### QUESTION TWO Dadu, Elegwa, and Fondo have been operating a retail business as partners. The partnership agreement provides that: 1. The partners are to be credited at the end of each year with the following salaries: - Dadu: Sh.150,000 - Elegwa: Sh.75,000 - Fondo: Sh.75,000 2. Each partner is to be credited with interest on capital balances at the beginning of each year at the rate of 5% per annum. 3. No interest is to be charged on drawings. 4. After charging partnership salaries and interest on capital, Dadu, Elegwa, and Fondo are to share profits or losses in the ratio of 5:3:2 respectively, with a provision that Fondo’s share in any year (exclusive of salary and interest) shall not be less than Sh.150 million. Any deficiency is to be borne in the profit and loss sharing ratio by the other partners. The trial balance of the partnership as at 31 December 2022 was as follows: | Account | Sh.“million” | | ------- | ------------ | | Partners' capital accounts: | | | Dadu | 1,200 | | Elegwa | 750 | | Fondo | 450 | | Partners’ current accounts: | | | Dadu | 240 | | Elegwa | 180 | | Fondo | 120 | | Sales | 6,975 | | Freehold land | 900 | | Buildings (purchased during the year) | 675 | | Buildings (renovations and improvements) | 375 | | Purchases | 4,200 | | Trade receivables | 309 | | Trade payables | 555 | | Drawings: | | | Dadu | 255 | | Elegwa | 165 | | Fondo | 135 | | Furniture and fittings: Cost | 540 | | Accumulated depreciation (1 January 2022) | 210 | | Inventory (1 January 2022) | 630 | | Salaries and wages | 960 | | Office expenses | 678 | | Rent, rates, and insurance | 157.5 | | Professional fees | 52.5 | | Allowance for doubtful debts (1 January 2022) | 7.5 | | Bank balance | 655.5 | | TOTAL | 10,687.5 | Additional information: 1. Inventory as at 31 December 2022 was valued at Sh.540 million. 2. A debt of Sh.9 million is to be written off and the allowance for doubtful debts should be provided at the rate of 5% of the trade receivables on 31 December 2022. 3. As at 31 December 2022, salaries and wages included the following monthly drawings by the partners: - Dadu: Sh.7.5 million - Elegwa: Sh.4.5 million - Fondo: Sh.3.75 million 4. Partners had during the year been supplied with goods from inventory and it was agreed that these should be charged to them as follows: - Dadu: Sh.9 million - Elegwa: Sh.6 million - Fondo: Sh.4.5 million 5. On 31 December 2022, rates paid in advance and office expenses owing were Sh.37.5 million and Sh.36 million respectively. 6. Professional fees included Sh.37.5 million paid in respect of the acquisition of the buildings. 7. Depreciation is to be provided as follows: - Buildings: 2.5% per annum on cost - Furniture and fittings: 15% per annum on cost 8. The buildings were brought into use during the year ended 31 December 2022. Required: (a) Partnership statement of profit or loss and appropriation account for the year ended 31 December 2022. (10 marks) (b) Partners’ current accounts as at 31 December 2022. (4 marks) (c) Statement of financial position as at 31 December 2022. (6 marks) Would you like assistance with any specific part of this question?

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