QUESTION 1 Mutinta and Nyambe are in partnership sharing profits and losses in the ratio of 2 to 3 respectively after allowing for partnership salaries of K40,000 per annum for each. The partnership accounts are prepared annually to 31 December On 1 April 2021, Mbulo was admitted to the partnership and with effect from that date, the partnership agreement was changed. Profits and losses and partners' annual salaries were to be provided for as given in the table below: Mutinta Nyambe Mbulo Salaries per annum(K) 32,000 30,000 28.000 Share of balance of profits and losses | 5 The partnership's profit and loss account for the year ended 3 December 2021 was as follows: 3 2 Details Note K Gross Profit 377,470.00 Less Expenses Wages and salaries 128,650.00 Rent and Rates 2 84,290.00 Repairs and Renewals 3 15,880.00 Legal Expenses 4 4,215.00 Motor Car running expenses 5 8,250.00 Depreciation 8.150.00 Provision for Income Tax 10,180.00 Foreign Exchange loss 15,000.00 (272,615) 104,855.00 Net Profit Notes to the profit and loss account for the year ended 31 December 2021 are as follows: Note 1 Included in wages and salaries are the partners' salaries of K12,000 for Mutinta and K5,000 for Nyambe Note 2 One-third of the expenditure on rent and rates relates to rent paid for the houses occupied by the three partners and their families. Note 3 The charge in the profit and loss account includes K3,000 incurred on fitting fire safety equipment in the factory. Note 4 Legal expenses are made up of the following: K Defending action in alleged faulty goods 1,150 Costs in connection with the acquisition of the new 55-year new lease 1,200 Defending Mutinta in connection with a speeding offence 865 An appeal against last year income tax assessment 1,000 Total 4,215 Note 5 The partners use their private cars in the partnership business. Business mileage as a percentage of total mileage done by each partner together with the total motor car running expenses are given below: Business mileage % Motor Car expenses (K) Partner Mutinta 75% 2.210 Nyambe 80% 2,150 Mbulo 80% 1,890 6,250 Note 6 The partnership purchased raw materials from a supplier based in the United States for US$10,000 on 1 June 2021 when the kwacha traded at K20 to US$1. On 31/12/2019 the kwacha traded at K21.50 to $1. Note 7- additional information (see also note 5) The table below provides information about the partner's motor cars referred to in note 6 above: Description Purchase cost (K) Date brought business use into Mutinta's car 14.000 1 October 2020 Nyambe 's car 15,000 1 November 2020 Mbulo car 18,000 1 April 2021 Capital allowances on the other assets held by the partnership were K12,000 for the year ended 31 December 2021. REQUIRED: Calculate the partnership's tax-adjusted business profit, and the business profits on which each partner will be assessed for the year ended 31 December 2021. [20 marks] QUESTION 1 Mutinta and Nyambe are in partnership sharing profits and losses in the ratio of 2 to 3 respectively after allowing for partnership salaries of K40,000 per annum for each. The partnership accounts are prepared annually to 31 December On 1 April 2021, Mbulo was admitted to the partnership and with effect from that date, the partnership agreement was changed. Profits and losses and partners' annual salaries were to be provided for as given in the table below: Mutinta Nyambe Mbulo Salaries per annum(K) 32,000 30,000 28.000 Share of balance of profits and losses | 5 The partnership's profit and loss account for the year ended 3 December 2021 was as follows: 3 2 Details Note K Gross Profit 377,470.00 Less Expenses Wages and salaries 128,650.00 Rent and Rates 2 84,290.00 Repairs and Renewals 3 15,880.00 Legal Expenses 4 4,215.00 Motor Car running expenses 5 8,250.00 Depreciation 8.150.00 Provision for Income Tax 10,180.00 Foreign Exchange loss 15,000.00 (272,615) 104,855.00 Net Profit Notes to the profit and loss account for the year ended 31 December 2021 are as follows: Note 1 Included in wages and salaries are the partners' salaries of K12,000 for Mutinta and K5,000 for Nyambe Note 2 One-third of the expenditure on rent and rates relates to rent paid for the houses occupied by the three partners and their families. Note 3 The charge in the profit and loss account includes K3,000 incurred on fitting fire safety equipment in the factory. Note 4 Legal expenses are made up of the following: K Defending action in alleged faulty goods 1,150 Costs in connection with the acquisition of the new 55-year new lease 1,200 Defending Mutinta in connection with a speeding offence 865 An appeal against last year income tax assessment 1,000 Total 4,215 Note 5 The partners use their private cars in the partnership business. Business mileage as a percentage of total mileage done by each partner together with the total motor car running expenses are given below: Business mileage % Motor Car expenses (K) Partner Mutinta 75% 2.210 Nyambe 80% 2,150 Mbulo 80% 1,890 6,250 Note 6 The partnership purchased raw materials from a supplier based in the United States for US$10,000 on 1 June 2021 when the kwacha traded at K20 to US$1. On 31/12/2019 the kwacha traded at K21.50 to $1. Note 7- additional information (see also note 5) The table below provides information about the partner's motor cars referred to in note 6 above: Description Purchase cost (K) Date brought business use into Mutinta's car 14.000 1 October 2020 Nyambe 's car 15,000 1 November 2020 Mbulo car 18,000 1 April 2021 Capital allowances on the other assets held by the partnership were K12,000 for the year ended 31 December 2021. REQUIRED: Calculate the partnership's tax-adjusted business profit, and the business profits on which each partner will be assessed for the year ended 31 December 2021. [20 marks]