- 20 Marks
FA – L1 – Q85 – Preparation of not-for-profit accounts
Question
The following balances have been obtained from the books of Afrika Hospital Sports Club:
| June 30, 20X8 | June 30, 20X9 | |
|---|---|---|
| Cash | 1,204,800 | 1,586,500 |
The following information is also available in respect of the year ended June 30, 20X9:
Payments during the year
| GH¢ | |
|---|---|
| Building | 753,000 |
| Sports Equipment | 442,800 |
| Investments | 436,000 |
There were also a series of general expenses paid.
Membership
The club had 600 members on June 30, 20X9. No new members were admitted during the year but 10 members left the club on January 1, 20X9. Subscription per member is GH¢ 500 per month.
Some members pay subscriptions in advance but others pay late sometimes. The amounts paid in advance and amounts in arrears at each year end were as follows:
| June 30, 20X8 | June 30, 20X9 | |
|---|---|---|
| Advance subscription | 86,000 | 92,000 |
| Subscriptions receivable | 326,000 | 357,000 |
Required:
(a) Calculate the total subscriptions due from the members for the year ending June 30 20X9.
Use a T account (subscriptions account) to calculate the cash received from members and then complete a receipts and payments account identifying the cash paid as general expenses as a balancing figure.
(b) Afrika Hospital is a public sector entity. Identify what you expect its principal aims to be, and explain the importance of financial reporting in this sector, with reference to groups that may use the hospital’s financial reports.
Answer
(a) Calculation of total subscriptions due for the year ending June 30, 20X9:
Note that the subscriptions for 20X9 can be calculated as follows:
600 members for the whole year
600 × 12 months × GH¢ 500 per month = 3,600,000
10 members for the first 6 months only
10 × 6 months × GH¢ 500 per month = 30,000
Total subscriptions due = 3,630,000
Subscription account
| GH¢ | GH¢ | ||
|---|---|---|---|
| Receivables – Balance b/d (subscriptions in arrears) | 326,000 | Payables – Balance b/d (subscriptions paid in advance) | 86,000 |
| Subscriptions for 20X9 | 3,630,000 | Cash received | 3,605,000 |
| Subscriptions paid in advance c/d | 92,000 | Subscriptions in arrears c/d | 357,000 |
| Total | 4,048,000 | Total | 4,048,000 |
Receipt & payment account for the year ended June 30, 20X9
| Receipts | GH¢ | Payments | GH¢ |
|---|---|---|---|
| Balance b/d | 1,204,800 | Addition to: | |
| Subscription received | 3,605,000 | Building | 753,000 |
| Sports equipment | 442,800 | ||
| Investments made | 436,000 | ||
| General expenses (Balancing figure) | 1,591,500 | ||
| Balance c/d | 1,586,500 | ||
| Total | 4,809,800 | Total | 4,809,800 |
(b) Afrika Hospital is a public sector entity and therefore its principal aim will not be to make a profit. Instead it is likely to have some financial and some non-financial objectives. These may include:
- To operate within its budget and control costs so as not to make a deficit;
- To achieve value for money through good procurement practice;
- To achieve high levels of patient satisfaction;
- To treat specific numbers of patients per month;
- To reduce waiting list time for procedures.
Although many of these objectives are non-financial, financial reporting is important for public sector entities such as Afrika Hospital, and a number of different parties are interested in these reports. The Ministry of Health provides a certain budget to entities such as the hospital and needs financial reports to monitor how effectively this budget has been used, whether it is sufficient or whether it is too much. Equally, hospital management need financial reports in order that they can control costs, fund special projects and so on. The general public fund the Health Service indirectly through taxes and are interested in understanding how well bodies such as the hospital are run and how effectively their taxes are being spent.
- Tags: Financial Reporting, Not-for-profit accounts, Objectives, Public Sector, Stakeholders
- Level: Level 1
- Uploader: Samuel Duah