QUESTION ONE Hosea, Riziki and Zarika are trading as horizon enterprises. They share profits and losses in the ratio of 2:2:1 respectively. The following is the statement of comprehensive income for the partnership for the year ended 315 December 2016: Kshs Kshs 8,000,000 Sales Opening stock Purchases Closing stock 3,000,000 4,000,000 (600,000) 3.700.00 4,300,000 Gross income Less operating expenditure: Salaries Repairs and maintenance Interest Goodwill Depreciation Mortgage repayment Insurance Audit fees Legal fees Equipment purchase Rent and Rates Net income 900,000 100,000 480,000 198,000 142,000 200,000 384,220 315,780 100,000 200,000 180,000 3,200.000 1,100,000 Additional information 1. Opening stock and closing stock were overvalued by 20%. 2. included in interest expense is interests on capital to partners of Kshs. 180,000. This amount was to be shared in the profit sharing ratio. The balance of interest relates to an overdraft taken by the partnership mortgage repayment relates to Hosea for a loan obtained from a bank to acquire a residential house. 3. 4. The legal, fees of Kshs. 100,000 related to partners private legal issues, 5. Salaries include those paid to partners as follows: Hosea; Kshs.40,000, Riziki Kshs.60,000 and Zarika Kshs. 100,000. 6. Not included in the accounts were drawings of goods by Zarika costing Kshs.40,000 7. Other income not included in the accounts is rental income of Kshs.500,000 and dividend income from Ken-golden Cooperative Ltd of Kshs. 100,000. Required: i) A statement of adjusted taxable income for the year ended 31" December 2016. ii) A schedule of the allocation of the taxable income to the partners. (15 marks) (10 marks) [Total: 25 marks) QUESTI