1. Case: The following information have been taken from the tax self assessment for taxpayer Omar Hassan Revenues: Monthly salary from employee 2300 NIS Profit for his trading shop 33000 NIS Revenue from legal consultation office 58000 NIS Gift from non governmental organization 7000 NIS Expenses: Cost of good sold 15000 NIS Salaries for the trading shop 12000 NIS Salaries for the legal office 10000 NIS Expenses related to legal office 19000NIS Personal living cost 8000 NIS Depreciation for car and furniture 4000 NIS

2. additional information: -The taxpayer live in Gaza -Gift is nontaxable income -The tax officer accepted 60% of legal office expenses -The tax officer accepted 20% of depreciation -The taxpayer is married and has two sons, one of them university student, his parent and grandmother depending on him. -He paid tax prepayments during the year 1700 NIS -The exchange price for dollar = 4 NIS * Required: calculate the annual income tax. And determine the tax payment, or refund.

3. Answer Annual salary 2300*12 = 27600 NIS Profit for his trading shop 33000 NIS Revenue from legal consultation office 58000 NIS Gift from non governmental organization 7000 NIS Total income =125600 NIS Nontaxable income 7000 NIS Total of taxable income 118600 NIS =29650$ Deductions Cost of good sold 15000 NIS Salaries for the trading shop 12000 NIS Salaries for the legal office 10000 NIS Expenses related to legal office 11400 NIS (19000*60%) Depreciation for car and furniture 800 NIS (4000*20%) Total of deductions = 49200 NIS = 12300$

4. Exemption Resident 3000$ Wife 500$ Son 500$ University student 2500$ Parent 500*2= 1000$ Grandmother = 0$ ? Total of exemption = 7500$ Net taxable income 9800$ 9800*8% = 784$ Tax prepayment 425$ ( 1700 NIS/4 ) Tax payment = 359$

5. Case: Assume that you are tax officer and you have the following information about accounting document for X company for the constructive material on 31/12/2005 The company is keeping all purchase invoices and the sale invoices were given to costumers and by examine the store for the company there are materials that are sold, but there is ability to classify these materials into categories according to percent from the total profit for sales. These categories are : 1- metal 10% 2- concrete 16% 3- stone 18% 4- Constructive materials 20% 5- pipes 28% 6- paint 30% According to these categories and the purchase invoices we have the following data

6. statementPurchase during the year 1-Metal1000,000 2-Concrete material300,000 3-Stone400,000 4-constructive material200,000 5-pipes100,000 6-paint100,000 Total2100000

7. Trading account on 31\12\2005 200,000Beginning inventory 2100000Sales 1800000Purchase200,000Ending inventory 300,000Total profit 2300000 Profit and lossaccount on31\12\2005 80,000Managerial expense 300,000Total profit 20,000Financing expense 200,000Net profit 300,000

8. What are the steps that must be followed to insure the correct sales with assuming the profit percents have been taken from the owner were correct. The tax officer did not accept the calculations, but the taxpayer rejected and said that the profit percent for purchases about 17 %

9. The answer: Purchases according to invoices 2100000 Purchases according to trading account 1800000 Hidden purchases 300000 Now estimate the volume of sales according to purchases Sales = purchases / 1- profit percent 1- sales of metal 1000000/ 1-10% = 1111111 2- sales of concrete 300000/ 1-16% = 357143 3- sales of stone 400000 / 1-18% = 487805 4- Sales of constructive materials 200000/ 1/20% = 250000 5- sales of pipes 100000 /1- 28% = 138889 6- sales of paint 100000 /1-30% = 142857 Total of sales after correction 2487805

10. Correct trading account on 31\12\2005 200,000Beginning inventory 2487805Sales 2100000Purchase200,000Ending inventory 387805Total profit 2687805 correctProfit and lossaccount on31\12\2005 80,000Managerial expense 387805Total profit 20,000Financing expense 287805Net profit 387805

11. You have the following information for the year 2005 Taxpayer has been taxed with the amount 12000 NIS after making the deductions and exemptions, and he paid during the year 10 premiums 900 NIS for each as prepayments, he did not offer the self assessment until 1/5/2006. and after that date he decided to pay the accrued tax, so he offered the self assessment and made the needed calculation and deducted the prepayments amount. But the tax officer wanted extra payment, because of the instructions given in the income tax law:

12. 1.Pay penalty because of not offering the self assessment 2% monthly. 2.Pay penalty because of not paying the tax 3% monthly. 3.Interest of delaying the tax payment 10% yearly. 4.Add penalty 2% monthly because of changing foreign currency Required: 1.Determine the accrued tax must be paid to tax revenue service (tax officer) 2.Determine the saved amount if he paid the tax on time. 3.Calculate the amount if the payment was on 25/1/2006.

13. 1- Accrued tax for the year 200512000 NIS Prepayments during the year (900*10)9000 NIS Accrued balance3000 NIS Penalty for not offering the self assessment (3000*2%*4)240 NIS Penalty for not making the payment (3000*3%*4)360 NIS The accrued amount after penalties3600 NIS Add interest 10% yearly (4 months ) 3600*10%* 4/12120 NIS Add foreign currency changes 3600*2%*4288 NIS The accrued tax4008 NIS 2- the saved amount if the tax paid on time1008 NIS 3- if the payment was on 25/1/2006 (12000*6%)720 NIS And the accrued tax is 2280 NIS

14. List the methods that are used for the estimation of income tax and name the party which makes this estimation. 1.Self assessment estimation or self tax estimation, by the taxpayer, by using personal information or balance sheet. 2.Arbitrary estimation (random), by the tax officer or the internal revenue services 3.External look for taxpayer, by the tax officer by looking for his car, home, shop, school or university and so on. 4.Supplementary tax, by both taxpayer and tax officer, or by the court in some cases.

15. You have the profit and loss account for X sharing company 31/12/2007 VALUE NIS STATEMENTVALUE NIS STATEMENT 15000Rent100000Total income 1500Capital interest100Credit interest of withdraw 700Construction error (penalty)2000Collected bad debits 7000Amortization for goodwill 8000Establishment cost 3000Car expenses 10000Salaries for partners 6000Reserve for expansion 1000Loss of re-evaluation 10000Furniture 39900Net profit 102100Total102100Total

16. Additional information -Goodwill has been estimated -Establishment cost must be amortized for 5 years. -40% of car expense is accepted because of using it for personal needs. -The collected bad debts include 800 NIS were recognized for the previous year as bad debts. -The furniture was purchased on 1/1/2007 and the depreciation rate 10% annually. Required: 1- determine the taxable income 2- determine the accrued tax 3- Show the recording entry for annual accrued tax.

17. VALUE NIS STATEMENTVALUE NIS STATEMENT 15000Rent100000Total income -Capital interest-Credit interest of withdraw -Construction error (penalty)800Collected bad debits -Amortization for goodwill 1600Establishment cost 1200Car expenses 10000Salaries for partners -Reserve for expansion -Loss of re-evaluation 1000Furniture 72000Net profit 100800Total100800Total

18. Taxable income =72000 Tax vale = 72000* 15% = 10800 The recording entry 72000 profit & loss account 10800accrued tax 61200retained earring Currency of Dollar ?? Assume that the same company owned by Omar and he is married and has 3 sons and the company registered as an individual firm make the same required. Dollar currency 3.8 NIS

19. Case: The net profit for an individual company 60000 NIS, By examining the accounting documents, the tax officer discovered that:- Begging inventory 190000 NIS Purchase 950000 NIS Ending inventory 90000 NIS Given information according to the owner’s accounting documents: Whole sales 700000 NIS with profit percent 10% Retail sales 300000 NIS with profit percent 20%

20. Required: 1.Calculate the taxable profit assuming that there is fraud (unrealistic) with whole sales and retail sales. 2.Assume the owner is married and has 4 sons one of them university student, calculate the exemption. 3.Calculate the difference between the calculation of the owner and the tax officer Exchange price for dollar 4.2 NIS

21. Answer The cost of sales = 190000 + 950000 – 90000 = 1050000 Cost of whole sales = 700000 * 90% = 630000 Cost of retail sales = 300000 * 80% = 240000 Hidden cost = 1050000 – 870000 = 180000 Hidden whole sales 180000*70% /90% = 140000 Hidden retail sales 180000* 30% / 80% = 67500 Total of hidden sales = 140000+ 67500 = 207500 Hidden profit 207500 – 180000 = 27500

22. Calculated Total profit 60000 recorded by the owner and 27500 hidden = 87500 NIS, and this taxable number. 87500 / 4.2 = 20833 $ Deduct the exemption 3000 $ resident 500 $ wife 1500 $ sons *3 2500 $ university student 7500 $ total of exemption Net taxable income after exemption = 20833 – 7500 = 13333 $ 10000 *.08 = 800+ 3333 *.12 = 400 Tax payment 1200$

23. According to owner’s calculation 60000 / 4.2 = 14286 $ Deduct the same exemption 7500 $ Net taxable income after exemption 6786 $ 6786 $ *.08 = 543 $ The difference = 1200 $ - 543 $ = 657 $