Question three Chilala, Philemon and Auxension are in partnership sharing profits and losses equally. The profits and losses for the recent three years have been as follows:

Profit/(Loss) K Year ended 31 December 2019 (960,000) Year ended 31 December 2020 820, 000 Year ended 31 December 2021 750, 000 The partners' salaries per annum have been as follows: Period Chilala Philemon Auxension Up to 31 August 2020 30,000 20,000 10,000 From 1 September 2020 onwards 90,000 60,000 30,000 The following expenditure affects 2021 transactions (i) Depreciation of non-current assets of K210, 000. The non-current assets consist of plant that is used wholly for the purpose of the business. (ii) Bad debts which had been arrived at as follows: K Bad debts written off 8 500 Decrease in general bad debt provision (5 800) Increase in specific bad debt provision 4 000 Charge to profit or loss account 6 700 (iii) A fine for a speeding offence of K386 was charged to one of the partners. Chilala was arrested for exceeding the prescribed speed limit while travelling to see a supplier. (iv) K50, 000 was incurred in order to extend one of the offices. (v) A charge of K890,000 was made in respect of staff wages. (vi) A penalty for late payment of income tax of K89, 000 was charged in the profit or loss account. (vii) Expenditure of K44,000 incurred on a party with suppliers was charged to the profit or loss (viii) Bank overdraft interest paid of K2,500.

Required

(a) Explain the term 'partnership'. (2 marks)

(b) Explain how income tax assessments are made in a partnership. (4 marks)

(c) Explain the tax treatment of tax losses for partners. (2 marks)

(d) Calculate the taxable profits (or losses) for each partner for 2021 (12 marks)