Ma Grocery Limited is a retail business and Mohammed, the finance director has produced the following trial balance.

he trial balance produced does not balance and he has asked for your help.

MA GROCERY

Trial Balance as at 31 January 2020

Dr Cr

'000 '000

Accumulated depreciation - Office equipment at 1 February 2019 1,296

Accumulated depreciation - Factory buildings at 1 February 2019 2,416

Accumulated depreciation - Vans at 1 February 2019 200

Allowance for receivables at 1 February 2019 96

Carriage inwards 128

Carriage outwards 224

Directors remuneration 2,400

Discounts allowed 208

Discounts received 100

Dividends paid 96

Insurance 1,640

Inventory at 1 February 2019 2,220

Irrecoverable and impaired debts 236

Land and factory buildings - Cost 15,400

Light and heat 2,440

Loan from bank at 4% 12,000

Loan interest paid 360

Office equipment - Cost 2,560

Office expenses 80

Overdraft 800

Payables 2,808

Purchases 30,372

Receivables 8,092

Retained earnings at 1 February 2019 8,484

Returns inwards 144

Returns outwards 224

Sales 39,484

Share capital (shares have nominal value of 20p) 96

Share premium account 48

Vans - Cost 1,000

Wages 2,492

------- -------

70,188 67,596

======= =======

Additional information:

1. MA sold some equipment on 31 July 2019 for 120,000. The finance director has debited the bank account with the 120,000 but has done nothing else. The equipment cost 336,000 on 1 November 2015.
2. The land and buildings figure in the trial balance includes 6,600,000 for the land.
3. The depreciation policy for Wright Ltd is as follows:

Factory buildings - straight line basis over 60 years.

Office equipment - 15% per annum on a reducing balance basis.

Vans - straight line basis over 4 years.

A full year of depreciation is charged in the year of acquisition and none in the year of disposal.

The vans are used to deliver goods to customers. The factory buildings depreciation is charged to cost of sales and office equipment to administrative expenses.

1. A debt of 240,000 is to be written off and an allowance made for a further debt of 120,000. The debt of 96,000 for which allowance was made in the previous financial statements has now been paid in full.
2. MA employ 45 staff, of which 25 work in the factory, 10 are delivery drivers and 10 work in administration.
3. An accrual for light and heat for the months of December 2019 and January 2020 is needed.
4. A payment for delivery costs to customers for 64,000 has been debited to the carriage inwards account and credited to the cash at bank account.
5. A cash receipt from a customer of 960,000 has been debited to receivables and debited to the cash at bank account.
6. A 25 year bank loan was taken out on 1 February 2014.

The loan capital is being repaid in equal instalments starting on 31 January 2015 and on 31 January each year thereafter.

1. Insurance includes 480,000 for the year to 31 March 2020.
2. An invoice for goods purchased for resale totalling 48,000 has been debited to insurance and credited to payables.
3. Taxation for the year is estimated at 360,000.
4. A dividend for shareholders of 1 per share was proposed on 15 February 2020 but has not yet been paid.
5. On 31 January 2020 there was a fire in the warehouse and all of the inventory and the inventory records were destroyed.

In addition to the information above and in the trial balance you know that:

• all sales are made based on a gross profit mark-up of 40% on the direct cost of goods sold, and
• MA has an insurance policy which covers the sales value of any items of inventory that is lost.

Required:

1. Prepare the journal entries to correct the trial balance and deal with all of the year-end adjustments.

You should clearly state all relevant assumptions made, show all your workings and show the suspense account clearance.(60 marks)

1. Produce a statement of profit or loss for the year, a statement of changes in equity and a statement of financial position for MA as at 31 January 2020, in a form suitable for publication.(40 marks)