Balance Sheet, Profit, and Loss Statement in the Cash Flow - Assignment Example

 balance sheet as at 30th June 2011 ASSETS.       Current assets.       Cash 700     Inventory of drugs 2206     Receivables (less than 12 months) 8758     Short-term Financial Assets 33865     total current assets   45529   non current assets.       Property, Plant & Equipment 183874     less Depreciation &Amortisation 6926         176948   Receivables (more than 12 months)   8020   total assets   222477   liabilities and owners equity.       current liabilities.       Employee Benefits (less than 12 months) 25040     Payables (less than 12 months) 19708     Short-term Interest Bearing Liabilities 195     totalcurent liabilities. 44943     long term liabilities.       Employee Benefits (more than 12 months) 16623     Long-term Interest Bearing Liabilities 807     Lease payments 1563     total liabilities.   63936   Equity.       Initial Capital 119373     less net loss       net capital   119373   Asset Revaluation Reserve   20331   Retained earnings   35346   total equity   175050   total equity and liability.   238986           2. Profit and loss statement for the 2010/2011 financial year. income     car pack revenue 500   Donations & Bequests 8496   Government Grants 191708   Interest income 1735   Patient Fees 27769   Pharmacy revenue 1750   Private Practice Fees Donated 1131   Property Income 620   Other income 16890   total income 250599   less expenses.     Borrowing Costs 90   Depreciation &Amortisation expense 6926   Insurance 3450   Motor vehicle expenses 2000   Power and Water 1222   Repairs and maintenance 2102   Salaries 197742   Supplies & Consumables expense 51577   Lease payments 1563   Employee Benefits (less than 12 months) 25040   Payments for residential accommodation 5072   Other Expenses 33618   total expenses 330402   Net loss -79803         3. Current ratio= Current Assets/Current liabilities 45529/44943 =1.013. the current ratio indicates that the company have limited ability to pay its debts as liabilities are almost equal to assets. 4.Depreciation and amortization expense which was 6.926 does not mean that the amount was spent on property and equipment by the hospital during the year but it is an allowance for the tear and wear of the machine. The money was not put aside to pay for the new equipment. Depreciation is therefore recorded to indicate the decrease in value of the asset in relation to its useful life. 2.A company can report a net profit after tax and have less cash in the bank because the company cash could have been used to buy non income earning expenditures like capital expenditure which reduces the amount of cash. It could also result due to the fact that most goods were purchased through cash while less purchased on credit. To add on that the company can have less cash after reporting a net after tax as there might have more goods sold on credit and less sold on cash as cash is only recognized when goods sold on credit are paid. Lastly capital expenditure reduce cash while depreciation is only expensed for long period of time until the asset reaches its useful live. Example 1: A company can sell a product worthy $1000 which cost them $500 making a net profit $500. The company can therefore use $1000 in capital expenditure where by cash will reduce by $1000 making the company to have less cash in bank though it had made a net profit. On the other hand it is possible for the company to have excess cash in the bank and report a net loss after tax as both cash and non- cash expenses like depreciation and amortization expenses which reduce the gross income.to add on that cash can be incurred through the sale of an asset of which only gain after sale is recorded on the profit and loss account. Non- cash charges like bad debts, accrued charges, provisions and depreciation might be very large to extend that they turn net profit into a net loss though the company is performing effectively. Example 2. The company can sell goods worthy $5000 which cost $3000 in cash leading to increase in amount of cash in bank and making $2000 gross profit. If the company incurs non- cash expenses worthy $2500 the company will end up reporting $500 net loss. Therefore it will have a lot of cash in the bank though the company incurred a net loss. 3. March. Profit and loss account for the month of March on cash basis. amount Amount Salaries expense $50,000 income $60,000 depreciation expense $1,500 net profit $8,500 profit and loss account for the month of March on accrual basis. amount amount. Salaries expense $50,000 revenue $310,000 depreciation expense $1,500 phone bill $1,000 $257,500 April. Profit and loss account for the month of April on cash basis. Amount Amount. Salaries expense $55,000 Revenue $250,000 depreciation expense $1,500 net profit $195,000 profit and loss account for the month of April on accrual basis. Amount Amount. Salaries expense $55,000 Revenue $250,000 depreciation expense $1,500 net profit $193,500 May. Profit and loss account for the month of May on cash basis. amount Amount Salaries expense $45,000 Revenue $250,000 depreciation expense $1,500 phone Bill $1,000 Net profit $202,500 profit and loss account for the month of May on accrual basis. Amount Amount. Salaries expense $45,000 Revenue $200,000 depreciation expense $1,500 Electricity $2,000 net profit $151,500 June. Profit and loss account for the month of June on Cash basis. Amount Amount. Salaries expense $40,000 Revenue $255,000 depreciation expense $1,500 net profit $213,500 Profit and loss account for the month of June on accrual basis. Amount Amount. Salaries expense $40,000 Revenue $75,000 depreciation expense $1,500 net profit $33,500 b). The most profitable month is determined by the accounting basis used in determining the company’s financial performance. Using accrual method the month of March had the highest net profit while June had the lowest, making March to be the most profitable month. This is because large portion of revenue was recognized in that month. Using the cash accounting basic the month of June was most profitable this is due to the fact that large portion of accrued revenue was settled in June for the previous months. c) Profit and loss account for the 4 months on Cash basis. Amount Amount. Salaries expense $190,000 Revenue $815,000 depreciation expense $6,000 phone bill $1,000 electricity $2,000 Net Profit. $616,000 Profit and loss account for the 4 months on Accrual basis. Amount Amount. Salaries expense $190,000 Revenue $835,000 depreciation expense $6,000 phone bill $1,000 electricity $2,000 Net Profit. $636,000 There was difference in profit for the four months in accrual and cash accounting basis. The difference is $20,000 which was incurred in June and paid on 15th July therefore it was not recognized in Cash Basis but recognized in accrual basis leading to the difference in net profit. 4.a).   procedure A Procedure B case mix 70% 30% consultation fee $100 $120 variable cost $40 $20 Contribution $60 $100 Contribution on Margin ratio 0.6 0.833 Weighted average contribution margin per unit= 70%* $60+30%*$100 =$42+$30=$72 Break even units =FC/weighted contribution’s margin per unit =$20000/$72 278 units. A=70%*278=195units B=30%*278=83units Option B.   procedure A Procedure B case mix 30% 70% consultation fee $100 $120 variable cost $40 $20 Contribution $60 $100 Contribution on Margin ratio 0.6 0.833 Weighted average contribution margin per unit= 30%* $60+70%*$100 =$18+$70=$88 Break even units =FC/weighted contribution’s margin per unit $20,000/$88 228. A=30%*228=68 B=70%*228=160 b). Let x be number of days at break-even point where the company will be able to cover cost. Total cost=$30,000+$13000+$5000+$1600X =$48000+$1600X Total Revenue=$12*300*x = $3600x TC=TR $48000+$1600X=$3600X $48000=$2000x X=$48000 $2000 X=24 =24days. 5.) a).Major differences which are identified in the cash flow include: I. Total receipts increased from $279508 in 2009 to 303915 in 2010. II. Payments which were made in the year increased from 282255 in 2009 to 295004 in 2010 indicating increase in operating expenses. III. In 2009 there was a negative cash flow of 2747 from operating activities while in 2010 there was a positive cash flow of 8911 from operating activities hence an increase in net cash flow from operating activities. IV. Net cash flow from investment activities for the two years were negative though negative net cash flow from investment was higher in 2010 than in 2009 due to purchase of property and equipment in 2010. V. Net cash flow from financing activities was higher in 2010 than in 2009 as government increased its capital contribution in 2010. VI. There was a net decrease in cash in both years though in 2009 cash balance decreased with a higher margin than in 2010. VII. Net cash balances at the end of the two years period were lower than they were at the beginning of the financial year. b). There are no worrying signs for the overall cash flow for this health care organization in the figures as figures has changed due to the fact that the organization can operate at a loss and have a lot of cash in the bank where as an organization can operate at profit and have little cash at bank. Cash incurred in business is used in different activities for example capital expenditure reduces cash and has no impact to the net income from operating activities. Therefore negative figures in cash flow statement do notindicate business failure in its performance. Cash could also be used in making financing repayments which impacts the cash account leading to negative balances though business in operating effectively. Therefore the figures are not worrying signs for the overall cash flow of the given Australian health care organization. Read More

 

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