the Provision of Services in the Comprehensive Income and Expenditure Statement. The reserve is then transferred back into the General Fund Balance in the Movement in Reserves Statement so that there is no net charge against council tax for the expenditure.

Certain reserves are kept to manage the accounting processes for non-current assets, financial instruments, local taxation, retirement and employee benefits and do not represent usable resources for the Council – these reserves are explained in the relevant policies.

1.26 Revenue Expenditure Funded from Capital under Statute (REFCUS)

Expenditure incurred during the year that may be capitalised under statutory provisions but that does not result in the creation of a non-current asset has been charged as expenditure to the relevant service in the Comprehensive Income and Expenditure Statement in the year. Where the Authority has determined to meet the cost of this expenditure from existing capital resources or by borrowing, a transfer in the Movement in Reserves Statement from the General Fund Balance to the Capital Adjustment Account then reverses out the amounts charged so that there is no impact on the level of Council Tax.

1.27 VAT

VAT payable is included as an expense only to the extent that it is not recoverable from HM Revenue and Customs. VAT receivable is excluded from income.

1.28 Jointly Controlled Operations

Jointly controlled operations are activities undertaken by the Authority in conjunction with other parties that involve the use of the assets and resources of the joint parties rather than the establishment of a separate entity. The Authority recognises on its Balance Sheet its share of the assets and liabilities controlled by the joint parties and recognises in its Comprehensive Income and Expenditure Statement its share of expenditure incurred and income generated from the activities of the Jointly Controlled Operations.

In accordance with the Code para 3.3.2.13, there is a requirement for the Authority to disclose a change in Accounting Policy to be applied retrospectively unless alternative transitional arrangements are specified in the Code. The Code specifies in paragraph 3.3.4.3 that the Authority should disclose information relating to an impact resulting from those changes to new standards issued but not yet adopted.

Paragraph 3.3.4.3 and Appendix C of the Code adapt IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors on an annual basis to limit the impact of standards that have been issued but not yet adopted to those listed in Appendix C of the Code in the relevant year of account (in this case the 2022/23 Code). This adaptation has been in place since the inception of the IFRS based Code in 2010/11. This means that only the standards listed below are included in the requirements for IAS 8 for standards that have been issued and not yet adopted.

The standards introduced by the 2022/23 Code where disclosures are required in the 2021/22 financial statements in accordance with the requirements of paragraph 3.3.4.3 of the Code are:

• IFRS 16 Leases (but only for those local authorities that have decided to adopt IFRS 16 in the 2022/23 year); Bexley has decided not to adopt IFRS16 in the 2022/23 year.
• Annual Improvements to IFRS Standards 2018–2020. The annual IFRS improvement programme notes 4 changed standards:
  • IFRS 1 (First-time adoption) – amendment relates to foreign operations of acquired subsidiaries transitioning to IFRS
  • IAS 37 (Onerous contracts) – clarifies the intention of the standard
  • IFRS 16 (Leases) – amendment removes a misleading example that is not referenced in the Code material
  • IAS 41 (Agriculture) – one of a small number of IFRSs that are only expected to apply to local authorities in limited circumstances. 

None of the matters covered in the annual improvements are dealt with in detail in the 2022/23 Code. During the consultation process on the 2022/23 Code CIPFA/LASAAC did not envisage them having a significant effect on local authority financial statements.

• Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS16)

It is not anticipated that any of these changes in accounting standards will have a material impact on the Council’s financial performance or financial position.

The accounts have been prepared in accordance with the Code of Practice on Local Authority Accounting in the United Kingdom 2021/22 (the Code), which is based upon International Financial Reporting Standards (IFRS), as amended for the UK public sector. The accounts have been prepared on the going concern basis.

In carrying out its assessment that this basis is appropriate, made for the going concern period to 30 October 2024, management of the Council have undertaken forecasting of both income and expenditure, the expected impact on reserves, and cashflow forecasting.

Our most recent year-end balances, as reported in these statements are as follows:

The 31/03/2024 figures in the above table are based on projections made as part of budget monitoring for period 2 in 2023/24 (May 2023). At 30 October 2024, reserve balances are expected to be the same as at 31 March 2024.

In 2020/21 additional funding was provided by central government to compensate councils for additional reliefs to business rates payers and the reduction in collection rates during the response to the pandemic, to maintain cashflow.  Because of the different accounting treatment of Tax and Grant funding, earmarked reserves were increased by £35,060k in 2020/21, set aside specifically for the treatment of the additional grants. The reserve was due to be drawn down in the following two years to compensate for the lost tax revenue via the Collection Fund. £22,507k has been drawdown and spent in 2021/22 and £6,559k in 2022/23 with £5,994k of the amount set aside in 2020/21 remaining.

Our General Fund and Earmarked Reserve position has a balance at 31 March 2023 of £14,360k and £52,876k and a predicted balance at 31 March 2024 of £14,360k and £49,143 including earmarked reserves for DSG. This remains above our minimum level of General Fund reserve (£14,000k) as set by our Director of Finance & Corporate Services as the Section 151 Officer.

Our cash flow forecasting and assessment of the adequacy of our liquidity position shows that further borrowing will be required later in 2023/24 as cash balances reduce during the year.

The Council has set a relatively high cash balance limit of £50m at which point it would seek borrowing should balances go below this. This limit is more than sufficient to enable activities to continue should the balance fall beneath it. Borrowing will also be required to support the capital programme. The borrowing for capital purposes is within the Councils Prudential Code limits and is consistent to our plans and normal practice.

To ensure that the Council continues to allocate resources appropriately a programme of in-depth analysis of specific services is underway, known as deep-dives. These deep-dives seek to identify pressures, risks and opportunities that will inform our Medium Term Financial Strategy. During the summer of 2022 reviews were carried out on Special Educational Needs (SEN) Transport, Specialist Placement for Children Social Care, Learning and Enterprise College Bexley, Adult Social Care, Parking Services Leisure Services, Waste Services, Highways and Temporary Accommodation, which informed the MTFS agreed by Council in February 2023. Further deep dives are underway during the summer of 2023 including Capital and with further work on Special Educational Needs (SEN) Transport, Temporary Accommodation, Leisure, Parking, Waste Services, Children’s Social Care and Adults Social Care.

On this basis, the Council have a reasonable expectation that it will have adequate resources to continue in operational existence throughout the going concern period maintaining the provision of its services. For this reason, alongside the statutory guidance, we continue to adopt the going concern basis in preparing these financial statements.

3a Critical Judgements in Applying Accounting Policies

In applying the accounting policies laid out in Note 1, the Council has had to make certain critical judgements about complex transactions or those involving uncertainty about future events. In the accounts, these are as follows:

• the impact of COVID-19 is reflected in the Council’s 2021/22 financial statements
• the Council has interests in other entities that fall within the group boundary of the Council on the grounds of control and significant influence in line with the Code. The Council’s interests in BexleyCo Limited are material to the Council’s overall financial position and therefore have been consolidated within the Council’s group accounts
• there is a high degree of uncertainty about future levels of funding for local government, however, the Council has determined that this uncertainty is not sufficiently clear to provide an indication that the assets of the Council might be impaired as a result of a need to close facilities or reduce levels of service provision
• the Council has elected to take up the statutory override relating to the accounting for highways infrastructure assets which is applicable for all statements of accounts that are currently open up to 2024/25. In accordance with the Local Authorities (Capital Finance and Accounting) (England) (Amendment) Regulations 2022 paragraph 3(a), where we replace a component of an infrastructure asset, for the purposes of determining the carrying amount to be derecognised in respect of that component we determine the relevant amount as nil. The reason for making this choice, allowable by the above statutory provision, is that in some cases the historic information held on previously recognised infrastructure may not be sufficiently detailed enough to prove the judgement that the components being replaced are fully depreciation or that any remaining balance would not be material. The Council is not required to make any prior period adjustment to the balances of the statement of accounts in respect of infrastructure assets.

The Statement of Accounts contains estimated figures that are based on assumptions made by the Council about the future or that are otherwise uncertain. Estimates are made taking into account historical experience, current trends and other relevant factors. However, because balances cannot be determined with certainty, actual results could be materially different from the assumptions and estimates.

Infrastructure depreciation was £28,104k in 2021/22 compared to £7,056k in 2020/21. This was due to a review of asset lives for infrastructure assets, which reduced the lives on many of them, increasing the depreciation charge. Infrastructure assets are depreciated over lives of up to 40 years. However, a review of the lives determined that some types of infrastructure assets have much shorter lives and so this will generate a larger depreciation charge per year.

The Director of Finance and Corporate Services authorised the audited Statement of Accounts on 31 March 2023. Events taking place after this date are not reflected in the financial statements or notes. Where events taking place before this date provided information about conditions existing at 31 March 2022, the figures in the financial statements and notes have been adjusted in all material respects to reflect the impact of this information.

Since the Balance Sheet date of 31 March 2022, there have been no material events that would require an adjustment to the financial statement.

The Expenditure and Funding Analysis shows how annual expenditure is used and funded from resources (government grants, rents, council tax and business rates) by local authorities in comparison with those resources consumed or earned by authorities in accordance with generally accepted accounting practices. It also shows how this expenditure is allocated for decision-making purposes between the Council's directorates. Income and expenditure accounted for under generally accepted accounting practices are presented more fully in the Comprehensive Income and Expenditure Statement.

Expenditure and funding analysis adjustments are explained in Note 7.1.

*2020/21 figures have been restated due to a change in valuation basis for the Civic Office, increasing the value of this property. See note 1.4 for more details.

7.1 Notes to the Expenditure and Funding Analysis

*2020/21 figures have been restated due to a change in valuation basis for the Civic Office, increasing the value of this property. See note 1.4 for more details.

Note 1 - Adjustments for Capital Purposes

Adjustments for capital purposes - this column adds in depreciation, impairment and revaluation gains and losses in the services line adjusted for:

• other operating expenditure - adjusts for capital disposals with a transfer of income on disposal of assets and the amounts written off for those assets
• financing and investment income and expenditure - the statutory charges for capital financing i.e. Minimum Revenue Provision and other revenue contributions are deducted from other income and expenditure as these are not chargeable under generally accepted accounting practices
• taxation and non-specific grant income and expenditure - capital grants are adjusted for income not chargeable under generally accepted accounting practices. Revenue grants are adjusted from those receivable in the year to those receivable without conditions or for which conditions were satisfied throughout the year. The Taxation and non-specific grant income and expenditure line are credited with capital grants receivable in the year without conditions or for which conditions were satisfied in the year

Note 2 - Net change for the Pension Adjustments

Net change for the removal of pension contributions and the addition of IAS 19 ‘Employee Benefits’ pension-related expenditure and income:

• for services - this represents the removal of the employer pension contributions made by the Authority as allowed by statute and the replacement with current service costs and past service costs
• for financing and investment income and expenditure - the net interest on the defined benefit liability is charged to the CIES

Note 3 - Other Differences

Other differences between amounts debited/credited to the Comprehensive Income and Expenditure Statement and amounts payable/receivable to be recognised under the statute:

• for financing and investment income and expenditure - the other differences column recognises adjustments to the General Fund for the timing differences for premiums and discounts

The charge under Taxation and non-specific grant income and expenditure represent the difference between what is chargeable under statutory regulations for Council tax and NNDR that was projected to be received at the start of the year and the income recognised under generally accepted accounting practices in the Code. This is a timing difference as any difference will be brought forward in future Surpluses or Deficits on the Collection Fund.

7.2 Segmental Income - Note 2 to the Expenditure and Funding Analysis

*2020/21 figures have been restated due to a change in valuation basis for the Civic Office, increasing the value of this property. See note 1.4 for more details.

** 2020/21 figures have been restated to include £2,428k previously disclosed as Support Service Recharges and to exclude £4,728k Loss on Revaluation of Investment Properties at Fair Value, which has now been included in the line for Revaluation Losses instead.

This note details the adjustments that are made to the total comprehensive income and expenditure recognised by the Council in the year in accordance with proper accounting practice to arrive at the resources that are specified by statutory provisions as being available to the Council to meet future capital and revenue expenditure. The following sets out a description of the reserves that the adjustments are made against.

General Fund Balance

The General Fund is the statutory fund into which all the receipts of a Council are required to be paid and out of which all liabilities of the Council are to be met, except to the extent that statutory rules might provide otherwise. These rules can also specify the financial year in which liabilities and payments should impact the General Fund Balance, which is not necessarily in accordance with proper accounting practice. The General Fund Balance, therefore, summarises the resources that the Council is statutorily empowered to spend on its services or on capital investment (or the deficit of resources that the Council is required to recover) at the end of the financial year.

Capital Receipts Reserve

The Capital Receipts Reserve holds the proceeds from the disposal of land or other assets, which are restricted by statute from being used other than to fund new capital expenditure or to be set aside to finance historical capital expenditure. The balance on the reserve shows the resources that have yet to be applied for these purposes at the year-end.

Capital Grants Unapplied

The Capital Grants Unapplied Account (Reserve) holds the grants and contributions received towards capital projects for which the Council has met the conditions that would otherwise require repayment of the monies but which have yet to be applied to meet expenditure. The balance is restricted by grant terms as to the capital expenditure against which it can be applied and/or the financial year in which this can take place.

*2020/21 figures have been restated due to a change in valuation basis for the Civic Office, increasing the value of this property. See note 1.4 for more details.

This note sets out the amounts set aside from the General Fund and Earmarked reserve balances to provide financing for future expenditure plans and the movements to the Earmarked reserves to meet General Fund expenditure in 2021/22.

1. Collection Fund Reserve - to provide a means to manage fluctuations in the amount of income collected through Council tax and business rates
2. Community Infrastructure Levy (CIL) Reserve - This reserve is made up of CIL contributions to be used to fund future infrastructure related works
3. COVID 19 Grant Reserve - ringfenced to fund the additional costs incurred as a result of the Coronavirus pandemic
4. Financial Planning Reserve - The purpose of this reserve is to provide a resource with which to deal with the uncertainties in the forward financial planning process arising from further reductions in Government grant
5. Financing Reserve - The Financing Reserve exists to deal with unbudgeted variations in financing costs and to finance direct capital expenditure where appropriate
6. Information Technology Reserve - This will provide for the upgrade and replacement of personal computers and laptops, infrastructure and software Council-wide in future
7. Insurance Reserve - The Council self-insures for many risks and the Insurance Reserve exists to deal with the infrequent but expensive claims that have to be anticipated under such an arrangement
8. Other Earmarked Reserves - The remaining Council controlled reserves total are largely earmarked against possible future costs such as liabilities for contaminated land, elections and systems development
   * Prior year figures for Other Earmarked Reserves have been restated to include some smaller reserves that were previously shown separately
9. Reorganisation Reserve - This reserve exists to meet possible redundancy costs in future years
10. Revenue grants and contributions unapplied - Revenue grants and contributions where there are no conditions outstanding, but where there are balances still to be used to finance expenditure, are also included in earmarked reserves
11. Individual Schools Budget - These are the school balances and are maintained on the Council's books as per regulation but are under the direct control of the schools
12. Transformation Reserve - The Transformation Reserve has been used to finance capital expenditure and to ‘pump-prime’ a number of projects including those associated with the Council’s Value for Money programme. Repayments are made from the revenue budget as savings arise on the projects