Although donations, legal fees, fines and penalties can be recognised as expenses in the income statement, they are non-deductible items for tax purposes and must be added back to the net profit figure to determine the taxable income.

Furthermore, depreciation is also recognised as an expense and is added back to the net profit amount in the tax calculation, whilst wear and tear is deducted.

It is important to note that expenses must be recognised in the income statement on the basis of a direct association between the costs incurred and the income earned. This process of matching of costs with revenues, also involves their simultaneous or combined recognition that result directly and jointly from the same transactions or other events, for example, the insurance premium paid as a business expense, must fall in the same financial period as the revenue earned from running that specific business.

Also, when economic benefits are expected to arise over several accounting periods and the association with income can only be indirectly determined, then the expenses are recognised in the income statement on the basis of systematic allocation procedures, for example, depreciation and amortisation are non-cash expenses to spread out the cost of capital assets such as property, plant and equipment and must be recognised in the accounting period in which the economic benefits associated with it are used.