OPINION NOTES TO THE ACCOUNTS

OPINION

FINANCIAL STATEMENTS

In my opinion

• the financial statements give a true and fair view, in accordance with the Public Finance and Accountability (Scotland) Act 2000 and the directions made there under by the Scottish Ministers, of the state of affairs of Transport Scotland as at 31 March 2008 and of the net operating cost, recognised gains and losses and cash flows for the year then ended;
• the financial statements and the part of the Remuneration Report to be audited have been properly prepared in accordance with the Public Finance and Accountability (Scotland) Act 2000 and directions made there under by the Scottish Ministers; and
• information which comprises the Management Commentary and the section Who We Are And What We Do included in the Annual Report is consistent with the financial statements.

REGULARITY

In my opinion in all material respects:

• the expenditure and receipts shown in the financial statements were incurred or applied in accordance with any applicable enactments and guidance issued by the Scottish Ministers, the Budget (Scotland) Act covering the financial year and sections 4 to 7 of the Public Finance and Accountability (Scotland) Act 2000; and
• the sums paid out of the Scottish Consolidated Fund for the purpose of meeting the expenditure shown in the financial statements were applied in accordance with section 65 of the Scotland Act 1998.

Alastair Swarbrick Assistant Director Audit Scotland 30 October 2008

Osborne House 1 Osborne Terrace Edinburgh EH12 5HG

OPERATING COST STATEMENT FOR THE YEAR ENDED 31 MARCH 2008

	note	2	3&4	5	31 Mar 2008	31 Mar 2007
		Staff costs £000	Other £000	Income £000	Total £000	Total £000
Administration Costs
Staff Costs		10,752	0	0	10,752	8,991
Other Administration Costs		0	5,219	0	5,219	5,172
Total Administration Costs		10,752	5,219	0	15,971	14,163
Programme Costs
Motorways and Trunk Roads		0	768,063	(2,545)	765,518	756,911
Rail Services in Scotland		0	678,118	0	678,118	649,582
Concessionary Fares		273	174,001	0	174,274	161,721
Rail - Major Public Transport Projects		253	257,902	0	258,155	173,804
Total Programme Costs		526	1,878,084	(2,545)	1,876,065	1,742,018
Net Operating Costs		11,278	1,883,303	(2,545)	1,892,036	1,756,181

All income and expenditure is derived from continuing activities.

STATEMENT OF RECOGNISED GAINS AND LOSSES FOR THE YEAR ENDED 31 MARCH 2008

	note	2007/08	2006/07
		£000	£000
Net gain/(loss) in revaluation of tangible fixed assets	13	1,083,669	631,955
Addition to donated asset reserve	12	0	636
Net gain/(loss) relating to prior years		(28,169)	2,734
Recognised Gain/(Loss) for the Financial Year		1,055,500	635,325

The notes below form part of these accounts

BALANCE SHEET FOR THE YEAR ENDED 31 MARCH 2008

	note	31 Mar 2008	31 Mar 2007
		£000	£000
FIXED ASSETS
Tangible Assets	6	14,672,146	13,489,529
Intangible Assets	7	3	19
Debtors > 1 year	8	3,379	7,750
CURRENT ASSETS
Debtors	8	39,713	31,849
Cash		0	0
Creditors < 1 year	9	(142,785)	(139,481)
NET CURRENT LIABILITIES		(103,072)	(107,632)
TOTAL ASSETS LESS CURRENT LIABILITIES		14,572,456	13,389,666
Creditors > 1 year	9	(114,563)	(118,521)
Provisions for Liabilities and Charges	10	(66,900)	(54,807)
		14,390,993	13,216,338
TAX PAYERS EQUITY
General Fund	11	7,930,197	7,834,712
Donated Asset Reserve	12	1,045	1,122
Revaluation Reserve	13	6,459,751	5,380,504
		14,390,993	13,216,338

Malcolm Reed CBE
Chief Executive
22 October 2008

The notes below form part of these accounts

CASHFLOW FOR THE YEAR ENDED 31 MARCH 2008

	note	31 Mar 2008	31 Mar 2007
		£000	£000
Net Cash Outflow from Operating Activities	14	(1,391,658)	(1,210,408)
Capital Expenditure and Financial Investment	14	(136,376)	(156,060)
Financing	14	1,528,034	1,366,468
Net (Decrease)/Increase in Cash in year		0	0

NOTES TO THE ACCOUNTS

1. STATEMENT OF ACCOUNTING POLICIES

The financial statements have been prepared in accordance with the accounting principles and disclosure requirements of the Government Financial Reporting Manual (FReM). The accounting policies contained in the FReM follow generally accepted accounting practice for companies (UK GAAP) to the extent that it is meaningful and appropriate to the public sector. The accounting policies adopted are described below and have been applied consistently in dealing with items considered material in relation to the accounts.

1.1 ACCOUNTING CONVENTION

The accounts have been prepared under the historical cost convention, modified where appropriate for the revaluation of fixed assets.

1.2 TRUNKINGS/DETRUNKINGS

The trunking or detrunking of roads from or to local authorities is treated as a transfer from or to other government departments. Roads and structures detrunked are effectively dealt with as disposals in accounting terms at nil consideration. The associated profit or loss is processed through the general fund.

1.3 PRIOR YEAR ADJUSTMENTS

Material adjustments relating to prior periods and arising from changes in accounting principles or from the correction of material errors are accounted for as prior year adjustments. Opening balances are adjusted for the cumulative effect of the prior year adjustment and comparative figures for the preceding period are restated.

1.4 TANGIBLE FIXED ASSETS

Tangible fixed assets are categorised into infrastructure (including assets under construction) and non-infrastructure assets. Infrastructure assets consist of roads, land and building within the highway perimeter, bridges, other structures and roadside communications. Non-infrastructure assets include land and buildings, information and technology equipment, software licences and other specifically identified ring-fenced projects. Title to the freehold land and buildings shown in the accounts of Transport Scotland is held by the Scottish Ministers.

Capitalisation Policy

The road network is capitalised to the extent that it leads to an increase in the capacity of the network. Expenditure on road building schemes is capitalised when it is reasonably certain that the scheme will proceed. Where a scheme is subsequently withdrawn, all cumulative costs are written off to the Operating Cost Statement. Any retained land or buildings are transferred to land and building held for resale and valued at market rates.

All other categories of tangible fixed asset are capitalised if the expenditure is greater than:

Land and Buildings	£10,000
Information and Communications Technology (ICT)	£1,000
Plant and Machinery	£5,000

Items falling below these limits are charged as an expense and shown in the Operating Cost Statement. Furniture and fittings are not capitalised unless part of a specially identified ring-fenced project such as a major relocation project.

Major rail projects, which are capital in nature, are funded by Transport Scotland but as control of the economic benefit of the asset ultimately sits with Network Rail, the assets are not on the balance sheet of the Agency.

Valuation

Infrastructure Assets – the road network

The road network is valued at depreciated replacement cost as it is deemed to be specialist in nature. It is valued using a standard costing system, uplifted annually for indexation and periodically updated when new schemes become available as comparators.

The indexation used is:

Roads and structures	Baxter’s Index, published on a quarterly basis by the Department of Trade and Industry (DTI)
Land	Land indices produced by the Valuation Office Agency (VOA)

The estimated unexpired life of all fixed assets is re-assessed annually and the valuation adjusted where necessary.

Assets Under Construction

Road building schemes in the course of construction are capitalised at actual cost with no indexation.

Land and Buildings

Land and property released from road schemes and now deemed surplus to requirements is re-valued at open market value for disposal purposes.

Information Technology

Information technology assets are stated at historical cost with no indexation applied.

1.5 DEPRECIATION

Infrastructure Assets – the road network

Roads and associated street furniture have condition calculations done annually and the resultant increase or decrease in condition is reflected in the net asset value.

Structures and communications assets are depreciated on a straight line basis over the expected useful life of the asset, normally 20 to 120 years.

Land is considered to have an indefinite life and is not depreciated.

	Life in Years
Road surface, sub-pavement layer, fencing, drainage and lighting	20 to 50
Road bridges, tunnels and underpasses	20 to 120
Culverts, retaining walls and gantries	20 to 120
Road communications assets	15 to 50
Assets under construction	no depreciation

Non-Infrastructure Assets

With the exception of surplus land and properties awaiting resale, non-infrastructure assets are depreciated on a straight line basis over the expected life of the particular asset category as follows:

	Life in Years
Freehold buildings	5 to 100
Leasehold buildings	shorter of length of lease or specific asset life
Surplus property awaiting resale	no depreciation
IT Equipment	3 to 10

1.6 DONATED ASSETS

Donated tangible fixed assets are capitalised at their valuation on receipt and this value is credited to the valuation reserve. Any subsequent revaluations are also accounted for through this reserve. Each year an amount equal to the depreciation charge on the asset is released from the donated asset reserve to the Operating Cost Statement.

1.7 INTANGIBLE FIXED ASSETS

Purchased computer software licences are capitalised as intangible fixed assets where expenditure of £1,000 or more is incurred. These are valued at historic cost and amortised on a straight line basis over the expected life of the asset.

1.8 RESOURCE NET INVESTMENT

Resource expenditure is split and is recognised as true resource spend and net investment. Resource net investment acknowledges that spend may be capital in nature although results in no asset being added to the Transport Scotland balance sheet as the economic benefit for the asset does not reside with the Agency.

The Agency has a significant resource net investment programme which allocates funding to major rail and major roads projects.

1.9 OPERATING INCOME

Operating income relates directly to the operating activities of Transport Scotland. It principally comprises fees and charges for services provided on a full-cost basis to external customers in both the public and private sectors. It includes not only income appropriated in aid of the estimate but also income due to the Consolidated Fund, which in accordance with the FReM is treated as income. Operating income is stated net of VAT.

1.10 ADMINISTRATION AND PROGRAMME EXPENDITURE

The Operating Cost Statement is analysed between administration and programme income and expenditure. This classification of income and expenditure between administration and programme follows the definition of administration costs as defined by HM Treasury.

Administration costs reflect the costs of running the Agency and include administration staff costs as well as accommodation, communications and office supplies.

Programme costs reflect the costs of operating, maintaining, managing and improving the road and rail infrastructure in Scotland over which Transport Scotland has power.

1.11 CAPITAL CHARGE

A charge reflecting the cost of capital utilised by Transport Scotland is included in the Operating Cost Statement. The charge is calculated based on the average value over the year for all assets less liabilities at the real rate set by HM Treasury (currently 3.5%). Donated assets are excluded from this calculation.

1.12 PENSIONS

Past and present employees are covered by the provisions of the Principal Civil Service Pension Scheme (PCSPS), more details of which can be found in note 2. The PCSPS is an unfunded multi-employer defined benefit scheme. Transport Scotland’s contributions are recognised as a cost in the year. This complies with FRS 17.

1.13 PRIVATE FINANCE INITIATIVE (PFI) TRANSACTIONS

PFI transactions are accounted for in accordance with Technical Note No 1 (Revised), How to account for PFI Transactions, as required by FReM.

Transport Scotland currently has two existing PFI schemes (see note 17 for more details). In both cases the balance of risks and rewards has been found to rest with the PFI operator and consequently the PFI unitary charge payments are treated as an operating cost.

Where at the end of the PFI contract, all or part of the asset reverts back to Transport Scotland ownership, the expected fair value of the asset at the balance sheet date is reflected as an asset under construction. This allows the proper allocation of payments between the cost of services and the acquisition of the residual asset.

1.14 GRANTS PAYABLE

Grants payable are recorded as expenditure in the period that the underlying activity giving entitlement to the grant occurs.

Where necessary obligations in respect of grant schemes are recognised as liabilities.

1.15 LAND AND PROPERTY ACQUISITION

Land and property acquisition provision relates primarily to the estimates made at the point of taking entry to compulsory purchased land. A valuation provided by the Valuation Office Agency is charged to the project at the point of taking entry to the land.

1.16 PROVISIONS

Transport Scotland provides for legal and constructive obligations that are of uncertain timing or amount at the balance sheet date on the basis of the best professional estimate available. Provisions are charged to the Operating Cost Statement unless they will be capitalised as part of additions to fixed assets.

Transport Scotland is required to meet the additional cost of benefits for those employees who retire early until they reach the age of 60 at which point the liability is assumed by the PCSPS. The cost of these benefits are provided in full when the employee retires.

1.17 CONTINGENT LIABILITIES AND CONTINGENT ASSETS

In accordance with FRS 12, where there is a risk of a liability arising as a result of a past event but the amount and/or timing of the event is uncertain, estimates are included in the provisions or contingent liabilities based on an assessment of risk. This holds true for contingent assets as well.

1.18 VAT

Most of the activities of Transport Scotland fall outside the scope of VAT and, in general, output tax does not apply and input tax on purchases is non-recoverable. Irrecoverable VAT is charged to the relevant expenditure category or included in the capitalised purchase cost of fixed assets.

Transport Scotland is not separately registered for VAT. The quarterly VAT return is completed centrally by the Scottish Government.

2. STAFF NUMBERS AND COSTS

Staff costs comprise:	2007/08			2006/07
	Permanent Staff £000	Others £000	Total £000	Permanent Staff £000	Others £000	Total £000
Wages & salaries costs	7,392	1,144	8,536	6,525	654	7,179
Social Security costs	598	0	598	558	0	558
Other pension costs	1,618	0	1,618	1,254	0	1,254
Total Costs	9,608	1,144	10,752	8,337	654	8,991
Staff costs in programme	526	0	526	820	0	820
Total net staff costs	10,134	1,144	11,278	9,157	654	9,811
Average numbers of persons employed
	Permanent Staff	Others	Total	Permanent Staff	Others	Total
Finance & Corporate Services	59	15	74	47	9	56
Major Transport Infrastructure Projects	52	5	57	47	3	50
Rail Delivery	65	17	82	72	6	78
Strategy & Investment	30	6	36	25	0	25
Trunk Roads: Network Management	49	2	51	50	11	61
Total average staff numbers	255	45	300	241	29	270

Permanent staff are civil servants who have an employment contract with the Agency.

Wages & Salaries include gross salaries, performance pay or bonuses received in year, overtime, London weighting or London allowances, recruitment and retention allowances, private office allowances, ex‑gratia payments and any other allowance to the extent that it is subject to UK taxation. The payment of legitimate expenses is not part of salary.

Four members of staff took early retirement during the year and the appropriate provision has been included in the accounts. No staff retired early on ill-health grounds in 2007/08.

In 2006/07 wages & salaries costs included £0.6m of one-off migration costs incurred as a result of the relocation of the former Scottish Executive Roads Departments from Edinburgh to Transport Scotland in Glasgow in 2006/07. A further provision of £0.2m was required in 2007/08. The provision for these costs covers a 5 year timeline. This is consistent with the relocation policy of the Scottish Government and provisions accounting set out in Financial Reporting Standard 12.

PENSION COSTS

The Principal Civil Service Pension Scheme (PCSPS) is an unfunded multi-employer defined benefit scheme but Transport Scotland is unable to identify its share of the underlying assets and liabilities. The scheme Actuary valued the scheme as at 31 March 2007. You can find details in the resource accounts of the Cabinet Office: Civil Superannuation www.civilservice-pensions.gov.uk.

For 2007/08, employers’ contributions of £1.6m were payable to the PCSPS at one of four rates in the range 17.1% to 25.5% of pensionable pay, based on salary bands (the rates in 2006/07 were between 17.1% and 25.5%). The scheme’s Actuary reviews employer contributions every four years following a full scheme valuation. The 2008/09 salary bands have been revised but the rates remain the same.

The contribution rates are set to meet the cost of the benefits accruing during 2007/08 to be paid when the member retires, and not the benefits paid during this period to existing pensioners.

Employees can opt to open a partnership pension account, a stakeholder pension with an employer contribution.

Employer’s contributions of £4,250 were paid to two appointed stakeholder pension providers.

Contributions are paid monthly in arrears. Contributions that Transport Scotland was due to pay to partnership pension providers at 31 March 2008 totalled £1,600. At 31 March 2008, no contributions were paid to partnership pension providers that Transport Scotland did not need to pay until after the end of the reporting year. Employer contributions are age related and range from 3% to 12.5% of pensionable pay. Employers also match employee contributions up to 3% of pensionable pay. In addition, employer contributions of 0.8% of pensionable pay were payable to PCSPS to cover the cost of the future provision of lump sum benefits on death in service and ill health retirement of these employees.

From 1 October 2002, civil servants could be in one of three statutory based "final salary" defined benefit schemes (Classic, Premium and Classic Nuvos Plus). The Classic and Classic Plus schemes are now closed to new members. Civil servants joining from 30 July 2007 may be in one of two statutory-based schemes (Premium or Nuvos).

Pensions payable under Classic, Premium, Classic Plus and Nuvos are increased annually in line with changes in the Retail Price Index. New entrants may alternatively opt to join a stakeholder pension with employer contribution (Partnership Pension Account).

(A) CLASSIC SCHEME

Benefits accrue at the rate of 1/80th of pensionable pay for each year of service. In addition, a lump sum equivalent to three years pension is payable on retirement. Members pay contributions of 1.5% of pensionable earnings.

(B) PREMIUM SCHEME

Benefits accrue at the rate of 1/60th of final pensionable earnings for each year of service. Unlike the Classic scheme, there is no automatic lump sum, but members can commute some of their pension to provide a lump sum. Members pay contributions of 3.5% of pensionable earnings.

(C) CLASSIC PLUS PENSION SCHEME

This is essentially a variation of Premium, but with benefits in respect of service before 1 October 2002 calculated broadly as per Classic.

(D) NUVOS PENSION ACCOUNT

Like the Premium Scheme there is no automatic lump sum, but members can commute some of their pension to provide a lump sum. Members pay contributions of 3.5% of pensionable earnings.

(E) PARTNERSHIP PENSION ACCOUNT

The Partnership Pension Account is a stakeholder pension arrangement. The employer makes a basic contribution of between 3% and 12.5% (depending on the age of the member) into a stakeholder pension product chosen by the employee from a selection of approved products. The employee does not have to contribute but where they do make contributions, these will be matched by the employer up to a limit of 3% of pensionable salary (in addition to the employer’s basic contribution). Employers may also contribute a further 0.8% of pensionable salary to cover the cost of the future provision of lump sum.

3. OTHER ADMINISTRATION COSTS

	note	2007/08	2006/07
		£000	£000
Rent, rates & building costs		2,380	2,536
Office furniture		56	0
Communications		764	710
Travel		656	638
Consultancy		384	345
Audit fee		175	175
Training		111	151
Information Technology		115	145
Recruitment		138	132
Subscriptions		48	56
Other		392	284
Total administration costs		5,219	5,172
Non-cash items included in the above are:
Depreciation	6 & 7	535	431
Audit fee	21	175	175
Amortisation on donated assets reserve	12	(77)	(39)
Total non-cash administration costs		633	567

4. OTHER PROGRAMME COSTS

	note	2007/08	2006/07
		£000	£000
Roads
Capital Maintenance		116,804	93,066
Current Maintenance		132,056	184,955
Payment on PFI contracts	17	35,648	28,302
Roads Capital Charge		483,058	451,111
Other		496	12
Rail
ScotRail Franchise		294,333	284,523
Rail Infrastructure in Scotland Capital*		232,957	217,522
Rail Infrastructure in Scotland Resource**		132,075	133,896
Rail Small Projects		12,216	12,757
Other		6,537	453
Concessionary Fares
Smartcard Applications		9,433	5,525
Concessionary Fares		164,568	155,958
Other Public Transport
Major Public Transport Projects - Rail		250,640	171,244
Transport Information		1,026	977
Strategic Projects Review		6,236	1,583
Other		0	0
Total other programme costs		1,878,084	1,741,884

* The Rail Infrastructure in Scotland Capital figure of £233m was paid directly to Network Rail.
** The Rail Infrastructure in Scotland Resource figure of £132m was paid to Network Rail via DfT as part of a transitional arrangement until the end of the current Control Period on 31 March 2009.

	note	2007/08	2006/07
		£000	£000
Non-cash items included in the above are:
Roads
Capital charge	21	483,058	451,111
Depreciation	6	11,908	40,378
Asset valuation adjustment		(3,723)	4,082
Other asset adjustments		0	1,328
Rail
SQUIRE Depreciation	6	153	0
Concessionary Fares
Depreciation	6	411	377
Total other programme costs – non-cash		491,808	497,276

5. OPERATING INCOME

	2007/08	2006/07
	£000	£000
Programme income
Rental income - properties	1,058	599
Rental income - land	0	18
Erskine Bridge Tolls	0	69
Erskine Bridge Damage Claim	1,484	0
Sale of land	3	0
Total programme income	2,545	686

Operating income principally arises from:

• rental income from land and properties acquired for road schemes and now surplus to requirements.
• toll income from Erskine Bridge (physical collection of tolls ceased as of 31 March 2006).
• Erskine Bridge Damage Claim income in 2007/08 represents settlement of a damage claim in excess of the debtor recorded (£3.4m) in previous years relating to an oil rig collision in 1996.

6. TANGIBLE FIXED ASSETS

	Road Network	Assets under Construction	Land & Buildings	IT	Leasehold Improvements	Total
	£000	£000	£000	£000	£000	£000
At replacement cost or valuation
At 1 April 2007	15,144,524	410,124	1,200	3,180	3,989	15,563,017
Detrunkings	0	0	0	0	0	0
Capital Additions	0	136,291	0	85	0	136,376
Disposals	0	0	0	0	0	0
Revaluation	1,249,403	9,032	133	(1)	268	1,258,835
Current year activity valuation adjustments	3,550	0	0	0	0	3,550
Other adjustments	(42,341)	0	0	0	0	(42,341)
Transfers and reclassifications	870	(1,406)	0	731	(195)	0
Balances at 31 March 2008	16,356,006	554,041	1,333	3,995	4,062	16,919,437
Accumulated Depreciation
At 1 April 2007	2,072,594	0	0	584	311	2,073,489
Detrunkings	0	0	0	0	0	0
Charge for the year	11,908	0	0	677	407	12,992
Disposals	0	0	0	0	0	0
Revaluation	175,138	0	0	0	25	175,163
Current year activity valuation adjustments	(100)	0	0	0	0	(100)
Other adjustments	(14,172)	0	0	0	(81)	(14,253)
Transfers and reclassifications	0	0	0	0	0	0
Balances at 31 March 2008	2,245,368	0	0	1,261	662	2,247,291
Net Book Value at 31 March 2008	14,110,638	554,041	1,333	2,734	3,400	14,672,146
Net Book Value at 31 March 2007	13,071,930	410,124	1,200	2,596	3,679	13,489,529
Asset Financing
Owned	14,110,638	396,365	1,333	2,734	3,400	14,514,469
PFI reversionary Interest*	0	157,676	0	0	0	157,676
Net Book Value at 31 March 2008	14,110,638	554,041	1,333	2,734	3,400	14,672,145

*The reversionary interest is based on the current net book value of the schemes with the balance being built up and indexed over the life of the contract until they revert back to Transport Scotland ownership.

THE ROAD NETWORK

Revaluation indices are applied to the road network as it is valued at depreciated replacement cost. In year this amounted to £1,249m gross, £1,074m net. The net revaluation is reflected in the revaluation reserve (note 13).

Valuation adjustments may arise on the transfer of assets under construction to the completed road network. In addition there are other adjustments to reflect amendments to the records held on Transport Scotland’s road asset databases. These arise from better information becoming available, such as more accurate measurement of the dimensions of roads, bridges or other structures. The main components are reflected in the accounts as follows:

OPERATING COST ADJUSTMENTS

£3.6m has been accounted for through the OCS for adjustments to assets added to the roads databases after 31 March 2002, the date from which resource accounting applies.

GENERAL FUND ADJUSTMENTS

£28.2m has been accounted for through the General Fund, representing adjustments to the Road Network valuation of £42.3m, less road network depreciation adjustment of £14.2m. These adjustments relate to changes to the underlying database for assets added before 1 April 2002.

The depreciation charge for the year totalled £11.9m. Transfers and reclassifications totalled £870k which relates to the addition of two new bridges and a wall to the road network database during the course of the year transferred in from assets under construction.

ASSETS UNDER CONSTRUCTION

As at 31 March 2008 land within assets under construction was valued at £204m of which £15.6m is held for schemes where construction has not yet been approved. The capital element of the two PFI schemes has been revalued upwards in year by £3.3m.

INFORMATION TECHNOLOGY

IT capital additions for the year totalled £0.1m. Transfers and reclassification during the course of the year totalled £0.7m. £0.5m relates to the development of the SQUIRE Software System, which has been transferred in from assets under construction. £0.2m is a reclassification of IT assets.

LEASEHOLD IMPROVEMENTS

Buchanan House leasehold improvements are being depreciated over the life of the lease (15 years). The furniture capitalised as part of this ring-fenced relocation project are being depreciated over 5 years. The landlord of Buchanan House donated part of the fit out costs and this has been treated as a donated asset. The total of this contribution is £1.2m. Depreciation for leasehold improvements has been decreased on the Operating Cost Statement by the unwinding of the donated asset reserve which sums to £0.1m in 2007/08.

7. INTANGIBLE FIXED ASSETS

	Software Licences
	£000
At replacement cost or valuation
At 1 April 2007	53
Capital additions	0
Disposals	0
Transfers and reclassifications	0
Balances at 31 March 2008	53
Accumulated Amortisation
At 1 April 2007	34
Charge for the year	16
Additions	0
Disposals	0
Transfers and reclassifications	0
Balances at 31 March 2008	50
Net Book Value at 31 March 2008	3
Net Book Value at 31 March 2007	19

8. DEBTORS

8a Analysis by type

	as at 31/03/08	as at 31/03/07
	£000	£000
Amounts falling due after more than one year:
Other Debtors of which:
Damage Claims	2,532	6,200
Land for resale	853	1,402
Other	(6)	148
	3,379	7,750
Amounts falling due within one year:
Trade debtors	25	20
VAT*	0	7,784
Prepayments & accrued income	39,603	23,943
Other	85	102
	39,713	31,849

*From 2007/08 VAT is accounted for centrally by the Scottish Government.

8b Intra-Government Balances

	Amounts falling due within 1 year		Amounts falling due after more than 1 year
	as at 31/03/08	as at 31/03/07	as at 31/03/08	as at 31/03/07
	£000	£000	£000	£000
Other central government bodies	4	7,765	(155)	0
Local authorities	24,792	3,350	429	429
Public corporations and trading funds	0	0	0	0
Intra-Government Balances	24,796	11,115	274	429
Balances with bodies external to government	14,917	20,734	3,105	7,321
Total Debtors	39,713	31,849	3,379	7,750

9. CREDITORS

9a Analysis by type

	as at 31/03/08	as at 31/03/07
	£000	£000
Amounts falling due after more than one year:
Other Creditors of which:
PFI – excess reversionary interest in year one of contract	109,546	114,055
Retentions on road schemes	2,915	3,151
Other	2,102	1,315
	114,563	118,521
Amounts falling due within one year:
Trade creditors	2,337	10,460
Accruals and deferred income	135,939	124,607
PFI – excess reversionary interest in year one of contract	4,509	4,414
	142,785	139,481

9b Intra-Government Balances

	Amounts falling due within 1 year		Amounts falling due after more than 1 year
	as at 31/03/08	as at 31/03/07	as at 31/03/08	as at 31/03/07
	£000	£000	£000	£000
Other central government bodies	(3)	14	0	0
Local authorities	11,765	20,851	21,441	22,044
Public corporations and trading funds	0	0	0	0
Intra-Government Balances	11,762	20,865	21,441	22,044
Balances with bodies external to government	131,023	118,616	93,122	96,477
Total Creditors	142,785	139,481	114,563	118,521

10. PROVISIONS FOR LIABILITIES AND CHARGES

	Land and Property Acquisition	Major Projects	Migration and Other	Damages	Total
	£000	£000	£000	£000	£000
Balance as at 1 April 2007	49,889	3,400	629	890	54,807
Provided in year	48,323	1,201	1,066	505	51,094
Provisions not required written back	(34)	0	(18)	0	(52)
Provisions utilised in year	(37,141)	(1,100)	(252)	(456)	(38,949)
Reclassifications	0	0	0	0	0
Balance as at 31 March 2008	61,037	3,500	1,424	939	66,900

11. GENERAL FUND

The General Fund represents the total assets less total liabilities, to the extent that the total is not represented by other reserves and financing items.

	note	2007/08	2006/07
		£000	£000
Balance at 1 April 2007		7,834,712	7,760,256
Net Parliamentary funding	14	1,528,034	1,366,468
Net operating cost for the year	14	(1,892,036)	(1,756,181)
Non-cash charges:
Auditors remuneration	3	175	175
Cost of capital charge	4	483,058	451,111
In year adjustments relating to prior year transactions
Detrunkings		0	(31,950)
Adjustment to infrastructure fixed assets		(28,169)	22,032
Adjustment to non-infrastructure fixed assets		0	2,009
Adjustment to PFI assets		0	10,643
Realised element of the revaluation reserve	13	4,422	10,149
Balance as at 31 March 2008		7,930,197	7,834,712

12. DONATED ASSET RESERVE

The donated asset reserve represents assets not paid for but owned by Transport Scotland.

	£000
Gross Value
Balance at 1 April 2007	1,161
Additions in year	0
Balance at 31 March 2008	1,161
Amortisation
Balance at 1 April 2007	39
Amortisation in year	77
Balance at 31 March 2008	116
Net Book Value at 31 March 2008	1,045

13. REVALUATION RESERVE

The revaluation reserve reflects the unrealised element of the cumulative balance of indexation and revaluation adjustments.

	note	£000
Balance at 1 April 2007		5,380,504
Net gain/(loss) on revaluation		0
In year adjustments relating to prior year transactions
Adjustment to infrastructure fixed assets	6	1,083,669
Realised element of the revaluation reserve	11	(4,422)
Balance as at 31 March 2008		6,459,751

14. NOTES TO THE CASH FLOW STATEMENT

	note	2007/08	2006/07
		£000	£000
Reconciliation of operating cost to operating cash flows
Net operating cost		(1,892,036)	(1,756,181)
Adjustment for non-cash transactions	3 & 4	492,441	497,842
In year adjustment on IT hardware depreciation		(9)	0
(Increase)/Decrease in debtors	8	(3,493)	(20,514)
(Decrease)/Increase in creditors	9	(654)	41,617
(Decrease)/Increase in provisions	10	12,093	26,828
Net cash outflow from operating activities		(1,391,658)	(1,210,408)
Analysis of capital expenditure and financial investment
Tangible fixed asset additions - investment in network assets	6	(136,376)	(158,646)
Adjustment for donated asset	12	0	636
Adjustment for prior year capitalisations		0	1,950
Net cash outflow from investing activities		(136,376)	(156,060)
Analysis of financing
From the consolidated fund – current year		1,528,034	1,366,468
Net Financing		1,528,034	1,366,468

15. CAPITAL COMMITMENTS

These relate to Transport Scotland’s commitment to make future capital payments on major road schemes. The main works contract has been awarded and the commitment has not been reflected elsewhere in the accounts.

	as at 31/03/08	as at 31/03/07
	£000	£000
Total contracted capital commitments for which no provision has been made	539,418	96,746

16. COMMITMENTS UNDER OPERATING LEASES

As at 31 March 2008 Transport Scotland was committed to making the following payments during the next year in respect of operating leases:

	as at 31/03/08	as at 31/03/07
	£000	£000
	Land & Buildings	Land & Buildings
Rentals due within 1 year	0	0
Rentals due within 2-5 years	0	0
Rentals due thereafter	1,444	1,000
Total	1,444	1,000

17. COMMITMENTS UNDER PFI INITIATIVES

Transport Scotland has entered into the following off-balance sheet PFI contracts:

a) M6 (M74) – the contract covers the design, construction, financing and operation of 28.3km of the new Scottish motorway as well as the operation and maintenance of 90km of new and existing Scottish motorway. Payments are made under a shadow toll regime. The toll period began in July 1997 and expires in July 2027. The estimated capital value of the asset is £236m. Included in assets under construction is an amount of £121m representing the reversionary interest of the asset.

b) M77 – this is a joint Public Private Partnership (PPP) entered into by the Scottish Government, East Renfrewshire and South Lanarkshire Councils. The project covers the design, construction, financing and operation of 15km of the new Scottish motorway and a new 9km local link road between the new motorway and the A726 trunk road. Payments are made under a shadow toll regime. The toll period began in April 2005 and expires in April 2035. The estimated current capital value of the asset is £95m. Included in assets under construction is an amount of £37m representing the reversionary interest of the asset.

The total amount charged to the Transport Scotland Operating Cost Statement in respect of these schemes is:

	2007/08	2006/07
	£000	£000
M6 (M74)	35,268	27,761
M77	8,060	8,010
Total	43,328	35,771

Imputed finance lease obligations under off-balance sheet PFI contracts due during the next year, analysed between those periods where the commitment expires:

	M6(M74)	M77	Total
	£000	£000	£000
Rentals due within 16 to 20 years	31,872	0	31,872
Rentals due within 26 to 30 years	0	8,768	8,768
Total	31,872	8,768	40,640

The amount charged to the operating cost statement excludes any adjustments for the capital element of the unitary charge.

18. FINANCIAL INSTRUMENTS

Financial Reporting Standard 13 (FRS 13) "Derivatives and Other Financial Instruments" requires disclosure of the role which financial instruments have had during the period in creating or changing the risks an entity faces in undertaking its activities. Due to the largely non-trading nature of its activities and the way in which government departments and agencies are financed, Transport Scotland is not exposed to the same degree of financial risk faced by most other business entities. Moreover, financial instruments play a much more limited role in creating or changing risk than would be typical of the listed companies to which FRS 13 mainly applies. Transport Scotland has limited powers to borrow or invest surplus funds. Financial assets and liabilities are generated by day-to-day operational activities and are not held to change the risks facing the Agency.

LIQUIDITY RISK

Transport Scotland’s net revenue resource requirements are mainly financed by resources voted annually by the Scottish Parliament. Transport Scotland is therefore not exposed to significant liquidity risks.

INTEREST RATE RISK

All of Transport Scotland’s financial assets and liabilities carry nil or fixed rates of interest and the Agency is therefore not exposed to significant interest rate risk.

EXCHANGE RATE RISK

Transport Scotland is not exposed to significant exchange rate risks.

19. CONTINGENT LIABILITIES

Contingent Liabilities under FRS12 are defined as past events where it is possible that transfer of economic benefits will be required to settle but no reliable estimate can be made.

19a Contingent Liabilities disclosed under FRS12

	as at 31/03/08	as at 31/03/07
	£000	£000
Transport Scotland have guarantees in place, effectively to the EU in relation to grant payments to other bodies for the Edinburgh Airport Rail Link (EARL) and the Glasgow Airport Rail Link (GARL).	1,475	1,360

19b Possible contingent liabilities not required under FRS12 but included for parliamentary reporting and accountability purposes

Transport Scotland has provided the following:

• operating agreement with indemnity dated 2005 to tie Limited for the promotion of the EARL Project
• operating agreement (ScotRail Franchise Agreement) with indemnity dated 2004 to First ScotRail
• letter of underwriting to Edinburgh Airport Limited (subsidiary of BAA) dated 2006 for the EARL Project being promoted by tie Limited

None of these is a contingent liability within the meaning of FRS12 since the likelihood of a transfer of economic benefits is considered too remote.

20. RELATED PARTY TRANSACTIONS

Transport Scotland is an Agency of the Scottish Government. The Scottish Government is regarded as a related party with which the Agency had various material transactions during the year. Transport Scotland also had significant transactions with local authorities during the year.

Board members had no interests in related party transactions. All interests declared by members of the Transport Scotland Board are of a minor nature and have no impact on the awarding of contracts and commissions.

21. NOTIONAL CHARGES

The following notional charges have been included in the accounts:

	2007/08	2006/07
	£000	£000
Cost of capital charges	483,058	451,111
Auditors remuneration	175	175
	483,233	451,286

The cost of capital is calculated as 3.5% of assets less liabilities over the year, excluding donated assets and any cash balances.