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Q.1 What is financial reporting? Explain the need for financial reporting.

Ans.1 Financial ReportingThe knowledge about the financial position of an enterprise is extremely important for its varied stakeholdersThat is why they all need reports developed for divulge such knowledge. Financial reporting is the technicalprocess involving the development of the reports providing the knowledge of the financial health of thecompany.The elements of the financial reports include:

1. Asset:An asset is a resource controlled by the enterprise as a result of past events, and from which futureeconomic benefits are expected to flow to the enterprise.2. Liabi l i ty:A liability is a present obligation of the enterprise arising from the past events, the settlement ofwhich is expected to result in an outflow from the enterprise resources, i.e., assets.3. Equity:Equity is the residual interest in the assets of the enterprise after deducting all the liabilities. Equity

is also known as owner's equity.

Need for Financial ReportingHealth care is a joint effort of many people, including not only medical personnel, but also non-medical suppor

personnel, the most important being the individual. Efficient patient care requires adequate interaction among

many different sub-specialists and units both inside and outside the organization. This provides background fo

the existence of various stakeholders in a healthcare organisation. Figure 1.1 discusses about the specific thepoint of interest(s) of these stakeholders.

The stakeholders make use of financial reports for specific reasons. Some of them are discussed as below:Board of Directors:The board of directors needs to know the financial health of the company so as to chalkout the prospective strategy to fufill the objective of the organisation. Financial reports help them know abouthe past financial performance of the organization and let them find out if the strategies made in past haveworked as expected or not. They can then project the future growth of the organization and craft the plansrequired.Managers:Business managers have to make important business decisions affecting the continued operationsof their organization. By performing financial analysis on these statements they get a more detailedunderstanding of the figures.

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Stockholders:Financial reports are also used as a part of management's annual report to the stockholders sothat they can get assured to the financial strength of the organisation they have invested their money into.Employees:Financial reports may be needed by employees in order to make collective bargaining with the

management if and when required.

Prospective investors:They make use of financial statements to assess the viability of investing in abusiness.Financial inst i tut ion s:They use financial reports to decide whether to grant a company with fresh workingcapital or extend debt securities like long-term bank loan or debentures to finance expansion and othersignificant expenditures.Government enti t ies:Entities like tax authorities need financial statements to ascertain the propriety andaccuracy of taxes and other duties declared and paid by a company.Vendors:Vendors who extend credit to a business require financial statements to assess the creditworthiness

of the business. Apart from these media and the general publ icare also interested in financial statements fo

a variety of reasons.

Q.2 Define cost accounting? Explain various steps involved in the process of joint products costing.

Ans.2 Definition :Cost accounting is the classification, recording and appropriate allocation of expenditure for the determination

of the products or services, and for the suitable presentation of data for the purpose of control and

management. The cost accounting normally includes the cost of job or contract, batch, process and so on. It

normally illustrates the following compartments of the cost aspect of the organisation viz. production,

administration, selling and distribution.

Process costing : Process costing method is applicable where the output results from a continuous processand products are identical and cannot be segregated. The output of one process is used as an input of the

second process. For example, in a gynecological case the patient would have to first go radiology department.

Thus the sonography report which is the end product of the radiology department becomes the input for the

gynecology department.

The main elements of process costing include materials, direct labour, direct expenses and productionoverhead. The same is illustrated though are shown in Figure 4.1. Process accounting has two different sidesof accounts via Debit and Credit sides. Under the process accounts, all expenses are debited with reference tothe process. The value of by products and the scrap are credited under the process accounts only in order tobring down the cost of operations of every process of manufacturing.The next important aspect of process costing is nothing but accounting of process losses during theproduction. Why the process losses given greater importance? The major responsibility of the cost and worksdepartment is to determine the cost per unit for the fixation of right price to the customers. The problem arises

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only due to mismatch between the inputs fed and output obtained at last. The mismatch only led to variouskinds of losses during the process of manufacturing. Why the loss of materials normally occurs?There are many reasons during the process, which are as follows:

Due to chemical characteristics of the materials and outcomes: evaporation, ash, swarf and so on.

Due to lapses in the process of material handling: Breakage, spoilage, pilferage and so on.

Due to certain purposes: culling out the product in progress for quality dimension checking

checking the dimension of the product during process to the tune of the customers order.

Q.3 What are the different types of taxes? Explain the procedure of tax implication.

Ans.3 Types of Taxes: There are basically two types of taxes, Direct and Indirect taxes. Direct taxes arecollected by the government directly from the tax payer through levies such as income tax, wealth tax andinterest tax. Whereas indirect taxes are collected indirectly as a part of prices of goods and services on which

these are levied. In our country these comprise of excise duty, sales tax, customs duty and value added tax.While direct taxes form 30 percent of governments revenue indirect taxes contribute a large chunk of 70percent. Gift tax and estate duty were part of the direct tax revenue. As an ongoing process of simplificationand rationalization of the direct tax structure in India, the government repealed the Gift Tax Act in 1998 and theEstate Duty Act in the late eighties.

How Taxes are Imposed and Implemented?The measure of taxable profits varies from country to country. In some countries, for example the UnitedStates, the taxable profits are calculated according to a quite different set of rules from those used in thecalculation of profits in the financial statements. The amounts that can be deducted for capital expenditure andfor interest payments vary substantially from country to country.In many countries, depreciation of capital assets calculated in the financial statements ("book depreciation") isnot deductible, and a deduction is given for tax depreciation calculated on a different basis. In the UnitedStates, tax depreciation is generally calculated by a method known as MACRS. In the United Kingdom, wherethe main corporate tax is called corporation tax, tax depreciation, known as "capital allowances", is allowedinstead of book depreciation, usually at the rate of 25% per annum (20% from 1st April 2008) on a reducingbalance basis. In France depreciation is allowable, within certain rates per classes of asset set down bystatute.Tax implicat ions in India

India has a well-developed tax structure with clearly demarcated authority between Central and StateGovernments and local bodies. Central Government levies taxes on income (except tax on agricultural income,which the State Governments can levy), customs duties, central excise and service tax. Value Added Tax(VAT), (Sales tax in States where VAT is not yet in force), stamp duty, State Excise, land revenue and tax onprofessions are levied by the State Governments. Local bodies are empowered to levy tax on properties, octroand for utilities like water supply, drainage etc. In last 10-15 years, Indian taxation system has undergonetremendous reforms. The tax rates have been rationalized and tax laws have been simplified resulting in bettercompliance, ease of tax payment and better enforcement. The process of rationalization of tax administration isongoing in India. Since April 01, 2005, most of the State Governments in India have replaced sales tax withVAT.

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Q.4. Discuss the scope of financial management in hospitals.

Ans.4 Scope of Financial Management in HospitalsYou know that financial management is broadly concerned with the acquisition and use of funds by theorganisation. In other words, FM is planning, directing, monitoring, organizing, and controlling of the monetaryresources of an organization. FM scope may be defined in terms of the following questions:1. How large should the organisation be and how fast should it grow?2. What should be the composition of the oragnisations assets?3. What should be the mix of the organisations financing?4. How should the firm analyze, plan, and control its financial affairs?The answers of all of these questions are a must for financial management and can be used in hospitals for:Inventory Management:Inventory cost accounting methods are seldom used by medical practitioners. Afterall, doctors and healthcare organizations provide a service, and generally do not sell things. Howeverinventory is playing an increasingly important role in the financial viability of procedurally based medicapractitioners, clinics, and hospitals.Knowledge of financial management helps its staff to manage various cost-volumes of inventory being and tobe procured in/for the short term as well as the long term operations.Credit Management:Credit management involves collections and accounts receivables management agencythat is dedicated to accelerating cash flow. The knowledge of financial management provides the managers ofhospitals with optimum service through expertise, knowledge, technology and open communication.Cash Management:Efficient cash management processes are pre-requisites to execute payments, collectreceivables and manage liquidity. Managing the channels of collections, payments and accounting informationefficiently becomes imperative with growth in business transaction volumes. This includes enabling greaterconnectivity to internal corporate systems, expanding the scope of cash management services to includefull-cycle processes via ecommerce, or cash management services targeted at the needs of specificcustomer segments.Investments:Investment is the commitment of money or capital to purchase financial instruments or otherassets in order to gain profitable returns in form of interest, income, or appreciation of the value of theinstrument. Without the knowledge of finance you cannot work on investment management for the organizationmight be working for.Capital Budg eting Decisions:Capital budgeting is vital in marketing decisions. Decisions on investmentwhich take time to mature, have to be based on the returns which that investment will make. Unless the projec

is for social reasons only, if the investment is unprofitable in the long run, it is unwise to invest in it now.Often, it would be good to know what the present value of the future investment is, or how long it will take tomature (give returns). It could be much more profitable putting the planned investment money in the bank andearning interest, or investing in an alternative project.

Q.5 Discuss the role of economics and economists in healthcare industry.

Ans.5 Role of Economics in Healthcare Industry :Most health-care-related issues have an economic dimension to them. These issues include medical insurancecoverage, the overall demand for health care services, and prescription drug prices. But the most importantaspect is of proper allocation of resources, which is perhaps the cause of all problems in healthcare.We have already mentioned that economics deals with the problem of scarcity and unlimited wants. Givenscarcity, what is required is an efficient allocation or decision-making system to determine how much of whichkinds of health care is provided to different individuals. Here comes the role of economics.In a free market, healthcare resources allocation would be according to consumers purchasing behaviour. In acommand system, healthcare resources are allocated by proper planning. In such economies, resources can

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be allocated based on a predefined criterion such as need. The mixed system would combine parts of thefree market with elements of the command model.Role of Economists in Healthcare IndustryNobel Prize winning economist J.K. Arrow laid the foundation of health economics. His major contributions tothe field are health economics of social choice, social investment criteria, market failure in healthcarebehavioural aspects of healthcare under uncertainty and optimal insurance. The principles are important fromIndia's healthcare research and policymaking point of view. The growth in per capita income, increasingurbanisation, availability of modern biomedical technology, education and overall awareness indicate thatdemand for healthcare is bound to increase in the country.Role in healthcare research :It is becoming difficult to provide high-quality, affordable, health care services toeveryone alike. Because of the complexities of health care services and systems, investigating and interpretingthe use, costs, quality, accessibility, delivery, organization, financing, and outcomes of health care services iskey to informing government officials, insurers, providers, consumers, and others making decisions abouthealth-related issues. Healthcare economists examine the access to care, health care costs and processes,and the outcomes of health services for individuals and populations.Role in healthcare reform s:Healthcare economists are the main brains behind the healthcare reformsaround the world. Healthcare reforms form the basis for discussing major health policy creation or changes, forthe most part, governmental policy that affects health care delivery in a given place.Role in pol icy formulat ion:Present health policies in the form of public laws, such as those relating toenvironment protection, licensure of health-related practitioner and organizations, funding for AIDS research or

for women's health, and regulation of pharmaceuticals, exits because problem or issues emerged from agendasetting and triggered changes in policy in the form of changes in public law. The healthcare economists makeefforts to bring out policies to address these vital issues.

Q.6 Explain different methods of evaluation of healthcare services.

Ans.6 Assessment and Evaluation of Healthcare Services :There are many methods to evaluate healthcare services, but the essential and more important ones arediscussed in subsequent sub-sections.

1. Marginal analysisThis is the one of simplest method of micro-economic evaluation. In this method, there is no need to know thetotal exact costs or benefits of the various services or treatments. It involves a comparison of the marginalcosts and benefits of the alternative services, and it leaves much to the judgements of the decision-maker. Iprovides estimates of the implications of redeploying resources within, to, or from a programme wherealternative patterns of care are possible. If there is no budget restraint, then a programme should be expandedor contracted to the point where marginal benefit equals marginal cost; if there is a budget constraint, then all

programmes should operate at a level whereby the ratio of marginal benefit to marginal cost is the same for althe programmes.2. Cost-effectivenessIn clinical settings, there are too many recommendations based on declarations that x is cheaper than y(without considering relative benefits), or that x is more effective than y (without considering relative costs).Those dealing in accountants are prone to carry on the former fallacy, while those in healthcare industry, thelatter. The main aim of cost-effectiveness analysis is "how at least cost to meet a particular objective", and islabelled "X-efficiency" by economists. Another way of saying this is "given a fixed budget to meet a particularobjective, how best to deploy this budget". In order to answer these questions, one has to define:

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(a) The objective;(b) The possible options; and(c) The effects and relevant costs of each possible option.It is necessary to understand that the objectives should be embedded in as near to "final outputs" as ispossible. Besides, one can only cope with a programme in which there is a single output, because it cannodeal with different weights to be attached to multiple outputs. Furthermore, it is necessary to quantify, as far asknowledge will permit, the effects of the different options. The task of cost-effectiveness analysis involves onlya ranking of options in terms of their relative cost-effectiveness. It can be expressed either in terms of the totacost of each option, or cost per unit of output of the option, or the number of units of output obtainable for thisbudget for each of the option.3. Cost-benefits analysisWhile the cost-effectiveness looks at the most efficient way to treat, cost-benefits analysis asks the question "isthe treatment valuable". The aim of cost-benefit study is to judge "whether" the gain from pursuing a particularpolicy is more than offset the sacrifice involved. It also helps to answer the question "how to maximise thebenefit from available resources" which is labelled "allocative efficiency" by economists.

A cost-benefit study is converted into a cost-effectiveness study if:1. the alternatives really do generate the same benefits;2. one is not interested to find out whether anything at all should be done, since it is possible that, even for theleast costly alternative examined, the costs exceed the benefits.One should note that given the nature of healthcare, the outputs are often difficult to define, quantify and value

(e.g. improved quality of life) which economists cannot solve. Therefore, it requires expert opinions from themedical profession and the use of randomized controlled trials is thus valuable in providing an unbiasedanswer.4. Cost-utility analysisCost utility analysis is a type of economic evaluation that compares the degree to which quality of life is

improved per unit of money spent. A quality-of-life index is used to compare interventions, including quality-

adjusted life years. Costs are usually measured in terms of money and whereas, the outputs in health service

are non-monetary in nature, so it is often not useful to compare the two. Therefore for analysis purpose

economists use the concept of cost-utility analysis. Suppose in a treatment patient remains alive but confined

to bed, then those years of his life are marked down before making any comparisons with the result of othertreatments which make the patients to fully healthy. Quality of life year (QALY) therefore is important in

representing the value of a treatment on the health status. However, the determination of the weighing factors(i.e. how much a QALY is worth) is still rather subjective.