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1.13.1 The Trust as Lessee
through the expected life of the financial asset or,
when appropriate, a shorter period, to the net carrying Finance Leases
amount of the financial asset.
Where substantially all risks and rewards of ownership
Interest on loans and receivables is calculated using the
of a leased asset are borne by the trust, the asset
effective interest method and credited to the Statement is recorded as property, plant and equipment and a
of Comprehensive Income. corresponding liability is recorded. The value at which
both are recognised is the lower of the fair value of
Other Financial Liabilities the asset or the present value of the minimum lease
payments, discounted using the interest rate implicit in
All other financial liabilities are recognised initially at fair the lease.
value, net of transaction costs incurred, and measured
subsequently at amortised cost using the effective The asset and liability are recognised at the
interest method. The effective interest rate is the rate commencement of the lease. Thereafter the asset
that discounts exactly estimated future cash payments is accounted for as an item of property plant and
through the expected life of the financial liability or, equipment.
when appropriate, a shorter period, to the net carrying
amount of the financial liability. The annual rental is split between the repayment
of the liability and a finance cost so as to achieve
They are included in current liabilities except for a constant rate of finance over the life of the lease.
amounts payable more than 12 months after the The annual finance cost is charged to Finance Costs
Statement of Financial Position date, which are in the Statement of Comprehensive Income. The
classified as long-term liabilities. lease liability, is de-recognised when the liability is
discharged, cancelled or expires.
Interest on financial liabilities carried at amortised cost Operating Leases
is calculated using the effective interest method and
charged to finance costs. Interest on financial liabilities Operating lease payments are recognised as an
taken out to finance property, plant and equipment or expense on a straight-line basis over the lease term.
intangible assets is not capitalised as part of the cost of Lease incentives are recognised initially as a liability
those assets. and subsequently as a reduction of rentals on a
Impairment of Financial Assets straight-line basis over the lease term.

At the Statement of Financial Position date, the trust Contingent rentals are recognised as an expense in the
assesses whether any financial assets, other than those period in which they are incurred.
held at “fair value through income and expenditure” are Leases of Land and Buildings
impaired. Financial assets are impaired and impairment
losses are recognised if, and only if, there is objective Where a lease is for land and buildings, the land
evidence of impairment as a result of one or more component is separated from the building component
events which occurred after the initial recognition of the and the classification for each is assessed separately.
asset and which has an impact on the estimated future
cash flows of the asset. 1.14 Provisions

For financial assets carried at amortised cost, the The Trust recognises a provision where it has a present
amount of the impairment loss is measured as the legal or constructive obligation of uncertain timing or
difference between the asset’s carrying amount and amount; for which it is probable that there will be a
the present value of the revised future cash flows future outflow of cash or other resources; and a reliable
discounted at the asset’s original effective interest estimate can be made of the amount. The amount
rate. The loss is recognised in the Statement of recognised in the Statement of Financial Position is the
Comprehensive Income and the carrying amount of best estimate of the resources required to settle the
the asset is reduced - through the use of a bad debt obligation. Where the effect of the time value of money
provision. is significant, the estimated risk-adjusted cash flows
are discounted using the discount rates published and
1.13 Leases mandated by HM Treasury.

Leases are classified as finance leases when Early retirement provisions are discounted using HM
substantially all the risks and rewards of ownership are Treasury’s pension discount rate of 0.10% (2016/17:
transferred to the lessee. All other leases are classified 0.24%) in real terms.
as operating leases.

Alder Hey Children’s NHS Foundation Trust 168 Annual Report & Accounts 2017/18