On Time Ltd is a parcel delivery business. Detailed below is selected information for the financial year ending 30 June 2018.

Item

$

Interest paid for the year 4,000

Dividends paid to Shareholders 30,000

Profit on sale of truck 25,000

Cash at bank at July 1, 2017 1,000,000

Depreciation for the year 150,000

Payment for Motor vehicle purchased on 28^th April 2018 40,000

Loan repayments made 70,000

Tax expense / paid to the Tax Office 78,000

Salaries Paid 250,000

Cash received from the sale of a truck 90,000

Delivery Income - Cash Receipts for year ending 30 June 2018 650,000

Dividend received from investment 200,000

Cash for Shares in companies listed on the ASX (Australia Security Exchange) 50,000

Cash received from accounts receivable customers 300,000

Bad Debts expense 10,000

Other cash operating expenses 77,000

Credit purchases of fuel for the year ending 30 June 2018 480,000

Fuel Stock - petrol 1/7/2017 400,000

Fuel Stock - petrol 30/6/2018 150,000

Payments to suppliers for prior purchases on credit 200,000

Delivery Income- On Credit to account customers for the year ending 30 June 2018 150,000

Money borrowed from Net Bank 50,000

Purchase of property and land for cash 700,000

REQUIRED

(a) Income statement and cash flow statement for the year ending 30 June 2018 based on the information above. Fully state any assumptions you have made in preparing these financial reports.

(b)Upon completing the cash flow and income statement On Time management are confused in that the Income Statement is indicating they made a net loss (negative profit) over the same period whilst reporting a positive cash inflow from operations. With reference to the question and your work in answering (a) above explain to On Time management providing two possible reasons why this discrepancy could occur when comparing cash flow from operations (cash profit) with accrual accounting profit/ loss. For each cause identified high light the impact on profit versus cash flow to explain potential differences

(c)Given the above differences discuss which statement (Income Statement or Cash Flow from Operations) better reflects the financial performance / wealth creation for the period ending 30 June 2016. (answer with reference to accrual accounting)