The following list of balances has been extracted from the records of Cowgale company as at 31 October 2011, the end of Cowgale's most recent financial year:

The following additional information is available:

1. Following an impairment review of receivables as at 31 October 2011 specific invoices totalling £320,000 are to be written off, but no allowance for doubtful debts is to be made on trade receivables as at 31 October 2011.

2. The balance on the corporation tax account represents an over provision for corporation tax for the financial year ended 31 October 2011. Corporation tax payable for the year ended 31 October 2011 has been estimated at £600,000.

3. The balance on the deferred tax account is to be adjusted for corporation tax of £135,000 payable on taxable temporary differences arising during the year ended 31 October 2011.

There were no reversing temporary differences during the year.

4. The balance on development expenditure as at 31 October 2011 comprises:

● £120,000 spent during the year on the initial training of staff for a proposed customer call centre in an overseas country with low labour costs. Following social unrest and increasing political instability in that country, Cowgale decided in September 2011 not to proceed any further with this project.

● £350,000 spent during the year to make the company’s packaging process cheaper, more efficient and more environmentally responsible. Cowgale expects to incur further development costs of £107,000 but is on target to introduce the new packaging process in January 2012. The new process will significantly cut costs, increase output and will recover all its development costs.

5. During the year ended 31 October 2011 Cowgale paid the final dividend of 3 pence per share for the year ended 31 October 2010 and an interim dividend of 3 pence per share for the year ended 31 October 2011. The directors of Cowgale will be proposing a final dividend of 4 pence per share at its annual general meeting which will be held in January 2012 and the shareholders are expected to approve the proposal.

6. The goodwill arose on 1 November 2010 when Cowgale purchased and absorbed another business as a going concern. The economic life of the goodwill was estimated as 20 years from 1 November 2010. The directors have been advised that the fair value of the goodwill was £350,000 as at 31 October 2011.

7. The proceeds on sale of non-current assets account records £440,000 cash received from the sale of tangible non-current assets during the year ended 31 October 2011. The £440,000 was also debited to bank account but no other entries in connection with the disposals have been made. The carrying values of the assets sold during the year were:

Land ………..…………………………………………………………………….. £100,000

Buildings … £290,000 (£360,000 gross revaluation and £70,000 accumulated depreciation)

Equipment ………….… £140,000 (£290,000 cost and £150,000 accumulated depreciation)

Cowgale uses the revaluation model for land and buildings and the revaluation reserve includes

£90,000 of revaluation surpluses relating to the land and buildings sold during the year.

Cowgale’s depreciation policies are:

Land …………………..…………... no depreciation

Buildings ……….… 5% straight-line, full-year basis

Equipment …. 30% reducing balance, full-year basis

Depreciation for the year ended 31 October 2011 is still to be charged on all assets in use at the end of the financial year.

8. Cowgale uses the fair value model for investment properties. The market value of the company’s investment properties was estimated at £1,400,000 as at 31 October 2011.

9. Cowgale used the share premium account to finance a bonus issue of 1 for 4 shares on 31 October 2011. This has not yet been recorded in the accounts. The bonus shares will qualify for all dividends paid after 31 October 2011.

10. The Other Receivables balance represents the excess of value added tax on inputs (purchases) over value added tax on outputs (sales) for the last quarter of the financial year.

11. Cowgale vacated some office property it was leasing on 1 August 2011 in order to rationalize its administration procedures. Under the lease agreement Cowgale was committed as at 31 October 2011 to making further payments totalling £108,000 on the lease until 31 July 2012. Cowgale is allowed to sublease the premises but this has proved difficult because of redevelopment plans for the area and a local recession. The only offer that Cowgale has received has been from a charity which wants to rent the offices for four months for a total of £22,000. Cowgale has decided to accept this offer. The lease is being accounted for as an operating lease.

Required:

(a) Prepare the Statement of Financial Position of Cowgale as at 31 October 2011.

(b) Prepare a calculation of retained earnings as at 31 October 2011 starting with the draft profit before tax of £3,820,000 for the year ended 31 October 2011 and using the additional information in notes 1 to 11 above?

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Note Draft profit before tax for the year ended 31 October 2011 3,820 Cash at bank and in hand 290 Bank loans repayable within I year Allowance for receivables, as at I November 2010 Corporation tax (credit balance) Debentures, repayable in October 2015 Debentures, repayable in October 2012 Deferred tax 170 40 110 500 300 240 Development expenditure Dividends paid Goodwill, at cost Inventory, as at 31 October 20II Land, at valuation Buildings, at valuation Equipment, at cost Accumulated depreciation, as at I November 2010 Buildings Equipment 4 470 5 240 480 520 800 2,200 1,410 400 780 Proceeds from sale of non-current assets Investment properties Ordinary shares of 25 pence Retained earnings, as at I November 2010 Share premium Other receivables Trade and Other Payables Revaluation reserve Trade and Other Receivables 440 1,330 1,000 240 640 280 680 240 8 10 1,580