Rono, Wambulwa and Nora have been trading in partnership asYouandi Enterprises sharing profits and losses in the ratio of 2:2:1 respectively. They have presented the following profit and loss account of the firm for the year ended 31 December 2017:
Sh.000 Sh.000
Gross profit 24,800
Investment income (gross) 450
Miscellaneous income 315
25,565
Deduct:
Depreciation 110
Office expenses 1,568
Legal fees 360
Sundry 630
Trade expenses 380
Partners’ salaries, interest on 13,350 (16,398) Capital and drawings
Net profit 9,167
Additional information
1. Investment income comprises: sh.000
Interest on bank deposits 210
Dividend on shares in quoted companies 130
Interest charged on partners’ drawings: Rotich 50
Mambo 40
Nora 20
450
2.
Miscellaneous income comprises:
Sh.000
Gain on sale of furniture and fittings
195
Insurance recoveries for stolen stock
120
3.
Office expenses comprise:
315
Sh.000
Advertisements on billboards
250
Rent
800
General expenses (allowable)
518
1,568
4. Legal fees include sh.150,000 incurred on a successful defense of a partner in a private legal
suit.
5.
Sundry expenses comprise:
Sh.000
Donations to watoto orphanage
420
Debt recovery charges
90
Vehicle maintenance costs
120
6.
Trade expenses comprise:
630
Subscriptions to a trade association
Sh.000
150
Value Added Tax (VAT) paid
170
Repairs to building
60
380
7. Partners’ salaries, interest on capital and drawings are analysed below: Rono Wambulwa Nora Total Sh.000 Sh.000 Sh.000 Sh.000
Salaries 4,000 4,500 3,700 12,200
Interest on capital 200 300 330 830
Drawings 60 100 160 320
4,260 4,900 4,190 13,350
8. Capital allowances for the year ended 31 December 2017 were agreed with the tax authority at sh.480,000.
Required:
(a) Adjusted partnership profit or loss for the year ended 31 December 2017. (12 Marks) (b) Distribution of the adjusted profit or loss amongst the partners. (4 Marks)
(c) The tax liability for each of the partners for the year ended 31 December 2017 (4 Marks)