Small Medium and Big are in Partnership sharing profits and Losses in the ratio of 3:1:1, respectively. For the year ended 31 December 2022, they presented the following Income Statement for the year under review

	Sh.	Sh.
Sales		13,000,000
Cost of Sales
Opening stock	2,200,000
Purchases	6,000,000
Closing Stock	(800,000)	5,400,000
Gross Profit		7,600,000
Other Operating Income		400,000
		8,000,000
Expenses
Salaries and Wages	2,500,000
Rent	40,000
Advertisement	120,000
Transport	60,000
Depreciation	75,000
Interest on Partners Capital	450,000
Commission paid to Partners	90,000
Printing and Stationary	144,000
Repairs and Maintenance	380,000
Postage and Telephone	17,000
Legal fees	23,000
Insurance	110,000
Gifts	4,000	(4,013,000)
Net Profit		3,987,000

Additional Information:

1. Opening stock and closing stock have each been understated by 20%

2. Other operating income includes shs.50,000related to gain on sale of furniture.

3. Salaries and wages include salaries to Small, Medium and Big of Shs.300,000, Shs.250,000 and 50,000 respectively for the year ended 31 December 2022.

4. Transport costs include shs.18,000 paid to Big on account of a private trip

5. Interest on partners’ capitals and commissions paid to partners are to be apportioned equally to the partners.

6. The gifts were given to the staff of the firm during the end of year party

7. Capital allowances due to the firm for the year ended 31 December 2022 were agreed at shs.120,000.

Required:

(i) The partnership’s adjusted profit (or loss) for tax purposes for the year ended 31 December 2022.

(ii) Distribution of the taxable profit (or loss) between the partners as at 31 December 2022.

Answer rating: 100% (QA)

To calculate the partnerships adjusted profit or loss for tax purposes and the distribution of the t... View the full answer