Question 1(15 marks)
Items from the Prince Harry Hospital’s balance sheet, revenue and expense (income) statement and cashflow statement for the 2013/14 and 2014/15 financial years (ending 30 June) were accidentally listed in alphabetical order as follows (all figures are in $’000):
distinguish between current and non-current assets and liabilities. All figures are in thousands of dollars.
b.Prepare income (profit and loss) statements for these two years for this organisation with the two statements side by side.
c.Identify two significant changes that occurred during this period. Do you think that this hospital is in a good position to pay its short term debts? Explain your answer.
d.Prepare a cashflow statement showing operating, investing and financing cashflows for these two financial years with the two statements side by side.
e.Did the hospital experience net cash inflows or net cash outflows for these financial years? Did the hospital make a profit or loss during these years? Briefly explain why these figures are different.
QUESTION 2 (10 MARKS)
The Glenlee Medical Practice is a bulk-billing medical practice providing GP services to patients. The practice is considering abandoning bulk billing - where it is paid a fee fixed by the government - and becoming a totally fee-for-service practice. You have been asked to prepare some estimates to establish whether this is worthwhile.
There are three doctors in partnership running the practice. In the year to 31 December 2015 the three doctors between them conducted 24,000 consultations (assume all consultations are identical).
If the practice bulk bills it receives $37 per consultation from the government and this is expected to be fixed until 31 December 2016. If the practice continues to bulk bill it is expected that consultations will increase to 26,000 for the year to 31 December 2016.
Question 3 (5 marks)
You are considering setting up a solo GP practice. Your financial projections for the first year of operations are as follows:
Assume all costs are fixed except medical and office supplies that are variable and are the same for each of the 10,000 consultations. Also assume that the practice must pay tax of 30% on its profits.
a.Construct the practice’s expected profit and loss for the first year.
b.What number of consultations do you need to break-even?
c.What number of consultations would you need to give the practice an after-tax profit of $100,000?
Question 4 (5 marks)
In its first year of operations which ended on 30 June 2015, Eastern General Practice Ltd provided $145,000 in patient consultations, $43,000 of which had not been received from Medicare at year end. The remaining $102,000 was received before 30 June 2015 in cash from patients and Medicare. The practice incurred
operating expenses of $54,000 during the year. Of these expenses, $5,000 was depreciation of equipment, $39,500 had been paid in cash; $9,500 was still owing to numerous creditors at year-end. In addition, on 26 June 2015, Eastern General Practice Ltd paid $13,500 in cash in advance for rent on the surgery for the months of July, August and September 2015. On 30 June 2015, the practice bought new computers for $10,000 cash.
a.Calculate the first year’s profit under the cash basis of accounting. (1 marks)
b.Calculate the first year’s profit under the accrual basis of accounting. (1 marks)c.Which basis of accounting do you think is more useful for decision making? Explain your answer. (3 marks)
Question 5 (10 marks)
Choose appropriate account names and demonstrate how one transaction affects two ‘accounts’ in the accounting system. For example, if the owners of the business contributed $6,000 in cash to start the business it would increase Cash by $6,000 and increase owners’ equity by $6,000.
a.Borrowed $10,000 from the bank.
b.Received $2,000 income for patient services delivered last month.
c.Paid telephone account of $451.
d.Hospital sells vacant land for $15 million.
e.Purchased drugs on credit $68,000.
f.Provide services to patients for $250 and paid immediately.
g.Pay monthly salaries of $15,000
h.Bought office equipment for $8,000
i.Hospital receives government grant of $10 million.
j.Hospital chief executive buys flowers for wife for Valentine’s Day on his personal credit card.