Question

Transactions Outside the Operating Budget"

:Metropolis Health System has received a wellness grant from the charitable arm of an area electronics company. The grant will run for twenty-four months, beginning at the first of the next fiscal year. Two therapists and two registered nurses will each be spending half of their time working on the wellness grant. All four individuals are full-time employees of MHS. The electronics company has only recently begun to operate the charitable organization that awarded the grant. While they have gained all the legal approvals necessary, they have not yet provided the manuals and instructions for grant transactions that MHS usually receives when grants are awarded. Consequently guidance about separate accounting is not yet forthcoming from the grantor.

Use below point

• Summarizes the situation (One paragraph
• Discuss in detail, how you would handle this issue on the MHS Operating Budget for next year. (Two paragraph
• Explain a minimum of ONE option that can be the solution to the problem (i.e., separate accounting versus consolidated accounting). (Two paragraph
• Discuss if there is leadership (guidance) or no leadership (guidance). (One paragraph
• Explain if the issue should be handled either as separate or consolidated. (One paragraph

Please Explain

Answer 1

the Operating budget which is being prepared the expected revenues from the grant shall form part of revenue of MHS. Further any additional expenses which would be incurred for the working of grant would be accounted for in the budget.

Accounting treatment-

In the given situation since MHS has not received any guideline with respect to separate accounting any of the two options i.e., consolidated accounting and separate accounting can be followed. Further in the given case since no separate legal entity is created when MHS receives the grant, there is not legal point requiring separate accounting to be done. Thus it is amply clear that any option can be chosen considering other parameters.

Analysis of Consolidated accounting Option:

If this option is chosen then all the expenses and revenues (like grant) shall go under a common pool and it would be difficult to allocate cost and expenses to different centers. The remuneration of the therapists and nurses who will be working on the wellness grant shall be charged from the common funds only. Further the wellness grant received would go under the overall revenue of MHS.

This option has the following advantages:

Cost Saving: Since no separate accounting is required, it saves the cost which would have been otherwise incurred on additional salary and fee given to the accounting executives.
Time Saving: Since no additional work is required to be done it saves time as well.
Less Efforts required
This option has the following disadvantages:

Since the grant has been given by a electronics company it might clain Corporate Social Responsibility benefits out of it. Thus it might demand separate accounts for the same. If this happens then it would not be possible to provide the same to that company.
Further there would be lack of clarity in the books of MHS and revenue might look excessive due to this grant for the next two years.
Analysis of Separate accounting Option:

In this option two separate set of books would be prepared one for the grant and second for other transactions. All the expenses incurred for the grant would be charged against it. For e.g., the remuneration of therapists and nurses working for grant shall be allocated equally in both the books since they are devoting equal time in both.

This option has the following advantages:

If the company giving grant demands separate accounts in future then in this case it would be possible to provide the same to that company.
There would be proper clarity in the books of MHS.
This option has the following disadvantages:

Increased cost
Time consuming