STARMIRA is a UK based trading company, which is dealing with sports products The following is a summary of the Balance Sheet of STARMIRA as at 31 March 2015 f Ficed Assets at cost 200.000 Less Depreciation 70,000 130,000 Current Asset Inventory Accounts Receivable Bank 44.000 30,000 3.000 77,000 Current Liabilities Accounts Payable Accrued Expenses 11.000 4.000 15,000 Working Capital 62.000 192.000 Capital and Reserves 192.000 The company is in the process of preparing budgets for the information is available: three months ending 30 June 2015, and the following Budgeted Sales April 2015 May 2015 June 2015 July 2015 E 66,000 54,000 57.000 60,000 Sales provide 50% gross profit on cost. Half the sales are always paid for in full in the month in which sales are made. The remainder is always paid in full in the following month. No discount applies on sales. This policy has been in operation since January 2015 Purchases are always made to ensure that stock at the end of each month exactly covers the budgeted sales for the following month. Three quarters of purchases are paid for in the month received and a discount of 2% is received for prompt payment. The remainder is paid for in full in the following month. Expenses (excluding depreciation) are 12,000 per month. Two thirds are paid for in the month incurred and one third in the following month A fixed asset which originally cost 22,000 is to be sold on 1 April 2015 for 3 400 cash. This fixed asset had been depreciated by 18,000. A new fixed asset costing 24.000 is to be purchased on 1 May 2015, with 40% payable in May 2015 and the balance three months later Depreciation on all fixed assets is at the rate of 10% pa on cost (accruing evenly throughout the year) Task 1 For STARMIRA, prepare the Cash Flow Budget for each of the three months ending 30 April, 31 May and 30 June 2015 10 Marks Task 2 For STARMIRA, prepare the Budgeted Income Statement for three months ended 30 June 2015. 10 Marks Task 3 a. Explain why there is difference between net cash flow and net income. b. If STARMIRA had to pay for the fixed asset in full instead of in instalments, what effect would this have on the Cash Flow? What other methods could they use to ease the cash flow problem? 15 marks