Determine the adjusted profit or loss for tax purposes

Assignment Help Financial Accounting

Reference no: EM132789272

Question - Njagi and Otiento are partners running a glass making plant and sharing profits and losses in the ratio 3:2 respectively. They have provided the following profit and loss account, notes and explanations for the year ended 31 December 2007:

Sh.

Income:

Sales 4,882,000

Sale of old plant (shs 30,750)& lorry(shs 150,000) 180,750

Refund of VAT 21,250

Post office savings bank interest 5,750

42,500

5,132,250

Expenses:

Purchases 1,491,500

Wages 408,750

National Health Insurance Fund 35,500

Rent 620,500

Lorry maintenance expense 1,165,750

Salaries to partners 1,200,000

Otieno's household expenses 86,250

Repairs and maintenance(plant) 233,750

Advertising 75,000

Insurance premiums 156,750

Interest on loans 125,000

Subscription- glass makers association 25,000

Donation to bursary fund 8,000

Legal expenses 89,000

Bad debts 298,000

Water & electricity 86,250

Depreciation: Furniture & fittings 111,500

Plant 61,750

Total expenses 8,000

11,500

(1,165,500)

Additional information:

1. Glass worth sh.65,000 was used by Njagi and Otieno for their private purposes. This amount should be apportioned to the partners in their profit sharing ratio.

2. Lorry maintenance expenses include cost of a new lorry sh.750,000 and depreciation charge for the year of Sh.162,500.

3. Annual rent for Njagi's house was sh.300,000. This was paid for by the business.

4. During the year ended 31 December 2002, new plant was acquired for Sh.200,000. This has been included in the repairs and maintenance costs of plant.

5. Njagi's personal car insurance was paid for by the business. It amounted to Sh.90,000.

6. Interest on loan and the legal expenses relate to Otieno's mortgage loan.

7. Bad debts were made up of:

Specific provision Sh.50,000

General provision Sh.61,500

8. Written down values as at 31 December 2001 were as follows:

Furniture and fittings Sh. 49,500

Motor vehicles Sh.107,000

Plant Sh. 9,000

9. Otieno and Njagi received salaries of Sh.800,000 and sh.400,000 respectively.

Required -

(a) Determine the adjusted profit or loss for tax purposes for the year ended 31 December 2002.

(b) Determine the Division of profit (or loss) between the partners.

Reference no: EM132789272

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