(a) Define the term capital allowances. ( 4 marks)
(b) Cindera Enterprises is a partnership manufacturing timber pallets. The
partners are L, M and N. The business has an account in the balance sheet
entitled “Property”. The account had been used to record a variety of
expenditures. At the end of the year, the property account contained the
following entries:
Sh. Sh.
Debit entries:
Purchase by cash of building site
Cost of removing old building from site to build
factory
Paid contract price for new factory building
completed on 1 January 2005
Insurance, inspection fees and other costs
directly related to construction of new building.
New machinery brought to use on 1 January
2005
Cost of fixing machinery and testing
Credit entries:
Proceeds from sale of salvaged material from
demolition of old building
30,000
490,000
2,000,000
80,000
5,600,000
180,000
4,000,000
400,000
12,260,000
520,400

Depreciation for the year completed at 4% of
Sh.12,260,000
Total credits
Balance in property account as at 31 December
2005
11,739,600
Required:
(i) Determine the correct balance for each account.
(4 marks)
(ii) Show the capital allowances due to the partnership in 2005. (9
marks)
(iii) If the profits, before capital allowances and salaries, made by the partnership
was sh.2,860,000, show its allocation among partners if each receives a salary of
Sh.120,000 per annum. The adjusted profit is after adjusting for these salaries.
(3 marks)