In the accounting system, the local authority depreciates non-current (fixed) assets based on 2 per cent a year on the original cost. It also differentiates between one-off, large items of capital expenditure or revenue, and annually recurring items.

The land rented for School C is based on a 100-year lease. If the school closes, the property reverts immediately to the owner. If School C is not closed, it will require a £3m investment to improve safety at the school.

If School D is closed, it will be necessary to pay £1.8m to adapt facilities at other schools to accommodate the change.

The local authority has a central staff, which includes administrators for each school costing

£200,000 a year for each school, and a chief education officer costing £80,000 a year in total.

8.6 8.5 294 EXERCISES Required:

(a) Prepare a summary of the relevant cash flows (costs and revenues, relative to not making any closures) under the following options:

(i) closure of D only

(ii) closure of A and B

(iii) closure of A and C.