Children’s Services Finance Advisory Network
Academies – Accounting for Fixed Assets
July 2012
Academies, as both charitable companies limited by guarantee, and exempt charities, use
the Companies Act and the Charity SORP as the framework for their accounting
requirements. They must also take note of the ‘Academies Accounts Direction’ produced
by the Education Funding Agency (EFA) which provides a standard format and treatment
of items to ensure consistency across the sector. The guidance given below uses these
three publications to highlight the key accounting rules in academies for fixed assets and
their funding.
What is a fixed asset?
The Companies Act 2006 defines fixed assets as ‘… assets of a company which are
intended for use on a continuing basis in the company’s activities’ 1. Examples include land,
buildings and machines. Examples for an academy include:

intangible assets (e.g. software licences, website construction costs - if not
included with ICT equipment).

tangible assets:
o land and buildings (analysed between freehold and leasehold)
o plant and machinery (includes vehicles)
o furniture and equipment
o ICT equipment (could also include software licences)
o assets under construction
heritage assets
investments.


The asset's useful life in the academy’s ownership is expected to be more than one year.
In general, these assets are shown in the balance sheet at their net book value (i.e.
relevant cost/ valuation less depreciation –if applicable).
Academies set their own deminimus levels. The Accounts direction 2011/12 provides
guidance on policies for fixed assets (9.5.12), this includes ‘the value below which items
are not capitalised as fixed assets’
Key Accounting for Fixed assets
 All fixed assets should be capitalised on initial acquisition and included in the
Balance Sheet

1
Assets (other than donated assets) should initially be included in the balance sheet
at the cost of acquisition including costs that are directly attributable to bringing
Companies Act 2006 853 (6): www.legislation.gov.uk/ukpga/2006/46/pdfs/ukpga_20060046_en.pdf
the assets into working condition for their intended use 2, for example stamp duty
and non-refundable VAT, professional fees such as architect fees, installation costs,
costs of dismantling and restoration and initial delivery and handling costs. This
can include costs of interest on loans to finance the construction of such assets but
only where the academy has adopted this as a policy for all fixed assets and
capitalisation of interest should cease when the asset is ready for use. This applies
whether the assets are bought outright or through hire purchase or finance leasing.

Subsequent expenditure which enhances (rather than maintains) the performance
of fixed assets should be capitalised. Key characteristics of enhancements are:
 Lengthens substantially the useful life of the asset
 Increase in open market value
 Increases substantially the extent to which the asset will be used
 Repairs, however large, should not be capitalised
Examples of items which are not capital include;
 Salaries of school staff
 Redecoration
 New library books (although books bought for a newly built library could be
capitalised)
 Pupil text books
 School uniforms
Capital grants from the EFA are shown in the SOFA under restricted fixed assets and
‘voluntary income’. This is in contrast to an academies revenue funding- the General
Annual Grant (GAG), which is shown under ‘restricted general funds’ and ‘charitable
activities – educational operations’. The difference in the subjective analysis rests on
whether the grant is for a particular service.
Voluntary income includes “grants, which provide core funding or are of a general nature
provided by government …but will not include those grants which are specifically for the
performance of a service” 3.
Charitable activities income includes “grants specifically for the provision of goods and
services to be provided as part of charitable activities or services to beneficiaries” 4
It can be argued that the capital grant is not for a specific service, whereas the GAG is to
specifically provide education for the pupils.
If an academy wished to use part of it’s General Annual Grant (GAG) to purchase fixed
assets the accounting entries would be;
 show the purchase as a fixed asset on the balance sheet
 and transfer an amount equal to the purchase of fixed assets from the restricted
general fund to the restricted fixed asset fund (on the SOFA this would be shown in
the ‘gross transfers between funds’ row).
 The annual depreciation charge will then be charged against the restricted fixed
asset fund
2
The costs directly attributable to bringing the assets into working condition should only be capitalised
for the period in which the activities that are necessary to get the asset ready for use are in progress. This is
covered in more detail in paragraphs 19-30 of FRS 15
3
4
Paragraph 121 (b) of the Charity SORP 2005
Paragraph 145 (e) of the Charity SORP 2005
Transfers to the restricted fixed asset fund from GAG should only take place once the
individual assets represented by the transfer have been purchased by the academy trust
Donated fixed assets
Fixed assets donated by third parties are gifts in kind and should be recognised as
incoming resources in the SOFA and included within the relevant fixed asset category in
the balance sheet. The amount at which such gifts in kind are included in the Statement of
Financial Activities should be either a reasonable estimate of their current gross value to
the academy or, if they have been resold, the amount actually realised.The current gross
value will usually be the price that the academy estimates it would have to pay in the
open market for an equivalent item.
The asset should be depreciated over its expected useful economic life on a basis
consistent with depreciation policy for the relevant class of asset.
The governors should be able to justify the valuation of the asset included in the accounts
and this can be undertaken in a number of ways. The academies handbook provides a
number of sources of evidence of valuation:
 comparable quotations from alternative suppliers;
 what the academy already pays for that service/asset;
 cash realised if the gift were to be sold;
 experience of governors in purchasing similar services or assets; and
 what the governors would be prepared to pay for that gift out of the academy
budget.
Buildings Transferred from predecessor Schools
When an academy continues to occupy the predecessor school’s premises on a long-term
basis under a lease, often at nil or peppercorn rent, they will need to have regard to the
requirements in both SSAP 21 and FRS 5 to decide which party takes the risks and
rewards of ownership of the asset .
Where it is determined that the terms of the lease transfer substantially all the risks and
rewards of ownership of the asset to the academy trust the asset should be recognised on
the balance sheet as a fixed asset, with a corresponding SOFA entry to voluntary income
as a gift in kind.
An appropriate valuation of the asset, with supporting assumptions / justifications needs
to be undertaken by the Academy. There is no absolute requirement for a professional
valuation, however the governors may feel that an independent valuation is the best way
forward. It should also be noted that the local authority may have an updated valuation
that can be used. Insurance valuations may not be appropriate if they represent simply
the re-building cost of the asset rather than its fair value.
Depreciation
Depreciation should be provided for in accordance with Financial Reporting Standard 15 Tangible Fixed Assets (“FRS 15”),
Depreciation is required for the majority of fixed assets and is shown (in the Accounts
Direction) under the ‘restricted fixed assets’ column in the SOFA.
While the Charities SORP does allow for situations where depreciation would be shown in
the unrestricted column of the SOFA5, the ‘Accounts Direction’ shows all depreciation
under the restricted fixed assets column. Academies should follow the 'Accounts Direction'
approach and therefore treat all fixed assets as restricted, regardless of Charities SORP
guidance regarding restricted and unrestricted funds.
5
Ie where the fixed asset that the depreciation relates to represented an unrestricted resource.
Freehold Land should not be depreciated.
Governors need to decide on depreciation policies, both the rate of depreciation and the
method. The two most common methods are straight line and reducing balance.
Annual impairment Review
An annual impairment review is required (under FRS15) where:
a. Depreciation charge and accumulated depreciation are not material because:
a. Asset has a very long useful life or
b. Residual value is not materially different from carrying value
b. Expected useful life of asset exceeds 50 years (therefore relatively small
depreciation charge)
Therefore if an academy decides to depreciate its buildings over a period exceeding 50
years it will need to undertake an annual impairment review.
An impairment occurs if the functional fixed asset’s net book value is higher than its
recoverable amount (See SORP para 225).
Where the recoverable amount (ie charity usefulness in terms of achieving objectives) is
less than net book value of asset then the loss should be treated as additional
depreciation
In all cases depreciation will be charged on the new (i.e. post impairment) carrying value
of the asset.
The useful economic lives and residual values of fixed assets should be reviewed at the
end of the accounting period , and where there is a material change , the value of the
asset should be depreciated over its useful life. (charity SORP paragraph 260)
Gain or Loss on Disposal of a Fixed Asset
If a fixed asset is disposed of and a ‘gain’ is made this is shown in the SOFA under ‘Other
incoming resources’.
A loss on disposal of a fixed asset is shown in the SOFA as ‘additional depreciation’. This
accounting treatment only applies to disposal of assets, i.e. a realised gain or loss and to
impairment losses recognised. It does not apply to unrealised gains or losses e.g. those
that arise from revaluation.

A gain or loss on revaluation is referred to as an ‘unrealised’ gain or loss because
the academy is still holding the asset

A gain or loss on sale/disposal is referred to as a ‘realised’ gain or loss because, in
selling the asset, the academy has realised the gain or loss.
It should be noted that the Academies Financial Handbook (2.85) states “Under the Funding
Agreement the approval of the Secretary of State is required before the sale, or disposal by other
means, or reinvestment of proceeds from the disposal, of an asset, or group of assets, for which capital
grant in excess of £20,000 was paid” .This includes where land and buildings had been transferred from
the Local Authority at no cost to the academy
The handbook (2.88) also states that “The academy is expected to reinvest the proceeds from all asset
sales for which capital grant was received, hence any income from the sale of assets should be
maximised. If the sale proceeds are not reinvested the academy must repay to the Secretary of State
the same proportion of the proceeds of the sale or disposal as equates with the proportion of the
original cost met by the Secretary of State. However, the proceeds from the sale of assets acquired with
grant from the Secretary of State cannot be used as the academy’s contribution to further
named grant aided projects or purchase”.
The Charity SORP (para 69) states that ‘Income generated from assets held in a restricted
fund will be legally subject to the same restrictions as the original fund unless either:
a) the terms of the original restriction specifically say otherwise or
b) the restricted fund is an endowment fund , the income of which is expendable at
the discretion of the trustees.
Revaluation of Fixed assets
An academy does not have to regularly revalue its fixed assets, the Charities SORP (para
26) states that revaluations can be undertaken by a suitably qualified person who could be
a trustee or employee.
The academy is under no obligation to revalue after ascertaining the initial cost. They
must, however, consider value year to year in order to decide if any significant difference
between net book value and market value needs disclosing
If they do decide to revalue then they must continue to do so every 5 years on a rolling
basis for that class of asset.
The Charities SORP (para 262) states that “ when an asset is donated, or when it is
capitalised as a result of a change in accounting policy, its initial valuation will not be
regarded as revaluation and hence will not require the entire class of such assets to be
revalued”. The section below on revaluation highlights the accounting required if assets
are revalued.
If an academy does decide to revalue the benefits are that the balance sheet is more up to
date, however the 2011/12 EFA Accounts Direction (9.5.16) states it is unlikely that an
Academy Trust will follow a policy of revaluation for tangible fixed assets. This also follows
the charity SORP para 26.
The DfE in their ‘WGA Briefing note’ for 2011/12 state that they will “ provide to all
academies open by 31 March 2012 a professional valuation
of land and buildings as at 31 August 2012, by 26 September 2012. We will
procure and pay for this valuation on academies’ behalf, and there will be no
charge to academies. The valuation can be used in preparing the academic year
2011/12 financial statement”.
The note (para 48) does however state that “it is for the academy’s accounting officer who
will choose whether to use this valuation or one prepared by the academy in preparing the
financial statements for academic year 2011/12.”
If an academy has published its audited annual accounts for 2010/11 and decides to
include a revalued amount for its assets in its 2011/12 accounts, this brings about
additional accounting requirements.
Where you revalue your assets, a revaluation reserve will be created for changes in an
asset’s value. The Companies Act 2006 requires that the revaluation reserve is separately
disclosed on the face of the balance sheet. (See charities SORP paragraph 427 for further
details.)
The SOFA, under ‘revaluation gains or losses’ will also show the revaluation element.
Revaluation – and the Income and Expenditure Account
Under the Charities SORP an academy may not need to complete a summary income and
expenditure (I&E) account or a ‘statement of total recognised gains and losses’ (STRGL).
This is because the SOFA encompasses the main elements of these two statements.
However one of the reasons why an academy may have to complete these statements is if
the SOFA includes certain items that are open to challenge if they were included in an I&E.
One of these items is an ‘unrealised gain / loss’ – i.e. created as a result of revaluation
Therefore if an academy undertakes a policy of revaluation of fixed assets (which leads to
an unrealised gain or loss and creates the requirement for a revaluation reserve) they will
need to consider :


Accounting requirements for the revaluation reserve
The very likely requirement to produce a summary I&E & a STRGL
The diagram below shows the accounting treatment for gains and losses on fixed
assets as per the Charities SORP
Impairment
Loss
Loss on
disposal
Additional
depreciation (SOFA)
Gain on
disposal
Other Incoming
Resources (SOFA)
Revaluation
gains / losses
Gains and Losses on
Revaluation (SOFA)
For further information on the summary income and expenditure account and statement of
total recognised gains and losses, see Charity SORP, paragraph 423 onwards.
CIPFA will be running events covering Academy accounts and also Accounting for School Assets in 2013.
Lisa Forster
CIPFA Children’s Services FAN
No 3 Robert Street
London
WC2N 6RL
Lisa.forster@cipfa.org