# Prepare a cash flow statement showing operating, investing and financing cash flows

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.

Required:

a) Calculate this Hospital's profit or loss for each of the months of March, April and May 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.

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.

Question 2-

Items from the Prince Harry Hospital's balance sheet, revenue and expense (income) statement and cash flow statement for the 2014/15 and 2013/14 financial years (ending 30 June) were accidentally listed in alphabetical order as follows:

 2015 2014 Accounting   fees 13,400 970 Audit Fees 9,405 9,495 Bad & Doubtful Debts 0 407 Capital Purpose Income 271,521 339,864 Car   park revenue 42,507 99,723 Cash   and Cash Equivalents 4,536,985 3,127,657 Depreciation and Amortisation 730,304 709,452 Domestic   Service expenses 167,802 146,659 Drug expenses 19,111 72,768 Food   expenses 239,035 237,695 Fuel,   Light, Power and Water 146,913 123,338 Government Grants 3,423,015 3,422,197 Insurance costs 3,689 63,889 Interest and dividends   received 92,012 63,385 Inventories   of drugs 40,139 34,333 Lease Expenses 80,109 78,321 Long term loans 240,877 174,900 Long term receivables 87,767 36,478 Maintenance Contracts 34,639 43,560 Medical expenses 80,982 77,529 Motor   Vehicle Expenses 41,905 47,613 Motor vehicles 2,000 2,000 Non Salary Labour Costs 36,561 17,644 Other   Administrative Expenses 920,244 903,036 Other Current Assets 20,428 108,328 Other current liabilities 3,869,052 2,753,096 Other revenue 821,057 683,808 Patient   Fees revenue 2,740,239 2,510,626 Patient Transport expenses 810 4,531 Private practice fee revenue 286,996 306,927 Property,   Plant & Equipment 8,293,627 8,959,514 Repairs & Maintenance 71,237 48,672 Salary and wages 5,060,578 4,887,643 Short   term receivables 1,180,862 1,310,776 Short term staff benefits 1,099,853 909,310 Short-term payables 326,708 698,129 State government grants 64,048 74,586 Superannuation 399,074 399,131 Total   equity 8,625,318 9,043,651 Workcover insurance 103,930 84,714 Cash flow information 2015 2014 Capital   Grants from Government 33,429 108,029 Cash   at beginning of period 1,243,626 1,125,445 Cash   at end of period 1,537,993 1,243,626 Donations   and Bequests Received 33,128 38,724 Employee   Expenses Paid 5,186,520 5,130,345 GST   Received from ATO 8,020 172 Interest   Received 88,727 71,150 Non   Salary Labour Costs 36,561 17,644 Operating   Grants from Government 3,487,063 3,506,782 Other   Capital Receipts 0 33,296 Other   Receipts 692,338 810,792 Patient   and Resident Fees Received 2,930,781 2,257,929 Payments   for Non-Financial Assets 63,571 264,621 Payments   for Supplies & Consumables 1,692,467 1,328,683 Proceeds   from sale of Non-Financial Assets 0 32,600

*The cash balances at the beginning and end of the period do not correspond to the figures in the balance sheet as this hospital also holds cash in trust for other organisations and/or individuals.

Required:

a. Prepare balance sheets for these two financial years. Arrange these statements like the balance sheets for the Barwon Health that are in the course materials – ie the statements for the two years should be side by side. Make sure to distinguish between current and non-current assets and liabilities.

b. Prepare income (profit and loss) statements for these two years for this hospital.

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 cash flow statement showing operating, investing and financing cash flows for these two financial years.

e. One of the hospital's surplus buildings has a book value of \$3 million and it has been offered \$5 million for this property. Do you think that the hospital should accept this offer? Explain what factors the management should consider before accepting this offer.