The Sydney Hospital provides a range of health care services and its payment terms are net 30 days

The Sydney Hospital provides a range of health care services and its payment terms are net 30 days, meaning payment from patients is due 30 days after their discharge from hospital. Suppose the following transactions take place:

• March 5 – Patients receive health care services of $60,000
• March 10 – Patients receive health care services of $250,000 on terms of net 30 days. • March 15 – Patients pay $60,000 for health care services received on March 5.
• March 30 – hospital pays $50,000 for salaries for work done in March
• April 1 -The hospital purchases drugs for $160,000 on terms of net 30 days. In April the hospital uses $35,000 worth of drugs. In May $65,000 of drugs are used and in June $60,000 of drugs are used.
• April 6 – Patients receive health care services of $250,000 on terms of net 30 days.
• April 7 – phone bill received for $1,000 for telephone services in March.
• April 10 – Patients pay $250,000 for services received in March.
• April 30 – Hospital pays $55,000 for salaries for work done in April.
• May 1 – Hospital pays phone bill for $1,000 received on April 7.
• May 5 – The hospital pays $160,000 for drugs received in April.
• May 6 – Patients pay $250,000 for services received in April.
• May 15 – Patients receive health services of $200,000 on terms of net 30 days.
• May 30 – Hospital pays $45,000 for salaries for work done in May.
• June 5 – Patients receive $55,000 in services and pay for them on the same day.
• June 29 – Patients pay $200,000 for services received in May.
• June 30 – Hospital pays $40,000 for salaries for work done in June.

Required:

1. a) Calculate this hospital’s profit or loss for each of the months of March, April, May and June on both a cash accounting and accrual accounting basis. Make sure you show your calculations. You need to do a separate profit and loss statement for each month.
2. b) What month was the most profitable for the hospital? Explain your answer.
3. c) Calculate the Hospital’s profit or loss for the four months ending June on both a cash accounting and accrual accounting basis? If you get the same answer for both methods explain why this is so. If you get a different answer for the cash and accrual methods explain why this happened.

Question 2 Items from the Better Health Hospital’s balance sheet and revenue and expense (income) statement for the 2007/08 financial year (ending 30 June) were accidentally listed in alphabetical order as follows:

Administrative expenses 8,797

Audit fees 92

Bank overdraft 532

Cash at bank 3,249

Debtors 2,961

Drugs expense 8,440

Food supplies 2,038

Fuel, light and power 1,246

Government grants 121,201

Income from Department of Human Services 1,598

Income from private practice 2,934

Interest income 286

Inventories 813

Laundry 2,631

Long-term borrowings 985

Long-term investments 3,100

Long-term lease liabilities 209

Medical supplies expense 13,965

Other creditors 9,729

Other expenses 1,551

Other revenue 4,521

Other staff expenses 3,398

Patient fees receivable 2,815

Patient fees 12,401

Patient transport 223

Property income 13,342

Property, plant and equipment 121,048

Repairs and maintenance 3,657

Research assets (long term) 1,707

Salaries and wages 91,991

Short-term Borrowings 197

Short-term Investments 35,435

Short-term lease liabilities 15,618

Staff entitlements 11,069*

Superannuation 5,825

Total equity 126,197

Trade creditors 6,592

* These are long term entitlements

*This is a non-current liability

Required:

Prepare an income statement for this organisation

Prepare a balance sheet. Make sure to distinguish between current and noncurrent assets and liabilities. All figures are in thousands of dollars.

Do you think that this hospital is in a good position to pay its short-term debts? Explain your answer.

Suppose that staff entitlements were a current liability rather than a noncurrent liability. How would that affect your answer to part (c)?

Did the hospital experience a net cash inflow or net cash outflow for this financial year?

Question 3

The Eastside Clinic estimates that in the year ahead its estimated patient volume will be 75,000. Estimated total costs are $7,080,962 – made up of $4,967,462 in fixed costs and $2,113,500 in variable costs. Expected revenue per patient is $100. a. What will the Clinic’s profit or loss be if it does treat 75,000?

1. What is the Clinic’s break even point – i.e. how many patients does it have to treat to break even?

1. The government pays for 25,000 of the Clinic’s patients. Under a new contract the government only wants to pay the Clinic an average of $60 per patient. If the Clinic refuses to sign this contract the government intends setting up its own Clinic. Assuming that total patient numbers remain at their current levels, what would be the impact on the Clinic’s profitability of accepting this proposal? What would be the impact on the Clinic’s profitability of rejecting this proposal?

1. What would be your advice to the Clinic in above scenario?

Question 4

Dr Tom is considering purchasing a GP centre in the rural area of Torrens Island.  Outline the importance of a business plan for Dr Tom and the type of accounting information he will require to assist in making his decision.

Note: Dr Tom needs to consider accounting information requirements for different stakeholders surrounding his GP centre. For example, lenders would need information regarding the GP centre’s ability to repay debt and service a loan.

Question 5

Explain why it is possible for a company to report a net profit after tax and have less cash in the bank at the end of the year than at the beginning of the year. Is it possible for the reverse to happen – i.e. report a net loss but have more cash in the bank at the end of the year than at the beginning of the year? Give two examples to illustrate your answer.