Njagi and Otieno 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 2017:

Sh.

Income: Sales Sale of old plant (Sh.30,750) and Lorry (Sh.150,000) Refund of VAT Post office savings bank interest Dividend (net) Expenses: Purchases Wages National Hospital Insurance Fund (NHIF) Rent Lorry maintenance expenses Salaries to partners Otieno’s household expenses Repairs and maintenance (plant) Advertising Insurance premiums Interest on loan Subscription – glass Makers Association Donation to Bursary Fund Legal expenses Bad debts Water and electricity Depreciation: Furniture and fittings Plant Total expenses Net loss for the year

4,882,000 180,750 21,250 5,750 42,500 5,132,250 1,491,500 408,750 35,500 620,500 1,165,750 1,200,000 86,250 233,750 75,000 156,750 125,000 25,000 8,000 89,000 298,000 86,250 111,500 61,750 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 2017, 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 2016 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) The adjusted profit or loss for tax purposes for the year ended 31 December 2017.

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

(c) Tax payable by each partner for the year ended 31 December 2017.