Department of Health NHS LIFT Universal Model ( the Model ) Modification Release Note

Department of Health NHS LIFT Universal Model (‘the Model’) – Modification Release Note

Reasons for Modification

The version of the Model issued by the Department of Health on the FINMAN website on 6 June 2009was reissued on 23 June 2009. Subsequently to that reissue, further modifications were needed, as set out below:

1. In scenarios where the option to purchase the assets on expiry of the Lease Plus Agreement is assumed to be exercised, the amount paid to exercise the option and included in the minimum lease payments was incorrectly calculated. This amount should equal the anticipated fair value of the assets at the end of the contract that PCTs are required to obtain per paragraph 99 of the NHS LIFT IFRS Accounting Guidance Manual less the Adjustment applying where this value is substantially greater than the value assumed in the LIFTCo financial model. This error means that the profile of the finance lease creditor balance calculated in the Universal Model will be incorrect. This error will not affect the outcome of calculations where the option to purchase the assets is not assumed to be exercised
2. In all scenarios, the impact of starting and finishing the Lease Plus Agreement part way through a six month period was not reflected in the amount of lease interest charged in the starting and ending period. While not affecting the total lease interest charged, this error would mis state the interest charged in the first or last six month period, while also potentially affecting the amounts charged in all of the other periods

Modifications to user manual since initial issue

Since the initial issue of the Model on 6 June 2009, the following substantive changes have been made to the Model as described in the User Manual issued with the Model:

1. The Model now allows users to opt not to index the carrying value of property plant and equipment. If users opt to allow this indexation, assets are assumed to change in value according to the same factor applying to the Lease Plus Payment, which will normally be RPI. Users opting not to index property plant and equipment will still need to carry out regular valuation reviews. The indexation option is mainly so that users can compare the project-life impact of on balance sheet and off balance sheet accounting.

This change is addressed in Paragraph 35 of the User Manual as reissued on [23] July 2009.

1. The Model now also assumes that the fixed asset value is not indexed in scenarios where the option to purchase the asset is assumed not to be exercised. This change is made because the asset in this scenario is measured as the net present value of future minimum lease payments. This NOV calculation applies a discount rate calculated from the residual value of the assets; henceany index applied may not be appropriate.

This change is addressed in Paragraph 35 of the User Manual as reissued on [23] July 2009.

1. A new macro has been coded that copies then pastes the calculated depreciation profile to the six month period immediately prior to the timing of a revaluation of the buildings. The effect of this is to ensure that the profile prior to the revaluation is not changed. The macro then recalculates the depreciation profile from the point of the revaluation so that the asset closing balance at the end of the Term equals the expected residual interest.

Changes resulting from this modification in how the Model is used are as follows:

Revised values for buildings must not be input until all other inputs are added and the model run successfully. Once this is complete, the revised value for the buildings should be input to the appropriate location in Asset Inputs! F17:CR21. Then the button on the Controls tab labelled “Closing NBV Goal Seek post reval” should be clicked.

If users decide to remove the revaluation after this macro has been run, the formulae in rows 95 – 104 of Depreciation Calcs should be copied back to column F, then the button on the Controls tab labelled “Closing NBV Goal Seek pre reval” should be clicked. This should restore the calculated amounts to those before the revaluation was input.

Users should note that as currently configured, the Model will not restore the original depreciation profile for scenarios other than the scenario for which a new asset value has been entered. Where this is the case, users should save separate versions of the Model for scenarios for which new asset values have been entered.

1. New calculations have been added to Depreciation Calcs! Rows 107-117 to capture changes in land values arising from indexation adjustments and revaluations. The indexation of land is assumed to occur at the same rate as for buildings or the actual RPI change for each period. Following this change, the NBV Goal Seek macros now converge to the closing value of the buildings rather than the whole asset, meaning that changes in depreciation reflect only changes in the buildings’ carrying value.

No changes to how the Model is used result from this modification.