Assignment:

 Assignment:

XYZ firm income statement showed L.E. 100,000  net profit. Upon examining the sales figure, it was revealed that :

1- The sales include a net sales revenue L.E. 38,000 recorded after excluding 5% sales discount, note that the company recoded this discount also in the marketing expenses in the income statement. The company's sales value also included 3,000 units of a product sold to its branch and are recorded at the cost of L.E. 50 per unit, noted that the company based pricing sales of this product on the basis of cost plus 10% profit margin.

2- The company sent goods to its agent for sale, its cost was L.E. 50,000 included in the ending inventory because it was not sold yet, but the agent sold half of it at 31/12/2014 for L.E. 30,000 (5% agent commission).

Required: Illustrate the previous transaction effect on determining the tax base.

Tax return(2/2)

 

Item			L.E
3- Goods returned and not recorded
Sales return		Ending Inventory
Sales return should be increased by its selling price increase in expenses→ \  decrease in ANP by 1400		should be included in the inventory  with its cost increase in revenues → \ Increase in ANP by 1200
Or  the profit could be deducted from ANP                (1400-1200)			(200)
Adjusted Net Profit			35,300

Tax return(2/1):

Tax return :

Item			L.E
Net income as in the income statement (ANP)			40,000
+
1- Sales related to the new period but recorded during the current year        decrease in revenues → \  decrease in ANP			(3000)
2- Goods sent to commission-agent and are not sold
Sales revenue		Ending Inventory
not sold goods, so Sales revenue should be decreased by its selling price decrease in revenues→ \  decrease in ANP by 7,000		should be included in the inventory  with its cost increase in revenues → \ Increase in ANP by 5,500
Or  the profit only could be deducted from ANP         (7000-5500)			(1,500)

 Follow:

Example 2:

Example2:

In a firm, its income statement showed a net profit amounted to L.E. 40,000. Upon examining the sales figure, it was revealed that :

There were sales for the value of L.E. 3,000 which were made at beginning of the new period and were delivered on same date. Yet they were entered in the sales of the current year although they were included as part of inventory at cost.

 Goods sent to commission-agent, amounting to L.E. 7,000 were also entered as being actual sales, without entering them in inventory noting that their cost amount to L.E. 5,500.

Some goods costing L.E. 1,200 sold for the amount of L.E. 1,400 were actually returned during the year, without being recorded as sales returns and were not entered as part of the inventory.

Required: Illustrate the previous transaction effect on determining the tax base.

solution: 

 

Tax return (1) :

 Tax return :

Item	L.E
Net income as in the income statement (ANP)	120,000
+
1-Not recorded Sales during year             increase in revenues → \  increase in ANP	25000
2- Sales by commission-agent not recorded             increase in revenues → \  increase in ANP	20,000
3-Sales commission of the agent on goods sold: 20,000 x 5%             increase in expense  → \  decrease in ANP	(1,000)
4- Sales returns related to the following year            decrease in expenses → \  increase in ANP	5,000
5- Difference in the value of sales returns             decrease in expenses → \  increase in ANP	100
6-Value of withdrawals which were not recorded             increase in revenues → \  increase in ANP	4,000
Adjusted Net Profit	173,100

Another Example

Example1

The net profit of ABC Firm amounted to L.E. 120,000 for the year ended on Dec. 31st, 2014. examining the firm’s books revealed the following:

There were sales made on 28th. Of December, received by the customers on the same date, with a value of L.E. 25,000 entered on the 8th of January,2015

Amongst the goods sent to commission – agents during the month of December with a value of L.E. 50,000 a  part was sold for the amount of L.E. 20,000 with agent’s commission thereon being 5% still due. But this transaction was not recorded during the financial year, and only the part remaining unsold was included in inventory.

Sales returns recorded during the year included sales returns at value of L.E. 5,000 were actually returned on 3rd. January of the New Year. It was also revealed that half of the goods which were sold for an amount of L.E. 6,000 were returned, but recording was affected for the amount of L.E. 3,100.

The partner withdraws goods for personal use, the costs of which were estimated at the amount of L.E. 4,000 which did not appear in the records.

Required: Illustrate the previous transaction effect on determining the tax base.

solution : 

The following is the tax treatment for each item:

 

The following is the tax treatment for each item: 

No	Items	Tax examination provisions
1	Net sales revenues	1- The sales has been truly valued and the products has been delivered to the customers. The firm may follow some approaches to show the sales figure as less than that what it should be:
		A)The firm may not record a part of its sales, by postpone the entry of some sales concluded at end of the current period and delivered to customers, until the beginning of the new period.
		B)The firm may not record the goods which have been sold by commission agents during the year and postpone their entry until future periods.
		C)The firm may not record the value of goods with drawn by its owners for their own personal use. Owner’s withdrawals recorded with selling price not cost.

		D)The firm may not record the goods which customers have accepted during the year, out of the goods which were sent to them in the form of under-acceptance goods during the year.
		E) The firm may record artificial sales returns, or record sales returns which are made at the beginning of the new financial period as if they were transacted during the current period.
		F) The firm may be record sales returns at a value higher than their original sale value, such as not taking into consideration in the pricing which was previously granted to the customer in terms of a commercial allowance or discount.

		some factors may inflate the sales figure, and show it higher than its true value:
		A) The firm may record some artificial sales by entering sales which were made at the beginning of the new period as having been occurred during the current period despite the fact that the corresponding goods have been entered into inventory in the current or present period.
		B) The firm may record goods dispatched to the commission-agents as being sales, without entering them as part of the goods in stock of the end of period.
		C) The firm may record goods dispatched to customers for sale or return, which were not accepted during the year, as being final sales.

		D) The firm may not record sales returns made during the year, and put off their entry to future periods.
		E) The firm may record fixed asset sales as part of the sales.
		2- Sales of Remnants should be recorded.