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STATEMENT OF PRINCIPAL ACCOUNTING POLICIES

Basis of preparation

As noted below the consolidated financial statements do not include the accounts of Cambridge University Press (CUP). Insofar as CUP is excluded, the financial statements do not disclose all assets and liabilities of the corporation known as the University of Cambridge, do not include all income and expenditure of that corporation and do not comply with certain United Kingdom accounting standards and as such, do not comply with the Statement of Recommended Practice Accounting for Further and Higher Education (the SORP). In other respects the financial statements have been prepared in accordance with applicable United Kingdom accounting standards and the SORP.

Exclusion of Cambridge University Press

The financial statements exclude the accounts of CUP, a constituent part of the corporation known as the University of Cambridge. Transactions with CUP are treated in the financial statements as transactions with a related third party.

Basis of accounting

The financial statements have been prepared under the historical cost convention, modified in respect of the treatment of investments and certain operational properties which are included at valuation.

Basis of consolidation

Except for the exclusion of CUP as noted above, the consolidated financial statements include the University and its subsidiary undertakings. Details of the subsidiary undertakings included are given in note 29. Intra-group transactions and balances are eliminated on consolidation.

These financial statements include for the first time the income and expenditure, assets and liabilities of the Gates Cambridge Trust and of the Associated Trusts. The effect of this change in the basis of preparation is explained further in note 11. Comparative figures have been restated accordingly.

The Gates Cambridge Trust is a separately constituted exempt charity which is accounted for as a subsidiary undertaking of the University since the University appoints the majority of its trustees. The purposes of the Gates Cambridge Trust are to support the University by enabling persons (to be known as 'Gates Cambridge Scholars') from any part of the world outside the United Kingdom to benefit from education in the University by provision of scholarships and grants and otherwise. These purposes cannot be changed without the consent of the settler, The Bill & Melinda Gates Foundation. The assets of the Gates Cambridge Trust are therefore not available for the general purposes of the University.

The Associated Trusts are similarly constituted exempt charities with purposes primarily to provide support to enable students ordinarily resident or domiciled in countries outside the United Kingdom to benefit from education in the University. The assets of the Associated Trusts are therefore not available for the general purposes of the University.

The consolidated financial statements do not include the accounts of the 30 Colleges and one Approved Society in the University ('the Colleges'), each of which is an independent corporation. Transactions with the Colleges are disclosed in note 31.

The consolidated financial statements do not include the accounts of Cambridge University Students Union or of the Cambridge University Graduate Union, as these are separate bodies in which the University has no financial interest and over whose policy decisions it has no control.

Recognition of income

Recurrent grant

Recurrent grant is received from the Higher Education Funding Council for England (HEFCE) and the Teacher Training Agency. Recurrent grant is recognised as income in the period to which it relates.

Restricted income

Income is received which is designated for restricted purposes as specified by grantors or donors, including HEFCE specific grants, research grants and specific donations. Except for income in respect of specific endowments, restricted income is recognised to the extent that relevant expenditure has been incurred, and unspent restricted income is included in creditors.

Capital grants and donations

Grants and external donations are received for the purposes of funding the acquisition and construction of tangible fixed assets. These are credited to deferred capital grants when the related capital expenditure is incurred and released to income over the expected useful life of the respective assets consistent with the depreciation policy.

Academic fees

Tuition fees for degree courses are charged to students by academic term. Income is recognised for academic terms falling within the period. For short courses, fees are charged in advance for the entire course and income is recognised to the extent that the course duration falls within the period.

Examination and assessment services

Income from assessment is recognised when the assessment service has been substantially rendered. Where assessment includes ongoing verification, judgement is used to establish the proportion of income that may be recognised in the period, based upon services performed within the period as a proportion of the total services to be performed.

Other income

Income is received from a range of activities including catering, conferences, room hire and other services rendered. Income is recognised on the exchange of the relevant goods or services.

Endowment and investment income

All investment income is credited to the income and expenditure account in the period in which it is earned. Income from specific endowments not expended in accordance with the restrictions of the endowment is transferred from the income and expenditure account to specific endowments.

Specific endowments

Permanent endowments are not included in the income and expenditure account but are credited to specific endowments when funds are received.

Foreign currency translation

Transactions denominated in foreign currencies are recorded at the rate of exchange ruling at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into sterling at year-end rates. Translation differences are taken to the income and expenditure account.

Tangible fixed assets:

Land and buildings

Operational land and buildings are included in the financial statements at their 1994 valuation with subsequent additions at cost. No depreciation is provided on freehold land or on assets in construction. Freehold buildings are written off over their estimated useful lives, which are between 15 and 50 years, and leasehold properties are written off over the length of the lease.

Equipment

Equipment costing less than £10,000 per individual item is written off in the year of purchase. All other equipment is capitalised and depreciated so that it is written off over its estimated useful life of between four and ten years, except where it is purchased from a research grant when it is written off over the remaining life of the grant.

Heritage assets

The University holds and conserves a number of collections, exhibits, artefacts and other assets of historical, artistic or scientific importance. In accordance with FRS 15, all acquisitions since 1 August 1999 have been capitalised at cost or, in the case of donated assets, at valuation on receipt. In line with the general fixed assets accounting policy, the threshold for capitalising assets is £10,000. Heritage assets are not depreciated since their long economic life and high residual value mean that any depreciation would not be material.

Intangible fixed assets: goodwill

Goodwill arises on consolidation and is based on the fair value of the consideration given for the subsidiary and the fair value of its assets at the date of acquisition. Goodwill is amortised over its estimated economic life of between five and ten years on a straight line basis, being its estimated useful economic life. Where there is impairment in the carrying value of goodwill, the loss is included in the results of the period.

Investments

Fixed asset investments, endowment asset investments and current asset investments are included in the balance sheet at market value. Properties held for investment purposes are valued annually on the basis of estimated open market values on an existing use basis by LaSalle Investment Management. Marketable securities are valued at mid-market valuation on 31 July. Non-marketable securities, including investments in spin-out companies, are included at valuation by the Treasurer.

Historical cost surpluses and deficits

Differences arise between the surplus or deficit on continuing operations as reported in the consolidated income and expenditure account and its historical cost equivalent. Depreciation is charged on pre 1994 buildings based on their valuation at that date; the difference between this and historical cost depreciation cannot be quantified as the historical cost of buildings is unavailable. Fixed asset investments are included in the balance sheet at market value and increases or decreases are taken directly to general reserves. Realised gains or losses within the total increase or decrease in value of investments are not separately calculated. Accordingly no consolidated statement of historical cost surpluses and deficits is presented.

Stocks

Stocks are stated at the lower of cost and net realisable value. Expenditure on consumable materials for use in teaching and research activities is charged to revenue as incurred.

Pension costs

The University contributes to a number of defined benefit pension schemes and accounts for the costs in relation to these schemes in accordance with FRS 17 (Retirement benefits), which has been adopted in advance of its effective date.

Where the University is unable to identify its share of the underlying assets and liabilities in a scheme on a reasonable and consistent basis, it accounts as if the scheme were a defined contribution scheme, so that the cost is equal to the total of contributions payable in the year.

For other defined benefit schemes, the assets of each scheme are measured at fair value, and the liabilities are measured on an actuarial basis using the projected unit method and discounted at an appropriate rate of return. The University's share of the surplus or deficit of the scheme is recognised as an asset or liability on the balance sheet. The current service cost, being the actuarially determined present value of the pension benefits earned by employees in the current period, and the past service cost are included within staff costs. Endowment and investment income includes the net of the expected return on assets, being the actuarial forecast of total return on the assets of the scheme, and the interest cost being the notional interest cost arising from unwinding the discount on the scheme liabilities. All changes in the pension surplus or deficit due to changes in actuarial assumptions or differences between actuarial forecasts and the actual out-turn are reported in the statement of total recognised gains and losses.


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Cambridge University Reporter 16 December 2005
Copyright © 2005 The Chancellor, Masters and Scholars of the University of Cambridge.