Western Hospital’s balance sheet, revenue and expense
Items from the Western Hospital’s balance sheet, revenue and expense (income) statement and cashflow statement for the
2015/16 and 201 £1/15 financial years (ending 30 June) were accidentally listed in alphabetical order as follows (all figures are in
Ambulance service expense 8,569 7,032
Annual leave expense £12,69£1 98
Australian Government – activity based funding 197,801 16£1,£117
Australian Government – block funding 12,523 10,888
Building maintenance 869 780
Car park expenses 15£1 8,729
Cash and cash equivalents £12,£136 51,610
Catering and domestic supplies 5,95£1 5,917
Clinical supplies and services £13,7£15 £10,5£15
Communication expenses 986 926
Computer services £19£1 338
Consultants and contractors16,£168 7,23£1
Current employee benefits payable 13,211 2£1
Current loan payable 2 £116
Current receivables 19,880 9,293
Current trade payables £12,£151 £18,9£1£1
Depreciation and amortisation 20,271 19,638
Donations received £126 0
Drugs expense27,573 26,£119
Electricity and other energy 3,337 3,583
Employee related expenses 3,7£19 0
Employer superannuation contributions 37,890107
Expenses relating to capital works 1 ,656 1,037
Grants and other revenue16,5£1£117,893
Health service employee expenses” 0 £135,8£16
Inventories of drugs £1,385 £1,221
Long service leave expense 7,709 19
Medical consumables expense1£1,35312,822
Miscellaneous expenses 8,79711,838
Miscellaneous revenue £1,667 7,769
Motor vehicle expenses 302 £108
Operating lease rentals £1,202 £1,066
Other current assets 5,980 £1,072
Patient travel expenses 2,201 2,13£1
Payroll tax 516
Property, plant and equipment 285,290 295,89£1
Rental income 23 2
Repairs and maintenance 7,576 6,836
Services purchased from private hospitals 100,188 51,23£1
Staff travel expenses701 705
State Government – activity based funding 3£16,282 306,130
State Government – block funding 33,92818,616
State Government – funding for depreciation 20,27019,633
State Government – other system manager funding 62,989 81,921
Total equity 302,307 315,706
User charges £17,£177 £1£1,567
Wages and salaries” 359,58£1 93£1
Water £13£1 369
Workers’ compensation £1,759 19
There was a change in employee classification which is why these figures are different in these two years.
Cash flows information
Car park expenses (15£1) (8,729)
Cash at beginning ofthe financial year 51,610 £18,023
Cash at the end ofthe financialyear £12,£136 51,610
Employee expenses (£1£13,678) (1,222)
Grants and other contributions16,51£117,893
GST collected from customers 373 830
GST input tax credits received17,37311,913
GST paid to suppliers (17,£120) (12,670)
GST remitted to government(£139) (850)
Health service employee expenses (8,£192) (£1£18,963)
Health service funding 639,927 585,250
Interest received 131 133
Net increase/(decrease) in cash and cash equivalents (9,17£1) 3,587
Other expenses (8,571) (8,£172)
Other revenue £1,536 7,638
Payments for property, plant and equipment (6,131) (5,091)
Proceeds from disposal of property 5 3
Proceeds from equity received 3,090 2,969
Supplies and services (255,096) (174952)
User charges £18,858 37,907
a. Prepare balance sheets for these two financial years. Arrange these statements like the balance sheets for the Barwon
Health 2011 financial statements that are in the course materials – i.e. put the two years side by side. Make sure to distinguish
between current and non-current assets and liabilities. All figures are in thousands of dollars. (3 marks)
b. Prepare income (profit and loss) statements for these two years for this organisation with the two statements side by side. (3
c. Identify two significant changes that occurred during this period (a part from the reclassification of staff). Do you think that
this hospital is in a good position to pay its short-term debts? Explain your answer. (3 marks)
d. Prepare a cashflow statement showing operating, investing and financing cashflows for these two financial years with the
two statements side by side. (3 marks)
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. (3 marks)
Question 2(10 marks)
The New Age Clinic has fixed costs of $250,000 per annum, its average fee per patient visit is $95, its variable costs per patient
visit are $80 and it has a maximum capacity of12,000 patient visits per year.
1. Based on these figures what profit or loss is the Clinic making per year if it is at its maximum capacity of12,000 patient visits?
What profit or loss would it make with 10,000 patient visits per year? (1 mark)
2. How much would the Clinic have to charge per patient visit to break even at its maximum capacity of 12,000 patient visits
assuming fixed costs and variable costs remain unchanged? (1 mark)
3. Studies have shown that ifthe Clinic raises its fee above $95 per patient visit, demand would be dramatically lower. Keeping
patient fees at $95, variable costs per patient at $80 and patient visits at12,000 per year, what is the most the Clinic could
spend on fixed costs to break even? (1 mark)
a. After further study, the Clinic determines that it can cut fixed costs to $200,000 per year, but no lower. Iffees are kept at $95
per visit, the volume of patients is 12,000 per year and fixed costs are $200,000 per year, how much can the Clinic spend on
variable costs per patient and still break even? (2 marks)
5. After many committee, meetings the Clinic’s managers decide to raise the fee per visit to $100, lower fixed costs to $200,000
and keep variable costs at $80 per visit. How many visits do they now need to break even? Is this achievable, and what profit
would be made ifthere are 12,000 patient visits? Write a brief report outlining whether you support this strategy or whether
there are other more attractive options. (5 marks)
Question 3 (5 marks)
Three doctors are considering setting up a general practice together and have asked your advice about the most appropriate
business structure for them to adopt. Outline the advantages and disadvantages ofthe main business structures available to
them. (3 marks) What business structure do you think is the most appropriate? (2 marks)
Question a (15 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. The
doctors are also concerned about the impact on profits of future increases in costs at the practice. You have been asked to
write a report on these issues and give some recommendations.
There are three doctors in partnership running the practice. In the year to 31 December 2016 the three doctors between them
conducted 261,000 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
2017. Ifthe practice continues to bulk bill, it is expected that consultations will increase to 26,800 for the year to 31 December
-The receptionist’s salary is $50,000. If the practice continues to bulk bill, the receptionist, or her replacement, will be required
to work six hours a week overtime e $15/hr for each week ofthe year and the practice is open every week ofthe year.
Overtime is treated as a variable expense.
-Ifthe practice does not bulk bill, it will charge $05 per consultation. Because ofthe higher consultation fee, it is expected that
consultations will fall to 21,000 for the 12 months to 30 December 2017.
-Direct materials are $2 per consultation.
-Telephone expense is $12,000 per year plus 10 cents per consultation.
-Other variable costs are $3 per consultation.
-Depreciation was $15,000 in 2016 and will be the same in 2017.
-Other fixed overheads are $12,000 per year.
-There is no need to take tax into consideration in this question.
-Electricity is $15,000 per year.
Rent is $1,000 per week.
a) What is the projected net profit under both alternatives – i.e. bulk-billing (at $37 per consultation) and non-bulk billing (i.e.
charging $615 per consultation) for the year to 31 December 2017? (2 marks)
b) What number of consultations would the practice need to conduct in order to make the same profit when charging $615 per
consultation as it did when bulk billing? Show proofthat your answer is correct. You will not be able to calculate the number of
consultations to achieve the exact bulk billing profit as you will need to ‘round up’ the number of consultations to the nearest
whole number. But you should get within $30 ofthe bulk billing profit. (2 marks)
c) Assuming that the practice decides to charge $05 per consultation, by how much does the Glenlee Medical Practice’s profit
go down ifvariable costs increase by 5096 and fixed costs remain the same? By how much does profit decrease iffixed costs
increase by 5096 and variable costs remain at their original level? What does this tell you about the relative importance offixed
and variable costs? (3 marks)
d) Write a report to the doctors giving your recommendations on whether they should abandon bulk billing and also comment
on their concerns about future increases in practice costs. (8 marks)