Financial Statements 2017/18


2. Accounting estimates and judgments


In preparing these financial statements, the board and management have made judgments, estimates and assumptions that affect the application of the University’s accounting policies and the reported assets, liabilities, income and expenditure and the disclosures made in the financial statements. Estimates and judgments are continually evaluated and are based on historical experience and other facts, including expectations of future events that are believed to be reasonable under the circumstances.


Key areas subject to judgment are as follows:


A. Pension enhancements on termination (see note 21)


The critical underlying assumptions in relation to the estimate of the pension enhancement obligation such as life expectancy and the discount rate on corporate bonds. Variations in these assumptions have the ability to significantly influence the value of the provision for unfunded liabilities recorded and annual expense.


B. Onerous contract provision (see note 21)


Determine whether contracts entered into by the University and Group as lessee are onerous. These decisions depend on an assessment of whether the aggregate cost required to fulfil the contract are higher than the economic benefit to be obtained from it.


The underlying assumptions in relation to the estimate of the present value of the total commitment under the lease such as the annual obligation over the period of the lease and the discount rate to be used.


C. Leases (see note 26)


Determine whether leases entered into by the University and Group either as a lessor or a lessee are operating or finance leases. These decisions depend on an assessment of whether the risks and rewards of ownership have been transferred from the lessor to the lessee on a lease by lease basis.


D. Defined benefit pension scheme (see note 29)


The critical underlying assumptions in relation to the estimate of the defined benefit LGPS pension scheme obligation such as life expectancy, anticipated future salary increases, asset valuations and the discount rate on corporate bonds. Variations in these assumptions have the ability to significantly influence the value of the liability recorded and annual defined benefit expense.


The underlying assumptions in relation to the estimate of the present value of the obligation in respect of the funding deficit plan for the LGPS pension scheme such as the salary inflation over the period of the funding deficit plan and the discount rate to be used.


E. Impairment


Determine whether there are indicators of impairment of the University and Group’s tangible assets. Factors taken into consideration in reaching such a decision include the economic viability and expected future financial performance of the asset and where it is a component of a larger cash-generating activity, the viability and expected future performance of that activity.


Other key areas of estimation uncertainty are as follows: Tangible fixed assets (see note 14)


Tangible fixed assets are depreciated over their useful lives taking into account residual values, where appropriate. The actual lives of the assets and residual values are assessed annually and may vary depending on a number of factors. In re-assessing asset lives, factors such as technological innovation and maintenance programmes are taken into account. Residual value assessments consider issues such as future market conditions, the remaining life of the asset, and projected disposal values.


Trade debtors (see note 17)


The estimate for receivables relates to the recoverability of the balances outstanding at the year end. A review is performed on an accounts receivable aging method to determine whether debt is recoverable by aged group and a predetermined rate.


Middlesex University


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