Reginaand Eva have been trading as partners sharing profits and losses in the ratio of their fixed capitals. The statement of financial position of the partnership as at 31^st March 2021 was as follows:

	Sh.	Sh.
Non- current assets
Motor vehicles		636,000
Fixtures and fittings		271,500
Office equipment		160,000
		1,067,500
Current assets
Inventories	290,700
Accounts receivable	441,000
Cash and cash equivalents	55,200
Prepaid insurance	24,000	810,900
Total assets		1,878,400
Capital and liabilities:
Capital accounts: Regina		750,000
Eva		500,000
Current accounts: Regina		319,350
Eva		21,600
Current liabilities
Trade payables	319,350
Other payables	21,600	340,950
Total capital and liabilities		1,878,400

The partners have been having some disagreements on the following issues:

1. The historical cost of the assets did not reflect the fair value of the assets.
2. Although the partners contributed different amounts as fixed capital, the partnership agreement did not provide for payment of interest on capital.
3. Eva devoted her entire time to the business of the partnership but the partnership agreement did not provide for any salaries for active partners.
4. Eva strongly believed that the present profits and losses sharing ratio was inequitable.

At a meeting called to resolve the issues, the partners agreed as follows:

1. The non - current assets as at 31^st March 2021 were to be revalued as follows:

	Sh.
Motor vehicles	600,000
Fixtures and fittings	262,500
Office equipment	225,000

1. Inventories convened to resolve as at 31^st March 2021 were to be written down to Sh. 275,000 and Sh. 16,000 was to be written off as bad debts. An allowance for doubtful debts of 5% was to be provided on the following remaining accounts receivable.
2. Interest on capital was to be allowed at 5% per annum for the years ended 31^st March 2020 and 31^st March 2021
3. Eva was to be paid a salary of Sh. 90,000 per annum for the years ended 31^st March 2020 and 31^st March 2021.
4. Profits and losses were to be shared equally with effect from 1^st April 2020.
5. Regina was to be compensated for her loss arising from the new profit sharing arrangement by allowing hergoodwill of Sh. 200,000. The goodwill would not be retained in the books of the partnership.
6. The net profits for the years ended 31^st March 2019, 2020 and 2021 were Sh. 425,000, Sh. 525,000 and Sh 412,500 respectively.

Required:

1. Adjusted income statement and appropriation account for the years ended 31^st March 2020 and 31^st March 2021. Hint: start with the combined net profits for the two years.

(5 Marks)

1. Partners current accounts for the year ended 31^st March 2021 (3 Marks)
2. Partners capital accounts as at 31^st March 2021 (2 Marks)

Statement of financial position as at 31^st March 2021