Financial Statements and Financial Decision-Making - Assignment Example

Question 10 marks) (a) Property, plant & equipment owned by the organization These items are found as Non-current assets in Balance sheet. (b) Government grants received It is a source of revenue hence this item is found in profit and loss statement. Also it is found in cash from operating activities section of cash flow statement. (c) Provision for staff long service leave This is written as non-current liability in balance sheet. (d) Patient fees paid in cash Found in cash from operating activity section of cash flow statement. Also, if cash basis accounting is used then it is found in profit and loss statement as well under revenues. (e) Accounts payable in 18 months time These items are written as non-current liabilities in balance sheet. (f) Inventory of medical supplies held at the end of the financial year These are found as current assets in balance sheet. (g) Drugs bought on credit, not yet paid for and still to be unwrapped from their packaging These are written as current assets in balance sheet. (h) Repayment of loan Found in cash flow statement under cash flow from financing activities. (i) Payment received from private health insurance fund Found in balance sheet as current assets. Also found in cash flow statement under operating activities. (j) Retained earnings. Found in Owner’s equity in balance sheet. Question 2 (5 marks) Cash Basis Accounting Method Dec 10 Cash 7500 dr Revenue fees collected 7500 cr Dec 17 Drug 5000 dr Cash 5000 cr Dec 31 Staff salary 5000 dr Cash 5000 cr Jan 10 Cash 7500 dr Revenue fees collected 7500 cr Cash 20,000 dr Revenue fee collection 20,000 cr Profit and Loss recorded for December Revenue 7500 Less: COGS 0 Less: Staff Salary (5000) Drugs (5000) Profit (2500) Profit and Loss recorded for January Operation Fee 20,000 Operation Fee 7500 Profit 27,500 Accrual Accounting Method December: Dec 10 Cash 7500 dr A/c Receivable 7500 dr Patient fees collection 15000 cr Dec 17 Drugs 5000 dr Cash 5000 cr Dec 31 Staff Salary 5000 dr Cash 5000 cr Jan 10 Cash 7500 dr Accounts receivable 7500 cr Cash 20,000 dr Patient Fee Collection 20,000 cr COGS 2000 dr Inventory 2000 cr Profit and Loss recorded for December Revenue 15,000 Less: Staff Salary (5000) Profit 10,000 Profit and Loss recorded for January Revenue 20,000 Less: COGS (2000) Profit 18,000 Question 3 (20 marks) a) Balance Sheet New Hope Hospital Balance Sheet as at 30 June 2009 Non-Current Assets Deferred tax asset 48,133 Goodwill and intangible assets 854,461 Non-current receivables 31,345 Non-current financial assets 1,383 Property, plant and equipment 1,626,045 Total Non-Current Asset 2,561,367 Current Assets Cash 89,295 Inventories 63,885 Other current assets 53,989 Trade receivables 418,592 Total Current Asset 625761 Total Assets 3,187,128 Equity 909162 Non-current Liabilities Deferred tax liability 9,558 Long term lease liabilities 14,129 Long term Interest-bearing loans 1,420,532 Non-current provisions 207,451 Total Non Current Liabilities 1651670 Current Liabilities Current Provisions 114,008 Income tax payable in 6 months 17,650 Pension liability 6,646 Short term interest-bearing loans 12,437 Short-term lease liabilities 23,438 Trade and other payables 452,117 Total Current Liabilities 626296 Total Liabilities & equity 3,187,128 b) Profit and Loss Statement New Hope Hospital Income Statement for the year ended 30 June 2009 Revenue from patients                                             3,222,307 Revenue from government                                     1,555 Interest income                                                          5,742 Other income                                                             43 Total revenue: 3,229,647 Less: Expenses Depreciation (108,336) Employee costs (1,566,286) Transportation cost (215,626) Leasing costs (1,736) Medical consumables and supplies    (815,624) Occupancy costs (214,704) Finance costs (97,360) (3019672) Net Income 209975 c) Cash Flow Statement New Hope Hospital Statement of Cash Flows For the year ended 30 June 2009 Operating Activities: Payment to employees and supplier (2775275) Interest received 5742 Receipts from patient 3167565 Income tax paid (51266) Cash flow from Operating activities 346766 Investing Activities Purchase of property (267279) Proceeds from sale 10624 Cash flow from Investing Activities (256655) Cash from Operating and investing activities 90111 Financing Activities Repayment to shareholder (6159) Finance cost (99278) Dividends (66389) Proceed from borrowing 77790 Cash flow from financing activities (94036) Cash Flow from Operating, investing and financing activities (3925) Add: Cash at Beginning of the year 93220 Cash at end of the year 89296 a) No, the hospital is not in a good position because its cash flow shows that cash carried down is not enough to bear the expenses of an organization of this scale. The hospital is running short of current assets as its current ratio is almost one. Moreover, its quick ratio is 0.9 which is a favorable situation for the company as inventory constitutes a small portion of the liquid assets. Gearing ratios are high as well which means that other than operating activity payments, financial obligations would hamper hospital’s existence as well. Its ratios are shown below. b) The hospital experienced net cash outflow for this year which was primarily due to large financing payments which encompassed repayment to shareholders, dividends and financing costs. Hospital invested a considerable amount in the purchase of new equipment as well which is also a reason for cash outflows. Operating cash flow is relatively strong therefore; concerns about its cash flow are minimal. Question 4 (5 marks) Weighted Fee = 30%(100)+70%(80)=86 Weighted Contribution Margin=(86-65)=21 Break even = 10,000 Total no. of exams that the clinic must provide in order to break-even is 10,000. Question 5 (5 marks) The fixed cost that the Early-Development Child Centre has to pay is $36,000-$30,000=$6000 Fixed Cost = 6,000/week Normal children Selling Price = 10/day x 5 = 50/ week Variable Cost = 3/day x 5 = 15/ week Reading program children: Selling Price = 13 x 5 = 65/ week Variable Cost = 8/day x 5 = 40/ week 70%(50-15)+30%(65-40)= 32 Break even = 6000 / 32 = 188 Total no. of children who should come to the centre in order to break even is 188. B) The fixed cost that the Early-Development Child Centre has to pay is $36,000-$30,000=$6000 Fixed Cost = 6,000/week Normal children Selling Price = 10/day x 5 = 50/ week Variable Cost = 3/day x 5 = 15/ week Reading program children: Selling Price = 13 x 5 = 65/ week Variable Cost = 8/day x 5 = 40/ week 65%(50-15)+35%(65-40)= 31.5 Break even = 6000 / 31.5 = 191 Total no. of children who should come to the centre in order to break even is 191. Read More