QUESTION TWO (20 MARKS) Matthew, James and John are former school mates who were doing business together. The business is not registered but they registered themselves as equals in it. They keep proper books of account and have been able to provide the following profit and loss account for the year ended 31 December 2020. Profit and Loss Account Sh. Sh Establishment expenses Rent of business premises owned by all of them jointly Interest expense Stationery and printing Light and heating General farm expenses Repair of premises Depreciation 800,000 Gross profit 180,000 Sundry receipts 80,000 Interest Income 120,000 Profit on sale of shares 40,000 Gross income from farming 294,000 Lottery winnings 40,000 Dividend (Gross) 300,000 1.908,000 80,000 72,000 200.000 340,000 800,000 120.000 UVU Depreciation Interest on partner's capital: 80,000 Matthew 120,000 160,000 John Salary to James Commission to partners 96,000 Matthew 96,000 James 96,000 John 240.000 Bad debts 40,000 Gifts, present and charity Donation to child welfare 200,000 Interest on loan taken to pay Income tax Legal charges Net profit 20,000 120.000 398,000 3.520.000 AVVU Income tax 120,000 Legal charges 398,000 Net profit 3.520.000 3.520.000 Additional information: 1. Capital allowances have been agreed as sh. 300,000 2. The partners had borrowed Sh.400,000 with a hope of investing it on fixed securities to earn more income interest rates nevertheless declined. Interest expense of Sh. 80,000 and interest income of Sh. 72,000 relate to the loan 3. Legal charges include Sh. 40,000 paid to finish a case in the customs department 4. In 2020, the partners brought forward losses amounting to Sh. 800,000 from this business (16 marks) Required: Compute taxable income derived from the partnership (b) Show allocation among partners marks) (4 (16 marks) Required: (a) Compute taxable income derived from the partnership (b) Show allocation among partners. marks) (4