HSHM521
Financial and Resource Management in Healthcare
Assignment 1
Due Date: 15 December 2017
40 marks
Important: You must show all calculations and explain how you got all your answers. For example, suppose a question asks what the profit will be in a particular month and you put “$50,000”. Even if this is correct you will receive no marks if you do not show how you got the answer.
There is generally no need for footnotes or references. If you quote or refer to sources this must be acknowledged. It is essential that the work is your own.
QUESTION 1 (8 Marks)
Several transactions are listed below. What impact do they have on assets, liabilities and owner’s equity – ie do they result in an increase or decrease in assets, liabilities and owner’s equity? You need to explain how you got your answer – to do this you need to specify what accounts would have been affected.
- Patient services are provided for cash
- Medical equipment is purchased on credit
- Payment is made for the equipment purchased on credit
- Money is received from patients for services provided last month
- Land is bought for $2 million – $1 million is paid from the hospital’s cash account and $1 million from borrowings from a bank.
- A telephone account is received and recorded: payment will be made later.
- Salaries are paid in cash
- Dividends are paid to shareholders.
QUESTION 2 (5 Marks)
The profit and loss statement for the year ended 30 June 2016 for the Randwick Private Hospital shows a loss of $10 million. But from the balance sheet you observe that cash on hand as at 30 June 2015 was $4.3 million and as at 30 June 2016 was $8.4 million. Give three possible reasons why the hospital could report a loss for the year while its cash balances increased.
QUESTION 3 (12 Marks)
Items from the Happy Valley Hospital’s balance sheet and revenue and expense (income) statement for the 2015/16 financial year (ending 30 June) were accidentally listed in alphabetical order as follows:
$’000
Administration expenses 12,165
Audit fees 167
Cash at bank 2,276
Cleaning 869
Drugs expense 9,866
Food expense 2,287
Fuel, light and power 1,090
Government grants 141,759
Infrastructure expenses 2,129
Interest income 477
Inventories at end of year 1,566
Long-term investments 100
Long-term lease liability 906
Medical and surgical expenses 17,585
Miscellaneous revenue 19,470
Non-current provisions 10,676*
Other creditors 14,235
Other expenses 13,889
Owner’s Equity 133,378
Patient fees receivable 2,079
Patient fees 12,570
Private practice revenue 4,865
Property, plant and equipment 131,707
Repairs and maintenance 3,253
Salaries and Wages 103,494
Short-term borrowings 15,948
Short-term investments 37,651
Short-term research assets 850
Superannuation 8,876
Trade Creditors 4,393
Trade debtors 3,307
*This is a non-current liability
- Prepare a balance sheet for this organisation for the 2015/16 financial year. Make sure to distinguish between current and non-current assets and liabilities.
- Prepare a profit and loss statement for the 2015/16 financial year.
- Do you think Happy Valley Hospital is in a sound financial position? Give evidence to support your answer.
QUESTION 4 (10 Marks)
Dr. Bill Jones runs his own solo general practice and decided to save some money and prepare the practice balance sheet and income statement himself – rather than pay an accountant.
The income statement as prepared by Dr. Jones is as follows:
Jones Medical Practice
Income statement as at 30 June 2016
Revenues
Accounts receivable 15,200
Patient fees paid in cash 32,500 47,700
Expenses
Dividends 4,000
Accounts payable 4,500
Office expenses 10,200
Salaries and wages 17,100 35,800
Net income 11,900
The balance sheet as prepared by Dr. Jones is as follows:
Jones Medical Practice
Balance sheet for the period ended 30 June 2016
Assets Liabilities and owners’ equity
Cash 17,400 Patient services
Practice Building 100,000 provided on credit 26,200
Less amount owing (30,000) Owners’ equity 30,000
Net income 9,900
Retained earnings 21,300
Total 87,400 Total 87,400
Dr. Jones is very pleased with himself as he saved considerable money on accounting fees. But he is less pleased when he is contacted by the Taxation Office telling him that although his balance sheet balances there are many mistakes and that he has not paid enough tax.
You can determine that most of the amounts reported in both the income statement and balance sheet are correct – although this does not mean they are properly classified. The only figure that is incorrect is the figure for “retained earnings”. Dr. Jones simply put this figure in to balance the balance sheet. The correct figure is $68,100.
Required:
- Prepare a corrected income statement for the year for the financial year.
- Prepare a corrected balance sheet for the financial year.
- Assuming a 30% tax rate – does Dr Jones owe the Tax Office money? How much?
- Write a brief memo to Dr. Jones explaining the differences between your figures and his figures. You also need to explain how much tax he should have paid.
Question 5 (5 Marks)
The Wagner Private Hospital anticipates that it will have 50,000 patient days next year. This is substantially below its capacity of 70,000 patient days per year. The hospital has variable costs of $150 per patient day and its fixed costs are $3 million per year.
- Calculate the average cost per patient day for Wagner at a volume of 50,000 patient days and at 60,000 patient days.
- Assume that a private health insurance fund offers to generate 10,000 extra patient days per year. It currently sends no patients to Wagner. It is willing to pay a maximum flat amount of $180 per patient day. Assuming that its casemix is similar to the current 50,000 patient days, should Wagner accept this business? Explain how you got your answer.