o assess your understanding of the key financial
concepts, your ability to apply this understanding to the interpretation of financial
statements and to the preparing and analysing of budgets. Specifically, you should
be able to:
• Identify the three main financial statements – i.e. the balance sheet, profit and
loss statement and cash flow statement.
• Have a working knowledge of the doctrines and conventions of accounting –
such as relevance, reliability, materiality and timeliness.
• Explain the difference between cash and accrual accounting.
• Calculate a break-even point.
• Construct and analyse balance sheet and cash flow statement
Question 1
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.
PHCM9441 (T1-21) Healthcare Economics & Financial Management
A3: Assignment 3 (45%)
2
Required:
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 eachmonth.
b) What month was the most profitable for the hospital? Explain your answer.
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.