Accounting for donated assets
6.2 The provisions in Chapter 2 apply: essentially, donated assets are valued on precisely the same basis as purchased assets; being carried at cost, DRC or market valuation as appropriate. It is necessary to be able to identify donated assets separately from purchased, and this enables disposals and impairments to be correctly accounted for.
6.3 Assets provided from National Lottery funds are to be treated as donated.
6.4 Where donations are of assets that fall below the normal capitalisation thresholds, the accounting treatment is to record both income and expenditure, the expenditure being the value of the items received but not capitalised. No entries are made to the revaluation reserve or to the fixed assets note. The PCT Manual for Accounts gives further guidance on this.
Improvements to donated assets
6.5 The normal rules on the capitalisation of enhancement expenditure, and the charging of repairs and maintenance to revenue expenditure, apply. Capitalised expenditure has the effect of creating a part-purchased and part-donated asset. The purchased element should be separately identified and attracts capital charges. It does not give rise to any donation reserve transactions. Any impairment will need to be apportioned between purchased and donated elements, because of their different treatments.
Capital cost absorption target
6.6 As shown in the note on calculation in paragraph 5.13, donated assets are not included in the calculation of average relevant net assets.
6.7 The donation reserve is maintained to: (a) represent the financing associated with the receipt of a donated asset (i.e. provides the credit side to the transaction debiting fixed assets); and (b) to provide a mechanism for neutralising depreciation, impairments or profit/loss on disposal charged to the OCS in respect of donated assets (a transfer from the donation reserve is made to the General Fund to match the OCS charge).
6.8 The donation reserve is used to account for the following transactions involving donated assets:
On indexation of donated assets, the debit or credit is taken to the donation reserve, not the revaluation reserve. Indexation adjustments are applied in the same way as for purchased assets and so do not apply to donated assets received after 1 April in any year;
On impairment of a donated asset, the principles outlined in Chapter 2 (paragraph 2.118) apply. Donated assets are analysed with purchased assets in Note 11 to the Accounts, and impairments need to be recorded against donated assets as normal. For the sake of consistency, impairments of donated assets should be calculated and accounted for as for purchased assets, although the use of the donation reserve means that both price and economic impairments have the same net (nil) impact on the OCS and balance sheet.
For an economic impairment, the debit is taken to the OCS, as it would be for a purchased asset. However, an equal sum is debited to the donation reserve and credited to the OCS to neutralise this.
The ultimate effect then of either treatment is to reduce the donation reserve by the amount of the impairment, and neutralise its impact on the OCS.
6.9 Where equipment is taken out of productive use its value should be written down to its recoverable amount, which (as the asset is not in use) will be its net realisable value. The valuation fall is analogous to the recognition that the asset has been under-depreciated during its period of use, and so the fall should be accounted for as an impairment.
6.10 Surplus land and buildings not in operational use should be revalued to open market value for alternative use.
6.11 Property classed as surplus, but still in operational use, must not be written down to OMV for alternative use. It should remain in the balance sheet at its normal operational valuation (DRC, or OMVEU as appropriate). The depreciation charge should however be adjusted such that the asset is full depreciated to its disposal OMV (equal to its expected net realisable value) over its remaining life. This accelerated depreciation is again matched by transfers from the donation reserve to the OCS.
6.12 Profit or loss on disposal are calculated in the normal way, as the difference between the carrying amount and net sale proceeds, and credited or charged to the OCS. A transfer from the donation reserve to the OCS is made to match the profit/loss. The net result of this transaction is to re-state the donation reserve such that it is equal to the value of the sale proceeds. Finally, a transfer clears any remaining donation reserve balance to the General Fund.
Realised donation reserve
6.13 It is no longer necessary for NHS bodies to maintain a realised donation reserve. On disposal of a donated asset, the entries described in the preceding paragraph effect (a) a transfer to or from the donation reserve to balance any profit or loss on disposal, and (b) the clearance of any remaining balance on the donation reserve to the General Fund.
6.14 If the covenants around the original donation require that if the asset is sold it must be replaced by another specified fixed asset, the resulting asset is still considered as donated and so a donation reserve is maintained.
6.15 Where a PCT chooses to purchase a new or replacement asset, using donated asset sale proceeds, no new donated asset is created. The replacement or new asset is a purchased, not donated, asset.