Glamis plc manufactures, distributes and retails glassware. The following matters relate to its financial statements for the year ended 31 July 1998:

(1) On 25 June 1998, one of the company’s factories sustained damage from a freak storm. The cost of repairs in July 1998 was £500 000 and this has been provided for in the financial statements. The company’s insurance does not cover this repair.

(2) The company disposed of a fixed asset for £1 million in June 1998. The asset cost £850 000 in August 1994 and had an expected life of five years. The asset was revalued to £900 000 in the financial statements on 1 August 1996; no change to its total useful economic life was recommended. The company does not charge depreciation in the year of disposal of an asset and has based the profit on disposal in the profit and loss account on the carrying value of the asset.

(3) The board of directors decided to close the company’s retailing division on the basis of a formal plan submitted by the sales director. The company had accepted a firm offer of £3 million for the retail premises by 31 July 1998. The net book value of the premises was £2 million. Half of the staff involved in the retailing division were made redundant by 31 July 1998 at a cost of £500 000; the remaining staff were redeployed and retrained at a cost of £200 000. All these transactions have been included in the financial statements.

(4) The directors decided to change the accounting treatment of development costs to immediate write-off against profit as costs are incurred. This change has not yet been reflected in the draft financial statements. The balance on the development costs account at 31 July 1998 was £250000 of which £200000 was incurred by 31 July 1997.

The company’s draft summarised profit and loss account shows:

Opening shareholders’ funds as on 1 August 1997 were £1.2 million, as previously reported.