Notes to the financial statements
35. Explanation of the transition to IFRS
2009 is the first year that The Crown Estate is presenting its financial statements under IFRS as modified by the requirements of The Crown Estate Act 1961 and with the directions of the Treasury.
The last financial statements presented under UK GAAP as modified by The Crown Estate Act 1961 and with the directions of the Treasury were for the year ended 31 March 2008.
As IFRS comparatives must be prepared for the year ended 31 March 2008, the date of the transition to IFRS was 1 April 2007.
Reconciliations of the 2008 statement of income and expenditure and the balance sheet from those previously reported are set out below.
The Crown Estate Act 1961 requires that income is distinguished separately from capital. Under IFRS certain capital items are required to be reported through the statement of income and expenditure. Previously all capital items were reported through the balance sheet. In order that the financial statements comply with the requirements of The Crown Estate Act 1961 it has been necessary to report the statement of income and expenditure in income, capital and total columns.
The transition to IFRS has had no impact on the cash flows of The Crown Estate.
The principal adjustments are explained below. The references refer to the columns shown in notes 35a , 35b and 35c:
- a
- Under UK GAAP lease incentives and rent free periods were amortised over the period to first rent review. Under IFRS such lease incentives are amortised over the period to first break or period of the lease, whichever is the shorter.
- b
- Under IFRS gains and losses arising on the revaluation of investment properties are included in the statement of income and expenditure. Previously gains and losses were treated as capital account items recognised in the revaluation reserve.
- c
- Under IFRS gains and losses on the sale of investment properties are reflected in the statement of income and expenditure in the capital account column. Previously such gains and losses were treated as capital account items reflected in the general capital reserve.
- d
- Under IFRS, the premium received in respect of the grant of a lease over a property is regarded as an operating lease. The resulting deferred income is recognised in the statement of income and expenditure in the capital account column on a straight line basis over the length of the lease. Under the requirements of IAS 40 investment properties are grossed up to reflect the value of this income. Previously receipts on granting a lease where the lease term was greater than 30 years were treated as capital account items, credited to the carrying value of the investment property.
- e
- Under IFRS the share of the revaluation of investment in joint ventures and other investments is reflected in the statement of income and expenditure. Previously such gains and losses were treated as capital account items taken to the revaluation reserve.
- f
- IAS 17 requires a lease to be classified as either a finance lease or an operating lease. A finance lease exists if substantially all the
risks and rewards of ownership are transferred to the tenant. All other leases are operating leases. The Crown Estate has examined
its leases and concluded that substantially all are operating leases. As such all property continues to be shown as a property interest
in the balance sheet.
Where an investment property is itself subject to a head or groundlease, IFRS requires that the headlease is treated as though it were a finance lease. The net present value of all payments under the finance lease are capitalised into the value of the investment property and a creditor for obligations under finance leases has been recognised. No such distinction was required under UK GAAP. - g
- Under IFRS 5 properties held with the intention of disposal at the balance sheet date are valued at the lower of cost and net realisable value. They are shown in the balance sheet as current property assets. Previously such property was disclosed within investment properties.
- h
- As stated in notes 1b and 1c The Crown Estate Act 1961 contains specific provisions for an amount equivalent to the cost of purchase of leaseholds with a lease term of 40 years or less and new works and improvements expenditure of a wasting nature to be recovered from the income account and credited to the capital account through the general capital reserve. Under IFRS this transfer is shown in statement of income and expenditure.
| Income Account | Capital Account | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| As previously reported presented in an IFRS format £’000 |
Lease incentives a £’000 |
Gross up income and costs for service charge £’000 |
Total Income account under IFRS £’000 |
Revaluation of investment properties b £’000 |
Gains on disposal of investment properties c £’000 |
Lease premiums d £’000 |
Revaluation of joint ventures and other investments e £’000 |
Statutory provisions and Treasury agreements h £’000 |
Total capital account under IFRS £’000 |
Total statement of income and expenditure under IFRS £’000 |
||
| Turnover | 229,869 | 2,004 | 19,674 | 251,547 | – | – | 6,870 | – | – | 6,870 | 258,417 | |
| Costs | (59,251) | – | (19,674) | (78,925) | – | – | – | – | – | – | (78,925) | |
| Operating surplus | 170,618 | 2,004 | – | 172,622 | – | – | 6,870 | – | – | 6,870 | 179,492 | |
| Recovery of capital expenditure under The Crown Estate Act 1961 | 10,126 | – | – | 10,126 | – | – | – | – | (10,126) | (10,126) | – | |
| Net revaluation gains (including profits on disposals) | – | – | – | – | 247,080 | 47,005 | (6,870) | – | – | 287,215 | 287,215 | |
| Share of profit/(loss) from joint ventures | 8,380 | – | – | 8,380 | – | – | – | (46,540) | – | (46,540) | (38,160) | |
| Share of profit from other property investments | 1,719 | – | – | 1,719 | – | – | – | (3,376) | – | (3,376) | (1,657) | |
| Parliamentary resource finance | 2,357 | – | – | 2,357 | – | – | – | – | – | – | 2,357 | |
| Statutory transfers | (9,909) | – | – | (9,909) | – | – | – | – | 9,909 | 9,909 | – | |
| Net operating profit before financing | 183,291 | 2,004 | – | 185,295 | 247,080 | 47,005 | – | (49,916) | (217) | 243,952 | 429,247 | |
| Investment revenue | 28,152 | – | – | 28,152 | – | – | – | – | – | – | 28,152 | |
| Net surplus | 211,443 | 2,004 | – | 213,447 | 247,080 | 47,005 | – | (49,916) | (217) | 243,952 | 457,399 | |
| Consolidated fund payment | (211,000) | – | – | (211,000) | – | – | – | – | – | – | (211,000) | |
| Surplus after consolidated fund payment | 443 | 2,004 | – | 2,447 | 247,080 | 47,005 | – | (49,916) | (217) | 243,952 | 246,399 | |
As previously reported presented in an IFRS format £’000 |
Opening balance sheet adjustment (note 35c) £’000 |
Lease incentives a £’000 |
Revaluation of investment properties b £’000 |
Lease premiums d £’000 |
Properties held for sale g £’000 |
Re-stated under IFRS £’000 |
|
| Assets | |||||||
| Non-current assets | |||||||
| Investment properties | 6,443,658 | 588,925 | – | – | 5,130 | 67,224 | 7,104,937 |
| Investment properties under re-development | 27,780 | – | – | – | – | – | 27,780 |
| Owner occupied property | 112,922 | – | – | – | – | – | 112,922 |
| Plant and equipment | 4,859 | – | – | – | – | – | 4,859 |
| Investment in joint ventures | 203,296 | – | – | – | – | – | 203,296 |
| Other property investments | 38,693 | – | – | – | – | – | 38,693 |
| Other investments | 4,865 | – | – | – | – | – | 4,865 |
| Receivables due after one year | 3,252 | – | – | – | – | – | 3,252 |
| Total non-current assets | 6,839,325 | 588,925 | – | – | 5,130 | 67,224 | 7,500,604 |
| Current assets | |||||||
| Non-current property assets held for sale | – | 79,225 | – | – | – | (67,224) | 12,001 |
| Inventories | 2,350 | – | – | – | – | – | 2,350 |
| Receivables | 63,679 | 3,656 | 2,004 | – | – | – | 69,339 |
| Cash and cash equivalents | 518,362 | – | – | – | – | – | 518,362 |
| Total current assets | 584,391 | 82,881 | 2,004 | – | – | (67,224) | 602,052 |
| Pension asset | 848 | – | – | – | – | – | 848 |
| Total assets | 7,424,564 | 671,806 | 2,004 | – | 5,130 | – | 8,103,504 |
| Liabilities | |||||||
| Current liabilities | |||||||
| Trade and other payables | (94,768) | (7,886) | – | – | (453) | – | (103,107) |
| Total current liabilities | (94,768) | (7,886) | – | – | (453) | – | (103,107) |
| Non-current liabilities | (1,750) | (660,264) | – | – | (4,677) | – | (666,691) |
| Total liabilities | (96,518) | (668,150) | – | – | (5,130) | – | (769,798) |
| Net assets | 7,328,046 | 3,656 | 2,004 | – | – | – | 7,333,706 |
| Capital and reserves | |||||||
| Revenue reserve available for distribution to The Consolidated Fund | 4,407 | 3,656 | 2,004 | – | – | – | 10,067 |
| Reserves relating to the Capital account | 2,544,837 | 4,911,692 | – | (159,066) | – | – | 7,297,463 |
| Total reserves arising from Revenue | 2,549,244 | 4,915,348 | 2,004 | (159,066) | – | – | 7,307,530 |
| Revaluation reserve | 4,777,954 | (4,911,692) | – | 159,066 | – | – | 25,328 |
| Pensions reserve | 848 | – | – | – | – | – | 848 |
| Total capital and reserves | 7,328,046 | 3,656 | 2,004 | – | – | – | 7,333,706 |
| As previously reported presented in an IFRS format £’000 |
Lease incentives a £’000 |
Revaluation of investment properties b £’000 |
Lease premiums d £’000 |
Head leases f £’000 |
Properties held for sale g £’000 |
Under IFRS £’000 |
|
|---|---|---|---|---|---|---|---|
| Assets | |||||||
| Non-current assets | |||||||
| Investment properties | 6,357,428 | – | – | 667,575 | 575 | (79,225) | 6,946,353 |
| Investment properties under re-development | 91,208 | – | – | – | – | – | 91,208 |
| Owner occupied property | 123,812 | – | – | – | – | – | 123,812 |
| Plant and equipment | 5,584 | – | – | – | – | – | 5,584 |
| Other property investments | 42,065 | – | – | – | – | – | 42,065 |
| Other investments | 4,941 | – | – | – | – | – | 4,941 |
| Receivables due after one year | 13,814 | – | – | – | – | – | 13,814 |
| Total non-current assets | 6,638,852 | – | – | 667,575 | 575 | (79,225) | 7,227,777 |
| Current assets | |||||||
| Non-current property assets held for sale | – | – | – | – | – | 79,225 | 79,225 |
| Inventories | 752 | – | – | – | – | – | 752 |
| Receivables | 58,616 | 3,656 | – | – | – | – | 62,272 |
| Cash and cash equivalents | 435,223 | – | – | – | – | – | 435,223 |
| Total current assets | 494,591 | 3,656 | – | – | – | 79,225 | 577,472 |
| Total assets | 7,133,443 | 3,656 | – | 667,575 | 575 | – | 7,805,249 |
| Liabilities | |||||||
| Current liabilities | |||||||
| Trade and other payables | (38,449) | – | – | (7,851) | (35) | – | (46,335) |
| Pension fund provision | (3,504) | – | – | – | – | – | (3,504) |
| Total current liabilities | (41,953) | – | – | (7,851) | (35) | – | (49,839) |
| Non-current liabilities | – | – | – | (659,724) | (540) | – | (660,264) |
| Total liabilities | (41,953) | – | – | (667,575) | (575) | – | (710,103) |
| Net assets | 7,091,490 | 3,656 | – | – | – | – | 7,095,146 |
| Capital and reserves | |||||||
| Revenue reserve available for distribution to The Consolidated Fund | 4,675 | 3,656 | – | – | – | – | 8,331 |
| Reserves relating to the Capital account | 2,141,819 | – | 4,911,692 | – | – | – | 7,053,511 |
| Total reserves arising from Revenue | 2,146,494 | 3,656 | 4,911,692 | – | – | – | 7,061,842 |
| Revaluation reserve | 4,948,500 | – | (4,911,692) | – | – | – | 36,808 |
| Pensions reserve | (3,504) | – | – | – | – | – | (3,504) |
| Total capital and reserves | 7,091,490 | 3,656 | – | – | – | – | 7,095,146 |