Income & Expenditure Account

Business stream-based income

Key items of income and expenditure are forecast by business stream then added to the total. For each property based business stream the key driver is the number of existing units plus or minus the numbers of units built, sold, demolished and transferred during the period for each business stream. The starting point for forecasting rental and service income is the average current weekly rent per existing unit, adjusted for rent per new unit, rent per unit sold/demolished and rent per unit transferred. Weekly service income per unit is also included.

The number of units multiplied by the relevant unit rents and service income gives the total business stream income. For all future years the annual rates of increase, expressed as margins above or below RPI, are applied to all rents as well as to service charge income. The income of the various business streams is added to obtain the total.

Revenue grants are calculated as a percentage of rental income and voids and bad debts are calculated as a percentage of turnover (total rent, support and service charge income), both percentages input by the user.

Business stream-based expenditure

The "variable element " of expenditures is based on changes in number of units and the various types of costs per "new" unit; whether additions or reductions. These should be the “marginal” unit costs as distinct from the average costs per existing unit. “New” here means incremental units built, transferred, sold etc.

These total incremental costs per unit need to be split by the user into management, service, care/support, major repairs and maintenance, and ongoing repairs and maintenance costs. All items of costs will be increased by the appropriate cost inflation factors defined by the user on the General Assumptions input screen. Again, these inflation factors are all expressed in terms of margin over RPI.

In addition, the total repairs and maintenance expenditure capitalised needs to be provided so that the Income and Expenditure Account can be adjusted.

Profit on disposals is derived directly from two user inputs, namely profit on sale per unit and number of units sold.

Home-buy charges/income is derived directly from two user inputs, namely average revenue deficit/surplus per loan granted and number of loans granted each year.

For non-property based business streams the start year non-property-based income is simply increased each year by the user input growth rate. Management and other costs are calculated as a percentage of income, which is again input by the user.


Non business stream-based income and expenditure

Existing costs in each category (management, service, care / support, major and ongoing repairs and maintenance) will be treated as the “fixed” element of expenditure but subject to growth over time. Any leasing costs should be included in management costs for the purpose of forecasting. The leasing cost line is not programmed separately.

The remainder of the Income and Expenditure Account is generated using various of the General Assumptions. The depreciation charge for the year is based on the user-input average depreciation rates for, respectively, housing assets and other assets. Other costs include impairment costs, both of which are input amounts for each year.

All interest received and paid calculations are based on the average of opening and closing debt balances. Interest received is calculated by applying the user input investment/deposit rate, expressed a margin over RPI, to the average cash balance. This is based on the user specified amount adjusted by the model to balance the cash flow: by using surplus cash generated, first, to repay medium and long-term debt, then to increase cash deposits.

The interest rate input is expressed as a margin over RPI rather than over LIBOR (which is the normal convention for quoting interest rates) to facilitate the flexing of the model for different levels of inflation in a consistent manner.

Interest paid on fixed rate debt is calculated by multiplying the user-input proportion of fixed rate debt to total debt by the average balance of total debt, then multiplying by the user-input fixed interest rate for each year.

Interest paid on floating rate debt is calculated by multiplying the user-input variable interest rate by the average balance of variable rate debt. Closing debt is calculated by allowing for user-input scheduled debt repayments and for user-input planned increases in medium/long-term debt plus the effect of cash flow on borrowing as forecast by CAPACITY.

For example, the user might plan to raise £5 million of new debt in a given year and to make scheduled repayments of £4 million but the CAPACITY-generated cash flow might result in an additional borrowing requirement of £3 million to balance, giving a net increase of £4 million.

Note that the calculation of interest paid incorporates a formula to include "interest on interest" to deal correctly with the inherent circularity on the interest/debt calculation without recourse to artificial lagging or to iterative procedures.

Any capitalised interest must be input by the user as an absolute amount net of any accrued interest paid, to allow for the Income and Expenditure Account to be adjusted.

Exceptional items are not modelled, nor is gift aid nor other charges/income.

Tax payable is simply calculated by multiplying the user-input effective corporation tax rate by the surplus before tax. The effective tax rate should allow for the effect of any losses or allowances brought forward.