TAX ACCOUNTING Tutorial 9 – Week 10

PROBLEM 0NE:
The net profit of sole-proprietorship company for the year ended December 31, 2020 was L.E. 120,000.
The tax examination revealed the following information:
1. There were sales invoices amount of L.E.15,000 which were not recorded at all in sales account. The
cost of these sales was L.E. 12,000.
2. Transport expenses of purchases of raw materials include L.E 700 paid in advance were included in
expenses.
3. The cost of goods to retailed goods in transit was L.E 9000. These raw materials were recorded as
purchases but not including in ending inventory.
4. Purchases include an amount of L.E 21,000 for a purchase invoice recorded twice in the books
5. Goods in trust of agents were recorded, as sales, at 170% of their cost, though it is proved by year
end that part of them costing L.E 1,500 still unsold by agents.
6. The owner withdrew goods for his personal use. This transaction was not recorded in the books. The
cost of these goods is L.E.6000 while its market value is L.E. 7500.

Required: Make the necessary adjustments to measure the taxable net profit for 2020
 L.E L.E
Accounting Net Profits: 120,000
Add:
1- Gross profit on goods sold, which are not recorded 3,000
2- Transport expense are not allowed according to accrual 700
basis
3- Invoice recorded twice, because such double recording 21,000
reduces, the taxable net profit by its value
4- Retailed goods in transit should be included in the ending 9,000
inventory as it is owned by the company
5- Withdrawal of goods at cost as unrecorded good reduces 6,000
the taxable net profit by its cost
Total Additions 39,700
Total Taxable Profit 159,700
Less:
1-unrealized profit for goods which are not sold by the sales (1,050) (1,050)
agent (1500*70%)
Taxable Net Profit (Tax Base) 158,650
PROBLEM TWO
The net profit of Alex sole-company for the year ended December 31, 2020, was L.E. 700,000.
The tax examination revealed the following information:
1. There were sales amounting to L.E.35,000 which were not recorded at all. The cost of these
sales was L.E. 27,000.
2. The firm delivered goods with a cost of L.E. 18,000 to one of its local branches. These goods
were recorded as sales, at a price L.E. 23,000 . These goods were sold.
3. The firm traded goods for land. The land market value is L.E.50,000. The goods were
recorded as sales at the amount of L.E. 32,000.
4. The owner withdrew goods for his personal use. This goods were recorded as sales at price
L.E.19,000 while its cost is L.E.17,000.
5. L.E 3,000 interest revenue of deposits with non-registered (non-Egyptian) bank.
6. L.E 2,000 compensation received from an insurance company for goods damaged by fire
knowing that this amount was used to purchase other goods.
The income statement includes the following items:

1. L.E. 25,000 subsidies received. The amount includes L.E.10,000 received in cash and
the remainder is in the form of furniture; its fair market value is L.E. 17,000

2. L.E.7,000 bad debts recovered including L.E. 5,000 that were earlier allowed as
deductions and the rest were not allowed.

3. L.E. 7,000 computer depreciation expense, while taxable computer depreciation expense
L.E 8,500.

4. L.E 10,000 as profits on sale of listed securities in the Egyptian Stock of Exchange.

Required: Make the necessary adjustments to measure the taxable net profit and the tax
base of the firm for the taxable period 2019.
 L.E L.E
Accounting Net Profit 700,000
1- Add:
• Gross profit on sales not recorded (35,000-27,000) 8,000
• Goods delivered, recorded and sold 0
• Difference between fair value of land and amount recorded (50,000-32,000) 18,000
• Difference between fair value of furniture recorded value of subsidies (17,000 – 2000
(25,000 -10,000))
• Interest of deposits in non-Egyptian bank should be included (taxed) 3,000
• The entire amount of compensation for damaged goods 2,000
Total Additions 33,000
Total taxable profit 733,000
2- Deductions:
• Goods withdrawn by owner, should be recorded at cost (19000-17000) (2000)
• Bad Debts recovered not previously approved (7000-5000) (2000)
• Understated computer depreciation (8,500-7,000) (1,500)
• Profits on sale of securities listed in the Egyptian Stock Exchange (10,000)
Total Deductions (15,500)
Taxable Net Profit (Tax Base) 717,500
THANK YOU