Question

In: Accounting

(2) Miscellaneous expenses           Expense accounts for overseas sales persons           Christmas gifts to office staff...

(2) Miscellaneous expenses

          Expense accounts for overseas sales persons

          Christmas gifts to office staff by owners

Kindly indicate those that are allowable expenses and those that are disallowable expenses if any.

Solutions

Expert Solution

You can claim tax deduction for expenses that are wholly and exclusively incurred in the production of income.
The following conditions must be met before any deductions are made:

  • The expenses must be revenue in nature, (This means that the expenses are incurred in the normal day-to-day operations of the company). Capital expenditure is not allowed as a tax deduction   Example: if you buy a new goods vehicle or a commercial property for own use)
  • The deduction must not be prohibited under the Income Tax Act Example: you may incur petrol costs in the day to day operations while driving your brand new Porsche, but the Act prohibits the deduction of all expenses related to S-Plate vehicles).
  • The expenses must be incurred. Contingent liability is not allowable as a tax deduction. Contingent liability refers to a liability that may be laden onto the debts of the company but the occurrence has not crystalized as of today.

Since time immemorial, it is generally considered that anything one gives or receives for free or without consideration gives happiness and deepens the relationship between persons. Now, why does this happen? Is it because we (the receiver of the gift) are not paying anything or that it raises the relationship to the next level by giving in consideration like trust, love and affection which is not valid consideration in law to cease the transfer as gift.

Gifts, in whatever form, whether cash or kind, is are a transfer of movable or immovable property from donor (Giver) to donee (Receiver) without any consideration in return. Without any consideration/No consideration is the ‘sine qua non’ of the term gift. So when this hallmark is replaced with even inadequate consideration, the transfer ceases to be gift. The expenses on gift can be incurred by one family member for another or by a distant relative or by a business for its clients.

Speaking from the perspective of a businessman, there are many reasons for buying gifts for the customers and business associates like maintaining good work relations, opening doors for opportunities, professional networking, and a thank-you for a job well done. There’s also one more incentive to make those gift purchases. All or part of the cost of your business gifts can actually become tax deductions.

Businesses generally offer gifts to their clients to set up long-lasting and durable relationship with them, and these serve as an expense to expand and earn income for the business which in turn lead to deduction of these expenses from the income so as to pay less tax. The important principle to understand here is that the expenses that are incurred should be in the nature of business promotion and not in the nature of capital expenditure and personal expenses of the assesse.

ekkarill92 answered 2 years ago
Next > < Previous

Related Solutions

Most random or trivial expenses are recorded in the miscellaneous expense account. At the end of...
Most random or trivial expenses are recorded in the miscellaneous expense account. At the end of the year the miscellaneous expense account has a total of RM1,400 and the total revenue of the company has a total of RM400,000. There is no need to reclassify the expenses in it. This is in line with the ______________ concept. * a.accrual b.comparability c.materiality d.neutrality
using the information below: Advertising expenses $ 16,000 Depreciation expense - admin. office 107,000 Depreciation expense...
using the information below: Advertising expenses $ 16,000 Depreciation expense - admin. office 107,000 Depreciation expense - plant 197,000 Direct materials inventory, beginning 33,000 Direct materials inventory, ending 28,000 Direct materials purchases 190,000 Direct labor 345,000 Finished goods inventory, beginning 66,000 Finished goods inventory, ending 43,000 Heat and light for plant 23,000 Indirect labor 128,000 Insurance on plant 44,000 Repairs on plant building 34,000 Sales representatives' salaries 258,000 Sales revenue 1,675,000 Supervisor's salary - plant 106,000 Work-in-process inventory, beginning 14,000...
Insurance expense $10,000 Sales returns and allowances 22,400 Bad debt expense 6,000 Accounts payable 81,000 Accounts...
Insurance expense $10,000 Sales returns and allowances 22,400 Bad debt expense 6,000 Accounts payable 81,000 Accounts receivable 108,590 Allowance for doubtful accounts 8,500 Accumulated depreciation – equipment 27,740 Depreciation expense 1,200 Interest revenue 2,100 Cash 80,970 Common stock (10,000 shares outstanding) 100,000 Cost of goods sold 598,550 Dividends declared 18,000 Equipment 139,450 General expenses 114,250 Dividends payable 2,000 Sales discounts 23,000 Interest expense 5,600 Paid-in capital in excess of par 110,000 Marketable Securities 12,000 Merchandise inventory 154,250 Prepaid insurance 11,225...
Insurance expense $10,000 Sales returns and allowances 22,400 Bad debt expense 6,000 Accounts payable 81,000 Accounts...
Insurance expense $10,000 Sales returns and allowances 22,400 Bad debt expense 6,000 Accounts payable 81,000 Accounts receivable 108,590 Allowance for doubtful accounts 8,500 Accumulated depreciation – equipment 27,740 Depreciation expense 1,200 Interest revenue 2,100 Cash 80,970 Common stock (10,000 shares outstanding) 100,000 Cost of goods sold 598,550 Dividends declared 18,000 Equipment 139,450 General expenses 114,250 Dividends payable 2,000 Sales discounts 23,000 Interest expense 5,600 Paid-in capital in excess of par 110,000 Marketable Securities 12,000 Merchandise inventory 154,250 Prepaid insurance 11,225...
The sales staff would take orders on paper and, nightly, bring the orders to the office...
The sales staff would take orders on paper and, nightly, bring the orders to the office for processing. This proved to be too costly and time consuming, and in response, the sales people were provided with portable fax machines to send the orders after each visit. This, too, was inefficient because the orders had to be transcribed from the faxes, which were often illegible. The IT department, led by Cedric James, decided that wireless technology had become reliable and secure...
The worksheet of Bridget's Office Supplies contains the following revenue, cost, and expense accounts. The merchandise...
The worksheet of Bridget's Office Supplies contains the following revenue, cost, and expense accounts. The merchandise inventory amounted to $58,475 on January 1, 2019, and $51,425 on December 31, 2019. The expense accounts numbered 611 through 617 represent selling expenses, and those numbered 631 through 646 represent general and administrative expenses. Accounts 401 Sales $ 245,000 Cr. 451 Sales Returns and Allowances 4,220 Dr. 491 Miscellaneous Income 270 Cr. 501 Purchases 102,300 Dr. 502 Freight In 1,845 Dr. 503 Purchases...
Please build the answer based on following text: Expense accounts include expenses incurred by an organization...
Please build the answer based on following text: Expense accounts include expenses incurred by an organization in the process of earning revenue during a given time period. The salary expense account details the debits (for example, employee salaries and wages) and credits (for example, accrual reversals, recalls and cancelled pays) posted on the journal entries for the period. Entries are posted to the General Ledger at the organization or department total level, rather than with the individual employee details. Since...
Answer questions 1-5 using the information below: Advertising expenses $ 16,000 Depreciation expense - admin. office...
Answer questions 1-5 using the information below: Advertising expenses $ 16,000 Depreciation expense - admin. office 107,000 Depreciation expense - plant 197,000 Direct materials inventory, beginning 33,000 Direct materials inventory, ending 28,000 Direct materials purchases 190,000 Direct labor 345,000 Finished goods inventory, beginning 66,000 Finished goods inventory, ending 43,000 Heat and light for plant 23,000 Indirect labor 128,000 Insurance on plant 44,000 Repairs on plant building 34,000 Sales representatives' salaries 258,000 Sales revenue 1,675,000 Supervisor's salary - plant 106,000 Work-in-process...
Exercise 13.3. The worksheet of Bridget’s Office Supplies contains the following revenue, cost, and expense accounts....
Exercise 13.3. The worksheet of Bridget’s Office Supplies contains the following revenue, cost, and expense accounts. Prepare a classified income statement for this firm for the year ended December 31, 2016. The merchandise inventory amounted to $59,775 on January 1, 2016, and $52,725 on December 31, 2016. The expense accounts numbered 611 – 617 represent selling expenses, and those numbered 631 – 646 represent general and administrative expenses. Accounts:             401                  Sales                                                               $248,900         Cr.             451                  Sales Returns...
Please build the answer based on following text from studying book: Expense Accounts. Expenses are costs...
Please build the answer based on following text from studying book: Expense Accounts. Expenses are costs incurred by an organization in the process of earning revenue during a given period of time. Typical expense accounts related to payroll would include such items as wages, salaries, employer payroll expenses, and group insurance benefit expenses. Payroll expenses have a direct impact on the profitability of an organization. In an expense account, debit entries increase the expense balance and credit entries decrease the...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT