Accounting Standard Analysis of Ramsay Health Care Report

This report provides an in-depth analysis of the accounting standards employed by Ramsay Health Care, a major healthcare provider. The report examines the application of key accounting concepts such as accrual, economic entity, conservatism, going concern, matching, and cost concepts within t...Read More

Running head: ACCOUNTING STANDARD ANALYSIS OF RAMSAY HEALTH CARE
ACCOUNTING STANDARD ANALYSIS OF RAMSAY HEALTH CARE
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1ACCOUNTING STANDARD ANALYSIS OF RAMSAY HEALTH CARE
Table of Contents
Introduction................................................................................................................................2
Accounting Concepts Used by Ramsay Health Care.................................................................2
Changes incorporated in the new accounting standard for lease...............................................5
Issue with Ramsay Health Care regarding change in lease accounting.....................................7
Conclusion..................................................................................................................................7
References..................................................................................................................................7

2ACCOUNTING STANDARD ANALYSIS OF RAMSAY HEALTH CARE
Introduction
This paper is based on the analysis of accounting standards and the accounting
concepts used by Ramsay Health Care in financial reporting. As it name suggests, it is a
health care firm founded by the Paul Ramsay in year of 1964 at Australia. It is an ASX listed
health firm of Australia and current operational in the various countries together with France,
Malaysia, United Kingdom and Indonesia. Ramsay Health Care provides various health care
services to their patients while they are specialized in surgeries, psychiatric treatment and
rehabilitations. Ramsay Health Care is largest health care facility supplier of Australia having
more than 100 centres for providing health services across Australia. Not only that Ramsay
Health Care also have an extensive network of private hospitals in United Kingdom with
more than 20 hospitals. Further, this hospital network of the firm in United Kingdom also
includes numbers of neurological centres and treatment units. The objective of the report is to
analyse the annual report of entity for the year 2018 to identify the accounting concept used
by the firm in their financial reporting. Further, this report analyse the disclosures of the
entities in respect to the accounting for lease. The report analysis the differences between the
AASB 16 accounting for leases and previous accounting standard for lease including their
effects in financial disclosures of Ramsay Health Care.
Accounting Concepts Used by Ramsay Health Care
By analysing Ramsay Health Care’s annual report for the year 2018, it can be
identified which Ramsay Health Care uses the following accounting standards in their
financial reporting: -
 Accrual Concept: - Ramsay Health Care used the accrual concept of accounting in
their financial reporting. According to this accounting concept firm recognizes
revenue when it is earned by the firm while the expenses recognized when firm uses

3ACCOUNTING STANDARD ANALYSIS OF RAMSAY HEALTH CARE
its assets. As per this accounting concept, revenue or expenses reported by the firm in
terms of money in its annual financial report may vary from the actual cash received
or paid by the firm to its creditors or debtors (Schroeder, Clark and Cathey 2019).
Ramsay Health Care uses this concept in their financial reporting as they only
consider those income as well as expenses for the reporting year those are actual
received or paid during the accounting period (Ramsayhealth 2019). Other income
and expenses which are not actually paid in the current accounting period is treated as
the assets and liability in the balance sheet of the firm respectively.
 Economic Entity Concept: - This concept states the transactions of business needs to
be kept separate from the owner of the business as according to this accounting
concept the firm and the its owner both are separate legal entities. This accounting
concept also separates liability and accountability of the owner from its firm. This
accounting standard used by the firm in their reporting as the firm reported the equity
capital in the liability side of the balance sheet (Moore 2017). This means that firm
treats its owner’s investment as its liability. This standards also requires that firms
need to report all the transaction in the annual report even the transaction between the
owner and firm.
 Conservatism Concept: - This concept is develop to increase more conservative
financial statement. As per this accounting concept, firms only recognised those profit
or revenue which have some surety that it will realize. Same like revenue, firm only
recognize those expenses which have any possibility to be incurred in the near future.
The Ramsay Health Care uses this accounting concept in the financial reporting to
report accrued income or outstanding expenses (Kaczmarek 2019). This income and
expenses of the firm are reported in the balance sheet of the firm and not in the profit
statement of the firm.

4ACCOUNTING STANDARD ANALYSIS OF RAMSAY HEALTH CARE
 Going Concern Concept: - As per this accounting concept, every firm needs to
report their financial performance in their annual financial report by assuming that the
firm will remain operational for the unlimited time period in the future. This is one of
the common and important accounting concept for reporting the financial
performance of the firm. By using this concept the firm report the various expenses in
the balance sheet of the firm which are incurred in the current year but their benefits
will be received by the firm in the future (Ramsayhealth 2019). Ramsay Health Care
also uses this concept in their financial reporting specially this concept is applicable in
the treatment of depreciation of assets.
 Matching Concept: - As per this accounting concept, firm need to report expenses
related to revenue in the same year in which the revenue is reported. This accounting
concept is developed to ensure that there must not be any deferral of expenses after
the reporting period and the reader of the firm can get the assured view of the
financial performance of the firm and all the transaction of the firm are recorded at the
same time (Eickemeyer and Love 2016). This is an important accounting concept as
this provides the clear view of financial performance of entity. This accounting
concept is also used by the firm in their financial reporting.
 Accounting Cost Concept: - This concept ensures that the firm needs to present all
their transactions in terms of money in their financial report. So that the readers of the
financial report will understand the importance and the weighted of the each
transaction performed by the firm during the year (Jin, Shan and Taylor 2015). By
using this Ramsay Health Care reported every financial transaction in the report in
terms of the Australian Dollar.
The above discoursed accounting concepts are mainly used by the Ramsay Health Care to
prepare their financial report for the year 2019. All above mentioned accounting concepts are

5ACCOUNTING STANDARD ANALYSIS OF RAMSAY HEALTH CARE
the most common and required accounting concepts which are mainly adopted by the firms to
report their financial performance in the annual report (Ramsayhealth 2019). All the
mentioned concepts are the basic accounting concepts which helps the firm to report their
financial performance in an acceptable manner.
Changes incorporated in the new accounting standard for lease
The Australian Accounting Standard Board recently changes their accounting
standards for the financial lease after receiving lots of complains for the American Stock
Exchange, investors and other stakeholders. The previous accounting standards related with
the financial lease named AASB 117 fails to provide the clear picture to the readers of the
financial report about the lease treatment of the firm (Comiran and Graham 2016). Apart
from that the previous accounting standard for lease also have several issues related with the
operating and financial leases as well as the liability related with this lease. Finally,
Australian Accounting Standard Board looks into the issues arises by the several related
institutes and group of people and according replace the existing accounting standard for
lease with the new accounting standards for lease named AASB 16. The new standard of
lease solve the all the issues related with the previous accounting standards (Anders 2018).
This is developed to meet the requirements of reporting the lease related information of the
International Accounting Standards. This new accounting standard for leases mainly changes
the requirements of the lessee while accounting for lease in the books of lessor remains
unchanged.
If we talk about changes made in new accounting standard for leases by the AASB,
then most important changes made by board in this accounting standard is that the previous
accounting standard for lease used to classify the leases in the two types of leases those are
financial lease and operating lease. The financial lease is such kind of lease in which the
lessor permits lessee to usage the asset in lieu of the periodic payments for the long term

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period (Brumm and Liu 2019). While, the operating lease is the lease in which the lessor
permits lessee to usage the asset in term of making the periodic payment to the lessor for a
very short period of time. The old accounting standard for lease presents the different method
of reporting type of lease which is not easily understand by the reader of the financial report
(Wong, Wong and Jeter 2016). Hence, Australian board of accounting standards changes this
in the new accounting standard for lease that is AASB 16. The new accounting standard for
leases treats all lease as the financial lease in the books of lessee.
Secondly, the reporting of the financial lease has been changed in the new accounting
for lease. Now, as per the conditions of the AASB 16, firm requires to identify their financial
obligation associated with the financial lease to report to make and report the payment related
to the lease that is the future lease payments (Joubert, Garvie and Parle 2017). Here, the
future lease payment includes all the payments related to the asset taken in lease including
payment to lessor which needs to pay by the lease over the time period.
The third and one of the major changes made by Australian accounting standard board
in the new accounting standard for lease is related to the procedure regarding calculation of
residual value of grantees. The residual value is the value which is estimated to be received
by selling the asset at the end of its expected life. In context of lease the residual value is
those value which projected as the value of asset at the end of the period of lease (Giner,
Merello and Pardo 2019). The new accounting standard for lease changes the procedure of
calculating the residual value of the assets and make it more efficient and affective. The new
procedure of calculating residual value mainly developed so that the reader of the financial
report can easily understand the calculation related with it.
The last and an important change made by the new accounting standard for lease is
that the new accounting standard for lease AASB 16 does not allows companies to use the

7ACCOUNTING STANDARD ANALYSIS OF RAMSAY HEALTH CARE
leveraged lease model in respect of their leases. The leveraged lease model is an agreement
which provides tax advantage to the lessor. In this model, lessor used to borrow money to buy
the asset and then lease this asset to the lessee (Wong and Joshi 2015). In this the ownership
of the assets remains with the lender while the lease payment received by the lessor. This is
also a controversial method of lease agreement in which lessor enjoys tax benefits, hence this
is no more permitted by the new standard for reporting the lease.
There are no major changes reported in the new accounting standard for lease for the
lessors. This new accounting standard only enhance the quality of reporting lease information
in the financial report of the lessor.
Issue with Ramsay Health Care regarding change in lease accounting
The new accounting standard for the lease will affect the financial reporting procedure
of the firm as well as firm will face several issue while adopting this change in their financial
reporting process. The major issues with the new accounting standard of lease is that the firm
needs to recalculated the value of all the assets taken into the lease along with that firm also
needs to report the right – to –use of the assets to report expenses related to that in the books
of account (Ramsayhealth 2019). Not only that, as per the requirement of the new accounting
standard all the assets will need to be treated as the financial lease which is also an issue for
the firm.
Key disclosure of Ramsay Health Care regarding accounting for lease
The Ramsay Health Care disclosures about the new accounting standards for lease in
the annual report of for the year 2018. Firm stated the 1 January 2019 as the application date
while the beginning of the financial year 1st July 2019 as the application date for the group.
The firm states that the AASB 16 requires that all the lease should be accounted under a
single on – balance sheet model as the financial leases are reported under the AASB 117. The

8ACCOUNTING STANDARD ANALYSIS OF RAMSAY HEALTH CARE
new standard of lease have two exemptions those are lease of low value asset while the
second one is lease of short term period (Ramsayhealth 2019). The lease need to recognise as
the liability to make the payments including the asset have the right to use during the terms of
lease. Further, as per the new accounting standard the lease needs to separately recognise the
lease liability while the depreciation needs to be recognised on the right – of – use assets.
Further, lessee usually identify the quantity of measurement of the lease liability as a change
in respect of the right – of –use asset.
While, the lease accounting for the lessor is remains unaffected in the new accounting
standard for lease and they will remain to categorise all leases using the same principle of
classifying the lease that suggest financial lease and operating lease.
Transitional provisions of Ramsay Health Care
As per the disclosures made by the Ramsay Health Care in their annual report for
2018, the followings are the transitional provisions of the firm for adopting AASB 16 from
AASB 117: -
 “The firm have the planning for measuring all the related asset on case by case basis
at either (a) the value of the financial liability or (b) the depreciation value of non –
financial assets by keeping in mind that the AASB 16 which is the new accounting
standard for the lease must be applied.” (Ramsayhealth 2019).
 Secondly, “the firm has a planning for replacing the operating lease costs by the front
loaded net interest expenses as well as depreciated calculated using the straight line
method in the income statement” of the firm in relation to the lease disclosure of the
firm (Ramsayhealth 2019).

9ACCOUNTING STANDARD ANALYSIS OF RAMSAY HEALTH CARE
Effect of the transition
As the new standard is not yet adopted by the firm in their financial report hence
effect of the transition cannot be analysed properly. Though according to the annual report of
the firm, firm expected that this transition significantly impact the figures of annual report of
the entity in the near future as the volume of the operating lease of the firm has maturity
profile (Ramsayhealth 2019). Further, the disclosure of the firm related with the operating
lease will also get affected by this transition.
Conclusion
This report concludes that the firm uses all the basic and major accounting concepts
while preparing the financial report. Those are accrual concept, economic entity concept,
going concern concept, convictism concept, matching concept including the accounting cost
concept. There are many changes made in new accounting standard for lease compare to the
present accounting standard for lease. The major one is that the new accounting standard
treats all the leases of the firm as the financial lease while the previous standards allows the
firm to categorise the lease as either operating lease or financial lease. The firm main
disclosure the provision of the firm concerning the transition of firm from the AASB 117 to
AASB 16 and expectation of the firm concerning the influence of this changeover. Firm also
disclose the adaptation date of the new standard which in from the beginning of the year from
1st of July 2019.

10ACCOUNTING STANDARD ANALYSIS OF RAMSAY HEALTH CARE
References
Anders, S.B., 2018. Lease Accounting Standards Resources. The CPA Journal, 88(2), pp.74-
75.
ASB, A.A.S.B., Zone, A.S.E. and Network, B.G.B., 2018. Redefining Corporate Social
Responsibility. Agenda, 52, p.54.
Brumm, L. and Liu, J., 2019. New leasing accounting standard. Taxation in Australia, 53(8),
p.449.
Comiran, F. and Graham, C.M., 2016. Comment letter activity: A response to proposed
changes in lease accounting. Research in Accounting Regulation, 28(2), pp.109-117.
Eickemeyer, J. and Love, V., 2016. The concerns with going concern. The CPA
Journal, 86(1), p.6.
Giner, B., Merello, P. and Pardo, F., 2019. Assessing the impact of operating lease
capitalization with dynamic Monte Carlo simulation. Journal of Business Research, 101,
pp.836-845.
Jin, K., Shan, Y. and Taylor, S., 2015. Matching between revenues and expenses and the
adoption of International Financial Reporting Standards. Pacific-Basin Finance Journal, 35,
pp.90-107.
Joubert, M., Garvie, L. and Parle, G., 2017. Implications of the New Accounting Standard for
Leases AASB 16 (IFRS 16) with the Inclusion of Operating Leases in the Balance Sheet. The
Journal of New Business Ideas & Trends, 15(2), pp.1-11.
Kaczmarek, J., 2019. The Mechanisms of Creating Value vs. Financial Security of Going
Concern—Sustainable Management. Sustainability, 11(8), p.2278.

11ACCOUNTING STANDARD ANALYSIS OF RAMSAY HEALTH CARE
Kieso, D.E., Weygandt, J.J. and Warfield, T.D., 2019. Intermediate accounting. John Wiley
& Sons.
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http://www.ramsayhealth.com/common/emag/rhc/annualreport2018/RHC-AR2018.pdf
[Accessed 24 Sep. 2019].
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leases. Accounting Horizons, 30(2), pp.239-254.
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key ratios: Evidence from Australia. Australasian Accounting, Business and Finance
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