Can I make a formatting suggestion?:
“Rachel, where are you?” Kim yelled out.
“I’m in here," Rachel replied. "Tasha came over before and asked if I’d look after baby Ella.”
“Why, what’s she doing?” Kim asked.
“She had to go to the city," Rachel replied happily. "Josie wanted her for something “
“Oh ok.”
“You don’t sound very happy with it.”
“No no," Kim said walking into the room, "I’m ok with it, I was just asking!”
Rachel picked up Baby Ella and gave her to Kim. “She’s so cute, isn’t she Kim?”
“Yeah, she is," Kim said with a smile on his face. "She looks just like her Mum.”
“I wish we could have one of our own!”
“Hey we’ve talked about that babe, we can adopt”
“But its not the same," Rachel replied. "I want one of our own!”
You should start a new line when someone new starts talking, and the "he said, she said" stuff normally goes at the end or in the middle of what is being said. When it's in the middle of the dialogue, you can work out where it's meant to go by reading it out loud, and where you take a break, like at the end of the first sentence, that's where you put the "she said."
This sort of stuff just makes things easier to read, otherwise it can get a bit confusing as to who's saying what.
It sounds like a good start.