4. 1. there should be a firm: (A firm is all what brings income or interest to it’s owners… even if it’s a rented car, it is regarded as a firm) 2.carrying on business independently. 3.The firm should be working in Egypt. (The regional tax base means that :the tax is imposed on all firms working in Egypt whether their owners are Egyptians or foreigners) 4.The firm seeks for profit.

5. 1.Commercial and industrial firms …including: – Commercial acts – industrial acts – petroleum – mines – the firms related to handicrafts – any industrial and commercial activities even if it is an isolated transaction 2. Brokerage acts.

6. 3.Casual operation of brokerage and commission. 4.Profits on leases. 5.Profits of construction and purchase of real estate with the aim of resale. 6.Firms for land reform and reclamation, breeding projects of poultry, cattle and fish. 7.Profit of all kinds of transport activities. 8.Profits of long term contracts.

8. Income statement : Revenue -Expense accounting net profit(ANP) Add: expenses included in determining profits, but not deductible Revenues not included in determining profits, but taxable Deduct: Deduct: expenses not included in determining profits, but deductible Revenues included in determining profits, but not taxable tax net profit (TNP) accountant tax officer

10. sales Sale of remnants Capital gains Recovered bad debts Subsidiary revenues

11. I.Approaches followed by firms for understating the sales figures ( added) II.Approaches followed by firms for overstating the sales figures (deducted)

13. on 31st December, x company has sold goods for the amount of L.E 1000:

15. Sold:$ 20,000

19. Example (1): The net profit of ABC firm amounted to L.E 120,000 for the year ended on Dec.31 st. Examining the firm’s books revealed the following: 1.There were sales made on 28 th. Of December, received by the customers on the same date, with a value of L.E 25,000 entered on the 8 th of January.

20. 2. 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.

21. 3. sales returns recorded during the year included sales returns a value of L.E 5,000 were actually returned on 3 rd,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 effected for the amount of L.E 3,100.

23. Solution: L.E 120,000 54.100 (1,000) 173,000 L.E 25,000 20,000 5,000 100 Net profit: Add:  Sales effected during year not recorded  Sales by commission-agent not recorded  Sales returns related to the following year  Difference in the value of withdrawals which were not recordedLess:  Sales commission of the agent on goods sold: 20,000*5% Taxable net profit

26. Example (2): The net profit of ABC firm amounted to L.E 40,000 for the year ended on Dec.31 st. Examining the firm’s books revealed the following: 1. There were sales for the value of L.E 3,000 which were made at the beginning of the new period and were delivered on same date, however they were entered in the sales of the current year although they were included as part of inventory at cost.

27. 2.Goods sent to commission- agent, amounting to L.E 7,000 were also entered as being actual sales without entering them in the inventory, noting that their cost amount to L.E 5,500. 3. 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.

29. Solution: L.E 40,000 4,700 35,300 L.E 3,000 1,500 200 Net profit: Add:  Sales related to the new period but recorded during the current year  Profit on goods sent to commission agent and recorded as sales  Profit on goods returned and not recorded Taxable net profit

30. ( Revenues resulting from the firm's sale of its leftovers is considered a part of its revenues)

32. firm (a) firm (a) Anoth er …. And instead of doing that … it record the sales of fixed assets as sales of remnants the sale of fixed assets 2- Recording the sale of fixed assets as sale of remnants:

33. In this case, to arrive at the correct tax bracket,  the sale value must be deducted,  a gain or loss on sale must be calculated and relevant tax treatment is to be followed (add, deduct, or exempted in some cases). (capital gain or loss = selling price – book value book value = cost – accumulated depreciation )

34. Example (3) The net profit of ABC firm amounted 30,000L.E for the year ended 31 dec,2011. Examining the firm's books revealed the following: The firm sold part of its building asset at 7,000L.E, its cost is 15,000L.E, (accumulated deprecation 45,000). The transaction was recorded as being sales of remnants.

35. Solution: ANP30,000 Deduct: Sale value of fixed assets treated as remnants (7,000) Loss on sale of fixed assets(3,500) TNP19,500 loss on sale = 7,000 – ( 15,000 – 4,500)

36. Capital gains result from

37. Taxable Capital gains on buildings, constructions, ships and aircrafts. Capital gains on intangible assets. Capital gains on non-depreciable assets as land, jewelry, and antiques. Exempted Capital gains on other assets as computers, information systems and software 1.Profits on liquidation of capital assets:

38. 2.Revaluation profits: Taxable Capital gains resulting from revaluation of a sole-proprietorship turning into a partnership Exempted To encourage creating shareholding companies, capital gains resulting from revaluation of asset of a sole-proprietorship offering as a portion in the shareholding company, provided that: the corresponding stocks are not disposed off for a period of 5 years In case of not affecting a change in the ownership structure, where the capital gains are for shown the actual value of the firm because of price escalation

39. Example (4) A single firm purchased a building as a store for L.E 90,000 on April 2003, the legal duties and fees were L.E 40,000,other expenses related were L.E 2,000. on first of April 2005, the firm spent L.E 14,000 to renew the building was sold are L.E 150,000.andthe expenses related to this process were L.E 15,000.

40. Example (4) Noting that : The annual maintenance expenses amounted to L.E 1,000. The depreciation rate for tax purposes is %5 annually.

41. Example (4) Required: determine taxable capital gains of the building.

42. Example (4) Solution: L.E. 135,000 (96,725) 38,725 L.E. 90,000 4,000 2,000 96,000 14,000 110,000 (96,000) (4,125) Sales proceeds: 150,000-15,000 Less: Book value : Purchase price Legal duties Other expenses related total cost Renewable costs Less: accumulated depreciation: Till April 1, 2005 = 96000*5%*2 From April 1, 2005 = 110000*5%*9/12 Book value Taxable capital gains

43. For bad debts written off in previous periods then collected in subsequent periods: The debts was Approved to be written off The collected bad will be included in taxable revenues The debts was not approved to be written off not The collected bad debts will not be included in taxable revenues

45. building and agriculture land revenues:  Revenues which the firm gets from building and agriculture land owned and leased to others.  The legislator excluded them from taxon commercial and industrial activities, because they are taxed under another (building tax).

46. Compensations :  compensations received from others for breach of contract,are entered in the taxable revenues of the firm on cash basis.

47. Compensations :  compensations received from insurance companies as a result of damage occurred to fixed assets of the firm, the excess over the book values of the assets is considered as capital gains and is entered in taxable revenues of the firm.

48. Taxable (on cash basis) Taxable ( fair market value)

49. Foreign currency gains: If there is a change in the exchange rate Due to translating the financial statements

50. Revenues of securities + Returns on deposits and savings accounts registered banks These returns are exempted from taxes

51. Examples: Net profit for sole proprietorship for the year2006 was L.E. 35,000.the tax examination revealed the following:

52. Examples: A. Revenues of the firm include:  L.E. 4,000 bad debts collected of which L.E. 3,500 was approved by tax authority.  L.E. 2,000 juridical compensations in favor of the firm for counterfeiting its trade name.,noting that the amount collected was L.E. 1,200 only.

53. Examples :  L.E. 5,000 interest of installment sales.  L.E. 3,000 as a profit on sale of securities listed on the Egyptian stock of exchange.  L.E. 2,500 profits of shares in the private Egyptian shareholding company.  L.E. 8,000 interests of deposits with banks.

54. Examples :  L.E. 11,000 revenues of reality,( noting that the monthly rent is L.E. 1,000).  Foreign currency variance of L.E. 8,000 which include L.E 1,500 as a result of translating the foreign account into local currency.

55. Examples : B. Revenues of the firm not included:  L.E. 7,000 compensations received form an Insurance company for goods which was damaged by fire, noting that this amount was used to purchase other goods.

56. Examples :  L.E. 4,000 subsidies received form the city council of which 1,000 in cash and the rest in form of computer hardware, its market value is L.E. 5,000.

58. L.E 35,000 14,000 (5,800) (10,500) 32,700 L.E 1,000 7,000 1,000 5,000 500 800 1,500 3,000 2,500 8,000 Net profit: Add :  Accrued revenue of realty  The entire amount of compensation of damaged goods  Subsidy received in cash  The market value of in-kind subsidy Deduct :  Bad debts collected, mot taxable  Juridical compensation not collected  The currency gains of translation, not taxable  Profits on sale of securities Exemptions :  Profits of stocks in private company  Interests of deposits with banks Taxable net profit