Income & Expenditure Account 
| Existing (Fixed) |
Incremental (Variable) |
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| Non-property based |
Property based |
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| Income |
- | Current income grown / inflated |
New units (+/ -) x incremental income |
Expenditure |
Current costs grown / inflated | Current costs grown with income | New units (+/ -) x incremental costs |
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.
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