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7 months ago
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)
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