Additional (accelerated) depreciation

♥ One of the advantages provided by law 91 of 2005 states that 30% of the cost of machines and equipment
purchased by the firm whether they are new or used which the firm manufactures for use in production and for
one time only .this action result in increased cost deductions in the first year of machines acquisition. , which lead
to decrease in net profits subject to tax this year . this action may encourage the fund companies to purchase
equipment that is why we consider this accelerated depreciation an advantage.

♥ Accelerated depreciation is not an exemption from tax, but postpones tax debt.

Illustration Page (95)

Mohamed company included a net income of 120,000 pounds in the income statement during the year 2014, in
addition to bought a machine to be used in its operation , and the cost of acquisition of this machine amounted to
360,000 pounds , and the company started its use from the first month of July for the same tax period . as the
company depreciates those machines at a rate of 10% annually , according to accounting standards the income
statement included depreciation for this machine for its use until the end of the tax period amounted 9,000 pounds.
Required ; show the impact of this investment spending on the net taxable income.
Answer
Calculation depreciation base
Book value -------------------
Add; 360,000
Cost of acquisition of this machine and development and installation
Deduct;
Accumulated or accelerated depreciation (30% x 360,000) =108,000 (108,000)

Deduct -------------------
Sold for during the period
Depreciation basis 252,000

Tax depreciation for machine =

Accelerated depreciation = 108,000
Normal depreciation = (25% x 252,000x 6/12) =31,500
Adjustment sheet
Net income 120,000
Add;
Accounting depreciation expense 9,000
Deduct;
Taxable depreciation (108,000)
(31,500)
Taxable net income )10,000)
Social Insurance premiums
♥ Law 91 of 2005 stipulated that the social insurance premiums assessed on the company owner for the benefit
of the employees and in his favor is deductible cost.

Illustration Page (102)

MAGED company included a net income of 20,000 pounds in the income statement during the year 2014, in
addition to this its incorporated within its expenditures an amount of L.E 10,000 as social insurance premiums
which included the following .

 This amount includes 2,000 employees share in social insurance .

 The remaining represent share of company in social insurance to their employees , noting that the annual
salary for workers 50,000 and insurance premiums binding on employer account for 12% of the employee
monthly salary.
Required: Determine the taxable profit.
Answer

Net income 20,000

Add
- Employees share in the social insurance premium are not deductible (on employees themselves) 2,000

- Excess over company share in social insurance for employees

Because company’s share in the insurance =10,000 – 2,000 =8,000
2,000
But legally permitted = 50,000 x 12% = 6,000
(8,000 – 6,000)
Taxable net income 24,000

Special investment funds and withholds

♥ The tax law required that the following conditions must be met to consider these amounts as deductible costs

1- The fund is subject to the regulations and rules of the insurance funds.

2- The purpose of the fund is the saving pension or others with a saving nature.

3- It shall not exceed 20% of total wages and salaries of all employees in the company’s departments.

4- To be a separate fund or independent from the company’s fund and invested in the name of the fund not the
company.

Illustration Page (105)

ABDOU company included a net income of 25,000 pounds in the income statement , in addition to its expenditure
included an amount of L.E 35,000 as a provision for pension , and it has been made clear that the company is
authorized to establish a special fund with its special regulation . the total salaries and wages included in the
company expenses are L.E 160,000 .

Required: Determine the taxable profit . Answer

Amount
Accounting net income 25,000
Add
Allowed deductible cost =20% of total salaries =20% x 160,000 =32,000
The value of the increase in the provision for pension about 20% = (35,000 – 32,000)=3,000 3,000
Net taxable income 28,000
Private insurance premiums

♥ Law 91 for 2005 stipulated on deducting insurance premiums held by tax payer against disability or death or
for getting an amount , amount or revenue , these premiums should not exceed L.E 3,000 in a year .

Noted that: Retrievable deposits are not considered as part of deductible cost because the company will retrieve
these amounts , its considered an assets and shown the balance sheet.

Illustration Page (106)

NOUR company included met income of 40,000 pounds , in addition to its expenses to its expenses an amount of
11,000 L.E in premiums and it has been shown that this amount included the following:

- 4,500 life insurance premiums for partner .

- 1,500 insurance premiums for partner’s home.
- 5,000 retrievable deposits for a bid .
Required: Determine the taxable profit
Answer

Amount
Accounting net income 40,000
Add
- Excess value of life insurance for partner (4,500-3,000) =1,500 1,500

- Insurance premiums for partner’s home not deductible 1,500

- Retrievable insurance (not deductible ) 5,000

Taxable net income 48,000

Donations and subsidies

First: Donation paid to the governmental units , local administrative units and other public units are like Bank
Nasser are deductible regardless of the amount paid.

Second: Donations and contributions paid to Egyptian non-government are not deductible organizations and
social establishments , these donations and contributions must not exceed 10% of the taxable income to allowed
as tax deductible should follow these conditions:
a- Donations must be actually paid.
b- Donations should be paid to Egyptian chartable entities which registered in accordance with the provisions
regulating them.
Third: Donations to individuals like poor people or entities are not subject to government supervision are not
deductible.
Illustration Page (111)
AHMED company included a net income of 500,000 pounds , in addition expenses of 115,000 as donations and
subsidies included the following:

 5,000 donated to Nasser social bank

 25,000 donated to Egyptian governmental hospitals.
 15,000 donations to one of the existing governmental hospital outside Egypt .
 35,000 donations the company promised to pay over the next year as contribution to a charity event will be
hosted by one the Egyptian registered charity institutions
 13,000 donations to an Egyptian political party as a contribution in its election campaign of the party.
 22,000 donations paid to an Egyptian registered charity institution.
Required: Determine the taxable profit .
Answer

Amount
Accounting 500,000
Add;
Donation to Nasser social bank ( allowed to deduct) -------
Donation to Egyptian governmental hospital (allowed to deduct) -------
Donation to one of the existing government hospital outside Egypt (not deductible) 15,000
Donation to company promised to pay over the next year as contribution to a charity event
will be hosted by one the Egyptian registered charity institutions .(not actually paid)(not 35,000
deductible)
Donation to an Egyptian political party as a contribution in its election campaign of the 13,000
party. (not deductible)
Donation to an Egyptian registered charity institution (add temporary) not exceed 10% of 22,000
taxable net income.
Net profit 585,000
Deduct
Donation to an Egyptian registered charity institution
(10% x 585,000 )= 53,182 or 22,000 (whichever is lower) (22,000)

Taxable net income 563,000