Académique Documents
Professionnel Documents
Culture Documents
Income Taxation
(2009 Edition)
Chapter 1
True or False 1-1
1. True
2. False. Taxation covers person, properties, rights and
transactions.
3. False.
Person in taxation includes the concept of
partnership, corporation, estate and trust.
4. True
5. False. Taxation as a legislative process is under the
power of the legislative body, the Congress.
6. False. Taxation is the primary source of government
revenue. Usually, the government resorts to borrowing
if taxes collected are not sufficient to defray its
budgetary requirements.
7. True
8. True
9. False. Basically, taxes imposed are based on the ability
of the taxpayer to pay.
10. False. It is the primary obligation of the state to
protect all the constituents regardless of whether they
pay or not their tax liabilities.
True or False 1-2
1. True
2. True
3. True
4. True
5. True
1
5. True
6. False. Real property tax is a local tax and administered
by the local government units.
7. False. It is properly classified as specific tax and not
ad valorem tax.
8. False. Levy is the taking of real property to enforce
collection of taxes. The taking of personal property is
called distraint.
9. False. The concept of proportionate in character is that
the amount of tax collected is based on the ability of
the taxpayer to pay.
It does not imply that the
taxpayer without money is exempted from payment of
tax.
10. False. The situs of occupation is the place where the
occupation is performed.
True of False 1-8
1. False. The Supreme Court, not the Congress, decides
on the legality of tax laws.
The decision of the
Supreme Court is final and executory.
2. False. The other term for tax minimization is tax
avoidance.
3. False. The Bureau of Internal Revenue is under the
Department of Finance.
4. False. The Philippine tax system is either graduated or
proportional. The regressive tax system has not yet
been adopted in the Philippines.
5. False. Non-payment of the poll tax is not subject to
imprisonment as one of the Constitutional limitations
and not one of the inherent limitations.
6. True
7. True
8. False. The power of eminent domain is the taking of
private property with just compensation for public
5
1. False.
Taxation imposes contributions not only on
individuals but also on properties, rights and
transactions.
2. False. The legislative body of the government and not
the President undertakes the imposition of taxation.
3. False. Taxation is a legislative exercise undertaken by
the Congress.
4. False. Taxation even not provided expressly in the
Philippine Constitution can be imposed. It is an
inherent power of the state.
5. False. It is true that taxation is the strongest among
the three inherent powers of the state, but it is subject
to inherent and Constitutional limitations; hence, not
absolute.
6. False.
It is only the legislative branch of the
government that can delegate the three inherent
powers of the State.
7. False. Uniformity and equity in taxation implies that
the tax rates applied, and not the amount of tax to be
paid, should be the same to all taxpayers belonging
under the same class.
8. True
9. True
10. True
True or False 1-11
1. True
2. True
3. False. The principle of fiscal adequacy presupposes
that taxes collected are sufficient to meet the fiscal
requirements of the government.
4. False. Taxation is the lifeblood of the government, but
only the legislative body can exercise taxation. Not all
government units can exercise the power of taxation.
7
6. B
7. C
8. A
9. B
10.C
1.
2.
3.
4.
5.
C
D
C
C
C
6. B
7. A
8. C
9. D
10. D
1.
2.
3.
4.
5.
A
C
B
B
C
6. C
7. A
8. B
1. C
2. D
3. B
6. C
7. C
8. B
9
1. D
2. A
3. A
6. B
7. A
8. C
9. A
10. B
Choice
6. C
7. B
8. A
1-5
4. D
5. C
9. A
10.C
4. A
5. B
9. C
10.C
4. B
5. B
9. A
10.D
6. B
7. A
8. B
9. C
10.C
1.
2.
3.
4.
5.
B
D
A
C
C
6. B
7. C
8. A
9. D
10. B
Chapter 2
10
10. True
True or False 2-4
1. False. Tax assessment is not required if tax deficiency
is due to mathematical error.
2. False. The taxpayer is given 30 days to contest the
findings in the formal notice of assessment.
3. False.
The taxpayer shall submit all supporting
documents within 60 days after protest.
4. False. Upon receipt of notice of the BIR decision, the
taxpayer has 30 days to submit his protest to the Court
of Tax Appeal.
5. False.
Collection is an administrative aspect of
taxation.
6. False. The government has the administrative and
judicial remedies to enforce collection of taxes.
7. True
8. True
9. False. Actual distraint is the taking of the physical
properties. Prohibition to use the property is termed
as constructive distraint.
10. True
True or False 2-5
1. False.
Stocks and bonds can be distraint
constructively.
2. False.
The Revenue District Officer shall administer
distraint on tax liabilities less than P1,000,000.
3. False.
The officer administering the distraint shall
submit a report within two days to the BIR
Commissioner.
4. False.
Levy is the taking of real properties to effect
payment of taxes.
12
4. True
5. True
6. True
7. False. The taxpayer has to file an appeal to the Court
of Appeals (CA) when the Court of Tax Appeals (CTA)
makes an unfavorable decision.
8. True
9. True
10. True
True or False 2-8
1. False. Formal notice of assessment may be sent by
personal delivery. The person receiving it, however,
should acknowledge the notice.
2. True
3. False. The taxpayer has 30 days to appeal to the Court
of Tax Appeals if the decision of the BIR Commissioner
is unfavorable.
4. False. Basically, enforcement of collection of taxes is
done administratively.
5. True
6. False.
Intangible personal properties like stocks and
credits are subject to distraint using the constructive
system.
7. False. Notice of levy may be issued simultaneously
with the notice of distraint.
8. False. Levy or distraint is administered if deficiency tax
assessment involves more than P100.
9. True
10. True
True or False 2-9
1. False. The BIR has a Commissioner and four Deputy
Commissioners.
14
2. False.
The Department of Finance is the primary
government agency responsible for tax administration
and supervision.
3. True
4. False. Taxpayers do not have to use simplified books if
quarterly sales receipts or earnings do not exceed
P50.000.
5. False. Willful neglect of filing tax return is subject to
50% surcharge.
6. True
7. True
8. True
9. True
10. True
Multiple Choice 2-1
Multiple Choice 2-2
Multiple Choice 2-3
1. D
2. B
3. B
4. B
5. D
6. D
7. A
8. A
9 D
10.D
1. C
2. A
3. C
4. C
5. D
6. C
7. D
8. B
9. B
10.A
6. A
7. A
8. C
9. D
10. C
11.
12.
13.
14.
15.
A
A
C
C
B
Chapter 3
15
1. B
2. C
3. C
4. A
5. D
6. B
7. D
8. A
9. B
10.B
16
10. False.
The additional personal exemption is for
qualified dependent children only.
True or False 3-4
1. False. Living with the taxpayer does not necessarily
mean that the dependent should be under the same
roof with the taxpayer.
2. False. The law grants personal exemptions based on
the status of the taxpayer, and the level of income has
nothing to do with it.
3. False. An illegitimate child who meets all the requisites
of a dependent is allowed additional exemption.
4. True
5. False. If the combined gross income of the spouses is
more than P250,000, the HHIP contribution cannot be
deducted.
6. True
7. False.
A resident alien is entitled to additional
exemption only when his dependents are living with
him in the Philippines.
8. False. The amount of claim for HHIP is the actual
contribution of P2,400, whichever is lower, provided the
gross taxable income is not more than P250,000.
9. True
10. True
True or False 3-5
1. False.
NRC is taxable on income from within the
Philippines.
2. True
3. False.
A child legally adopted and meeting the
requisites of a dependent, qualifies for additional
exemption.
18
6. C
7. A
8. B
9. C
10.B
1. C
2. A
3. C
4. D
5. B
6. B
7. D
8. D
9. B
10. B
1. NRC 6. NRC
2. NRC 7. RC
3. RA
8. NRA-EBT
4. NRC 9. SI
5. NRA-EBT10.NRC
2. C
3. A
4. C
5. C
6. A
Exercise 3-1
Basic personal exemption (H/F)
Additional personal exemption
(recognized child)
HHIP (actual, P4,000; limit, P2,400)
Total allowable deduction
Exercise 3-2
19
50,000
25,000
2,400
77,400
=====
Taxpayer
Basic personal exemption
(married)
50,000
Additional exemption
(legally adopted child)
25,000
HHIP (actual, 2,300; limit, 2,400)
2,300
Total allowable deduction
77,300
=====
Exercise 3-3
Basic personal exemption
(married)
50,000
Additional exemption (P25,000 x 2) 50,000
HHIP
2,400
Total allowable deduction
102,400
======
Exercise 3-4
Basic personal exemption (single) 50,000
Additional personal exemption
HHIP
(gross income exceeded 250,000)
Total allowable deduction
50,000
=====
Exercise 3-5
Basic personal exemption
(married)
50,000
Additional exemption (25,000 x 3) 75,000
HHIP
(gross income exceeded 250,000)
Total allowable deduction
125,000
======
Exercise 3-6
Basic personal exemption
20
Spouse
50,000
50,000
=====
(married)
50,000
Additional exemption (25,000 x 4) 100,000
HHIP
(gross income exceeded 250,000)
Total allowable deduction
150,000
======
Exercise 3-7
Basic personal exemption
(married)
50,000
Additional exemption (25,000 x 4) 100,000
HHIP
(gross income exceeded 250,000)
Total allowable deduction
150,000
======
Exercise 3-8
No exemption allowed, since the taxpayer is classified as
non-resident
citizen
with
income
outside
the
Philippines.
Exercise 3-9
Basic personal exemption
(married)
50,000
Additional exemption
HHIP
(gross income exceeded 250,000)
Total allowable deduction
50,000
=====
Exercise 3-10
Basic personal exemption
(married)
50,000
Additional exemption (3 x P25,000) 75,000
HHIP
21
50,000
=====
Exercise 3-15
Exercise 3-21
No allowable deductions for personal exemptions.
Exercise 3-22
Basic personal exemption
(married)
50,000
Additional exemption (2 x P25,000) 50,000
HHIP no contribution
Total allowable deduction
100,000
======
Exercise 3-23
Basic personal exemption (H/F)
50,000
Additional exemption (3 x P25,000) 75,000
HHIP Gross income
exceeded the limit
Total allowable deduction
125,000
======
Exercise 3-24
Basic personal exemption
(married)
50,000
Additional exemption (2 x P25,000) 50,000
HHIP Gross income
exceeded the limit
Total allowable deduction
100,000
======
Exercise 3-25
Basic personal exemption
(married)
50,000
Additional exemption (2 x P25,000) 50,000
HHIP Gross income
24
100,000
======
Exercise 3-26
Basic personal exemption
(married)
50,000
Additional exemption (1 x P25,000)25,000
HHIP no contribution
Total allowable deduction
75,000
=====
Exercise 3-27
Husband
50,000
25,000
25
Spouse
50,000
50,000
=====
Spouse
50,000
50,000
=====
HHIP
Total allowable deductions
2,400
77,400
=====
Problem 3-3
Basic personal exemption (H/F)
50,000
Additional exemption (25,000 x 2) 50,000
HHIP
Total allowable deductions
100,000
======
Problem 3-4
Basic personal exemption (H/F)
50,000
Additional exemption (25,000 x 2) 50,000
Total personal exemptions
100,000
======
Problem 3-5
Basic personal exemption
(married)
50,000
Additional exemption (25,000 x 4) 100,000
HHIP
Total personal exemptions
150,000
======
Problem 3-6
Husband Wife
Basic personal exemption
(married)
50,000 50,000
Additional exemption
HHIP
Total personal exemptions
50,000 50,000
===== =====
Problem 3-7
Basic personal exemption
26
(married)
50,000
Additional exemption (25,000 x 1) 25,000
HHIP
2,400
Total personal exemptions
77,400
=====
Problem 3-8
Basic personal exemption
(married)
50,000
Additional exemption (25,000 x 4) 100,000
HHIP
Total personal exemptions
150,000
======
Problem 3-9
Basic personal exemption (single) 50,000
Additional exemption
HHIP
Total personal exemptions
50,000
=====
Problem 3-10
Basic personal exemption
(married)
50,000
Additional exemption (P25,000 x 1)25,000
HHIP
Total personal exemptions
75,000
=====
Problem 3-11
Basic personal exemption (single) 50,000
Additional exemption
HHIP
Total personal exemptions
50,000
=====
Problem 3-12
27
Husband
Wife
28
5. False.
6. True
7. False.
Only fringe benefits, except de minimis,
received by supervisory or managerial employees are
subject to fringe benefit tax.
8. False.
Meal allowance and lodging provided to
employees are included in the gross taxable income,
except if those are for the benefit of the employer.
9. True
10. True
True or False 4-3
1. False. The tax base is the fair market value of the
property at the time of payment.
2. True
3. True
4. False. The value of the notes issued, as payment of
compensation, is its fair market value.
5. False.
Income subject to final tax shall not be
included in the computation of gross taxable income
subject to basic tax.
6. False. Net sales are computed by deducting sales
returns and discounts from gross sales, while gross
income is computed by deducting cost of sales from
net sales.
7. True
8. True
9. False. Passive income arises when the taxpayer does
not exert effort to earn it.
10. False. Notes as payment of compensation are based
on their fair market value.
True or False 4-4
1. True
30
2. True
3. False. The tax base under the outright method of
recognizing income for leasehold improvement is the
fair market value of the improvement at the time of its
completion.
4. True
5. False Stock dividend is basically not taxable.
6. True
7. False. Prizes less than P10,000 are included in the
gross taxable income; hence, subject to basic tax.
8. True
9. False. The cash surrender value of a life insurance
policy not exceeding the premiums paid is not taxable.
10. False. All the items are excluded by law from gross
taxable income.
True or False 4-5
1. True
2. True
3. True
4. True
5. False. The gain is tax-exempt or excluded from gross
taxable income.
6. True
7. True
8. True
9. False.
Tax refund of Philippine income tax is not
taxable.
10. False. Resident citizens are taxable on income within
and outside the Philippines; hence, unidentified income
does not have to be prorated as to source.
Multiple Choice 4-1
Multiple Choice 4-2
Multiple Choice 4-3
31
1. D
6. C
2. A
7. D
3. B
8. D
4. D
9. D
5. D
10. D
Multiple Choice
1. D
2. B
3. C
4. D
5. C
1. D
2. A
3. A
4. B
5. D
4-4
6. A
7. C
8. A
9. C
10. B
1. C
2. A
3. A
4. A
5. B
6. D
7. C
8. B
9. C
10.A
6. A
7. C
8. C
9. A
10.A
Exercise 4-1 C
Basic salary (45,000 x 12)
540,000
Representation allowance (10,000 x 12) 120,000
Commission (6,300,000 250,000) x 5% 302,500
13th month pay
(45,000 x 120%) 30,000
24,000
Gross annual taxable
compensation income
986,500
======
Exercise 4-2 C
Gross taxable income
986,500
Less: Basic personal exemption (M)
50,000
Additional exemption (25,000 x 4) 100,000
HHIP
- 150,000
Net taxable income
836,500
======
Exercise 4-3 B
Gross taxable income
Less: Basic personal
exemption (H/F)
986,500
50,000
32
Additional exemption
HHIP
Net taxable income
50,000
936,500
======
Exercise 4-4 D
Basic salary
Fair value of motor vehicle
Notes receivable
(400,000 x .71178)
Christmas bonus
(50,000 30,000)
Gross taxable
compensation income
850,000
600,000
284,712
20,000
1,754,712
=======
Exercise 4-5 B
Gross taxable income
Less: Basic personal
exemption (H/F)
Additional exemption
HHIP
Net taxable income
Exercise 4-6 A
1,754,712
50,000
25,000
- 75,000
1,679,712
=======
Annual salary
420,000
Debt cancelled
80,000
Notes receivable
50,000
13th month pay
(420,000/12) + 40,000 30,000
45,000
Gross taxable
compensation income
595,000
======
Exercise 4-7 A
33
219,000
50,000
50,000
102,400
116,600
======
Exercise 4-10 C
Net sales (5,800,000 150,000)
Less: Cost of sales
Gross taxable income
5,650,000
3,470,000
2,180,000
=======
Exercise 4-11 D
Net sales
Less: Cost of sales
Gross taxable income
5,650,000
3,365,000
2,285,000
34
=======
Exercise 4-12 B
Exercise 4-13 A
Cash basis
Cash receipts
Animal/livestock
1,200,000
Cash crop
900,000
Farm equipment
200,000
Rent agricultural lan 150,000
Total
2,450,000
Less: Cost of livestock
700,000
Cost of crop raised
500,000
Book value tractor 300,000
Gross income
before inventory
950,000
Add: Ending inventory
Total
950,000
Less: Beginning
inventory
Gross taxable income
950,000
=======
Accrual basis
1,200,000
900,000
200,000
150,000
2,450,000
700,000
500,000
300,000
950,000
500,000
1,450,000
700,000
750,000
=======
Exercise 4-14 B
Exercise 4-15 C
Exercise 4-16 A (Income will be recognized only upon
completion, that is on the 3rd year.)
Year 1
Contract price
25,000,000
Percentage of
completion
45%
Contract earned
11,250,000
Less: Cost incurred
10,000,000
Gross income to date
1,250,000
Less: Income prior year
Gross income annual 1,250,000
35
Year 2
25,000,000
Year 3
25,000,000
70%
17,500,000
16,000,000
1,500,000
1,250,000
1,250,000
100%
25,000,000
22,000,000
3,000,000
1,500,000
1,500,000
======== ========
========
Exercise 4-17 A
Monthly rental (15,000 x 10)
Shares on real estate tax
Gross taxable rent income
Exercise 4-18 C
Monthly rental income
Security deposit
Shares on real estate tax
Gross taxable rent income
150,000
2,500
152,500
======
150,000
45,000
2,500
197,500
======
Exercise 4-19 A
2008 rental (10,000 x 9)
90,000
Real property tax (6,000/12 x 9) 4,500
Taxable rent income 2008
94,500
=====
Exercise 4-20 D
2009 rental
120,000
Building FMV
8,000,000
Real property tax paid by lessee
6,000
Taxable rent income 2009
8,126,000
=======
Exercise 4-21 B
Cost of the improvement
6,000,000
Less Accu. depn. end of lease
[(6,000,000 400,000)/50]
x 25
2,800,000
Book value
3,200,000
Divided by term of lease
25
Annual income on improvement
128,000
36
=======
Income for 9 months
(128,000/12 x 9)
Add: Taxable rent income
(see item 1)
Gross taxable income
96,000
94,500
190,500
=======
Exercise 4-22 D
Annual income on improvement
Rental income
Gross taxable income
128,000
126,000
254,000
=======
Problem 4-1
Gross compensation income
Less: Basic personal exemption (M)
Additional exemption (25,000 x 3)
HHIP
2,400
Taxable net income
240,000
50,000
75,000
127,400
112,600
======
Problem 4-2
Gross business income
1,200,000
Other income (460,000 x 65%)
299,000
Gross taxable income
1,499,000
Less: Allowable business expenses
(800,000 x 75%)
600,000
Net income
899,000
Less: Basic personal
exemption (H/F)
50,000
Additional
HHIP
50,000
Taxable net income
849,000
=======
37
Problem 4-3
Resident
Citizen
Compensation income
Gross business income
Other income
subject to basic tax
Interest income
on time deposit
Gross taxable income
Less: Business
expenses
Taxable income before
personal exemption
Problem 4-4
Resident
Alien
970,000
1,680,000
610,000
960,000
260,000
180,000
2,950,000
40,000
1,750,000
1,080,000
610,000
1,870,000
=======
1,140,000
=======
280,000
65,000
20,000
32,000
48,000
445,000
50,000
125,000
320,000
======
392,000
25,000
60,000
477,000
50,000
- 50,000
427,000
======
800,000
52,000
852,000
======
2009
6,000,000
4,000,000
2,000,000
39
520,000
880,000
1,400,000
=======
2010
0
0
0
=======
==
40
Chapter 5
True or False 5-1
1. True
2. False. The cost of inherited property is based on the
fair market value at the time of inheritance.
3. False. Property acquired as a gift is measured based
on its fair market value at the time of gift, or same as
if it would be in the hands of the donor, whichever is
lower.
4. False. It is the other way around.
5. False. An asset may be ordinary for a certain taxpayer
but classified as capital by another taxpayer.
6. False. Net capital gain is the excess of capital gain
over capital loss.
7. False. Capital loss cannot be deducted from ordinary
gain.
8. False. The holding period applies only to capital gain or
loss.
9. True
10. False. Capital loss is deductible only from capital
gain and net capital loss cannot be deducted from
gross income subject to income taxation.
True or False 5-2
1. False. The sale is subject to final tax at the rate of 5%
or 10% based on capital gain realized.
2. True
3. True
4. True
5. False. Stock in trade or inventory is an ordinary asset
used in business operation.
41
6. False.
The selling price of the shares issued in
exchange shall be the fair market value of the property
received.
7. False. A surcharge and interest can be imposed and
collected at the same time.
8. True
9. False. Tax on the sale of shares of stock thru the local
stock exchange is collectible by the broker
administering the sale and should be remitted within
five days from collection.
10. True
True or False 5-3
1. False. The gain on shares redeemed is subject to
income tax.
2. False. Sale of treasury stock is subject either to stock
transaction tax or to capital gains tax.
3. True
4. False. The amount of capital gain or loss is subject to
the regular income tax rate ranging from 5% to 32%.
5. True
6. False. The capital loss on worthless shares shall be
deducted from other capital gains arising not from sale
of shares of stock.
7. True
8. True
9. True
10. True
True or False 5-4
1. True
2. True
3. False. The property is value based on the amount paid
by the transferee.
42
1. C
6. C
1. A
2. A
3. D
4. B
5. C
7. A
8. A
9. C
10.A
Exercise 5-1
2.
3.
4.
5.
B
Selling price
Less:
Acquisition cost
Attorneys fee
Taxes
Improvement
(150,000 70,000)
Gain on sale
Exercise 5-2
A
C
C
D
4,000,000
900,000
20,000
40,000
80,000
1,040,000
2,960,000
=======
D
43
5,000,000
400,000
5,400,000
2,580,000
2,820,000
=======
Business income
(2,000,000 1,600,000)
Add: Short term capital gain 90,000
Long-term capital gain
(40,000 x 50%)
20,000
Total capital gain
Less: Short-term capital loss 60,000
Long-term capital loss
(50,000 x 50%)
25,000
Total capital loss
Gross taxable income
Exercise 5-4
400,000
110,000
85,000
425,000
======
Business income
(4,300,000 3,000,000)
1,300,000
Gain on sale of business assets
(700,000 580,000)
120,000
Capital gain (120,000 x 50%) 60,000
Capital loss (90,000 x 50%)
45,000
15,000
Gross taxable income
1,435,000
=======
Exercise 5-5
D
FMV
Zonal value (800 sq. x 6,500)
Higher zonal value
44
4,800,000
5,200,000
5,200,000
6%
312,000
=======
B
B
Business income
Allowable expenses
Taxable business income
Add (Less) Capital gain (loss)
Short-term capital gain
Long-term capital gain
Short-term capital loss
Net capital gain (loss)
Capital loss carry over
Gross taxable income
Less: Basic exemption
Additional
Net taxable income
Exercise 5-8
Gain on sale
2009
800,000
600,000
200,000
60,000
190,000
(130,000)
130,000
400,000
50,000
50,000
200,000
200,000
70,000
270,000
50,000
100,000
300,000 170,000
====== ======
Selling price
Less: Cost
Acquisition
expenses
Selling expenses
2008
900,000
500,000
400,000
700,000
400,000
60,000
40,000
500,000
200,000
======
45
Exercise 5-9
FMV (higher)
Less: Cost
Gain on exchange
Exercise 5-10
720,000
500,000
220,000
======
900,000
======
5,000
80,000
85,000
======
Exercise 5-11 A No capital gain shall be recognized,
since the sale of the shares resulted to a loss.
Exercise 5-12
6,000,000
6%
360,000
=======
Problem 5-1
Business income (450,000/90%)
Compensation income (268,000 +32,000)
Interest income on trade receivable
Short-term capital gain (80,000 x 100%)
Long term capital loss (60,000 x 50%)
50,000
Gain on sale of ordinary assets
Loss from sale of ordinary assets
Dividend income
resident foreign corporation
46
500,000
300,000
40,000
80,000
(30,000)
52,000
(30,000)
25,000
937,000
======
Problem 5-2
1. Ordinary assets
Computer Motor
Vehicle
Selling price
42,000
400,000
Less: Book value 44,625
480,000
Ordinary gain
(loss)
( 2,625) ( 80,000)
Commer- Total
cial Lot
6,000,000 6,442,000
2,500,000 3,024,625
3,500,000 3,417,375
Coml. Lot
Selling price
4,920,000
Less: Book value 5,520,000
Capital gain (loss) ( 600,000)
Holing period
50%
Net capital
gain (loss)
( 300,000)
=======
Problem 5-3
Feb. 1
Net sales
192,000
Less: Cost
125,000
Gain (loss)
67,000
Cap. tax rate
.005
Capital gains tax 335
=====
Less: Taxes paid (335 +
Net capital gains tax
Jewelry
Equipment
650,000
300,000
350,000
50%
150,000
84,000
66,000
100%
175,000
======
66,000
=====
May 1
July 1
318,500
135,000
262,000
144,000
56,500
(9,000)
.005
282.50
====== ======
282.50 + 175)
Oct. 1
485,000
450,000
35,000
.005
175
======
Net
gain (loss)
( 59,000 )
=======
Cumulative
1,130,500
981,000
149,500
.005
747.50
(
792.50
45.00 )
=======
Problem 5-4
Salary (380,000 + 20,000)
Christmas bonus (60,000 30,000)
Gain on sale of jewelries
(120,000 80,000)
Cash dividend from non-resident
foreign corporation
47
400,000
30,000
40,000
20,000
80,000
950,000
1,520,000
=======
Problem 5-5
1. Sales (200 x 95)
Less: Cost (200 x 100)
Non-deductible loss
19,000
20,000
(1,000)
=====
The loss is considered non-deductible, because the
sales and subsequent acquisition were within the 61day period (wash sale).
2. Sales
Less: Cost (300 x 110)
Taxable gain
36,000
33,000
3,000
=====
Problem 5-6
1. Downpayment
Additional payments
within the year
Excess of mortgage assumed
Initial payment
2. Selling price
Less: Mortgaged assumed
by the buyer
Balance
Add: Excess of mortgaged
over cost (700,000 600,000)
48
150,000
50,000
100,000
300,000
======
1,080,000
700,000
380,000
100,000
Contract price
480,000
=======
3. Gross profit
(1,080,000 600,000)
480,000
=======
Selling price
1.080,000
Less: Initial payment
Actual
200,000
Mortgage assumed 700,000 900,000
Balance
180,000
Divided by
3
Annual collection
60,000
=======
Annual income 1st year
(480,000/480,000 x 300,000)
2nd year
(480,000/480,000 x 60,000)
3rd year
4th year
Total
300,000
60,000
60,000
60,000
480,000
======
Problem 5-7
Gross profit
(P2,000,000 P1,200,000)
800,000
======
20%
====
188,235.29
2010
(800,000/2,000,000) x 800,000
2011
(800,000/1,700,000) x 500,000
Total
Problem 5-8
376,470.59
235,294.12
800,000.00
========
800,000
======
Income
Cash
FMV of notes
(90% x P1,800,000)
Total
Less: Cost
2010
Cash
Less: FMV of notes
received in 2009
Total income
1,000,000
1,620,000
2,620,000
2,000,000
620,000
1,800,000
1,620,000
180,000
800,000
=======
Problem 5-10
Selling price
Less: Cost (2,000/5,000 x 600,000)
Less: Cost (3,000/5,000 x 600,000)
Loss on sale
Gain on sale
Mr. AA
200,000
240,000
60,000
-======
Mr. BB
450,000
360,000
-90,000
======
4,500
Chapter 6
True or False 6-1
1. False. Fringe benefits are additional privileges which
are relatively small in value and not considered as
compensation.
2. False. Only the fringe benefits granted to supervisory
and managerial employees are subject to fringe benefit
tax.
3. True
4. True
5. True
6. False. De minimis benefits granted to managers or
supervisors are not subject to fringe benefit tax.
51
6. C
7. A
8. D
9. C
10.D
Exercise 6-1
11.
12.
13.
14.
15.
B
B
A
C
D
Downpayment
3,000,000
Installment (1,000,000 x 4.111) 4,111,000
Value of fringe benefits
7,111,000
=======
Exercise 6-2 A
Actual value
Percentage of
managerial employees
Total
7,111,000
20%
1,422,200
=======
Monetary value
(1,422,200 x 5%) x 50%
35,500
53
=======
Exercise 6-3
52,287
=====
Monetary value
(150,000/32%) x 68%
Exercise 6-8
16,732
=====
1,200,000
150,000
75,000
204,000
1,629,000
=======
1,629,000
620,000
1,009,000
100,000
909,000
=======
318,750
=====
(150,000/32%)
Exercise 6-9
468,750
======
120,000
======
Salary
Christmas bonus
(25,000 + 30,000) 30,000
Cash fringe benefits
Other fringe benefits
Gross taxable income
Exercise 6-11
280,000
25,000
15,300
25,500
345,800
======
Salary
Christmas bonus
Gross taxable income
280,000
25,000
305,000
======
Exercise 6-12 A (Fringe benefit provided to rank-andfile is not subject to fringe benefit tax)
Exercise 6-13
60,000
=====
Exercise 6-14 A (The amount of 765,000 is a fringe
benefit and subject to fringe benefit tax)
Exercise 6-15
(765,000/85%) x 15%
135,000
======
Problem 6-1
1. Total value of fringe benefit tax
(956,250 + 430,750 + 750,000)
2,137,000
=======
450,000
250,000
700,000
=======
Problem 6-2
1. Cash payment for grocery items
Motor vehicle benefits
Downpayment
400,000
Installment
(400,000 x 4 years) 1,600,000
Total fringe benefit expenses
2. On grocery items
(382,500/68%) x 32%
On motor vehicle
[(750,000/5)/68%] x 32%
Total fringe benefit tax
382,500
2,000,000
2,382,500
=======
180,000.00
70,588.24
250,588.24
========
Problem 6-3
1. Local travel
De minimis benefits
Total value of fringe benefits
56
420,750
80,000
500,750
======
618,750
======
198,000
======
Problem 6-4
1.Grossed-up monetary
value (GUMV)
3,468,549.02
==========
Resident
Citizen
80% value
Divided by
GUMV
Tax rate
Fringe
benefit tax
1,280,000.00
68%
1,882,352.94
32%
908,549.02
Special
Alien
768,000.00
85%
NRA-NEBT
512,000.00
75%
Total
2,560,000.00
903,529.41
15%
682,666.67
25%
3,468,549.02
-
602,352.94 135,529.41
========= =======
170,666.67
=======
908,549.02
=======
Chapter 7
True or False 7-1
1. False.
The expenses that are reasonable and
necessary must be allowed by taxation law to be
deductible.
2. True
3. False. The compensation income is not included in the
computation of the 40% optional standard deduction.
4. True
5. True
57
6. False.
NRAs engaged or not engaged in business
cannot use the optional standard deduction.
7. False. The expenses should be ordinary and necessary.
8. False. Estimates are non-deductible expenses.
9. True
10. False.
Bribes and kickbacks are against public
morals; hence, non-deductible.
True or False 7-2
1. False.
The expenses must be connected with the
business activities.
2. True
3. False. The advance rental shall be prorated on the
term of the lease.
4. False. The leasehold improvement shall be apportioned
over the term of the lease or the life of the
improvement, whichever is shorter.
5. False. Both the actual and accrued interest expenses
are deductible.
6. True
7. True
8. True
9. False. If the taxpayer is using the cash basis, advance
interests are prorated over the outstanding balance.
10. True
True or False 7-3
1. False. Expenses between related taxpayers are nondeductible.
2. True
3. True
4. False. Not all taxes are deductible. Philippine income
tax is non-deductible.
5. True
58
6. C
7. D
8. A
9. B
10. C
Exercise 7-1
1.
2.
3.
4.
5.
A
C
B
C
D
6. B
7. A
8. C
9. A
10. D
1. A
2. C
3. C
4. B
5. C
720,000
======
Compensation income
(380,000 + 45,000) 30,000
Business income
Deduction under OSD
395,000
1,800,000
720,000
1,080,000
Taxable income
before personal exemption
Exercise 7-3
Salaries rank-and-file
Salaries supervisory positions
Fringe benefits rank-and-file
Fringe benefits supervisory positions
(326,400/68%)
Total bonus
60
1,475,000
=======
2,700,000
900,000
300,000
480,000
272,400
4,652,400
=======
3,200,000
580,000
250,000
180,000
4,210,000
=======
52,500
60,000
30,000
142,500
======
61
Exercise 7-7
8,500
733,500
======
800,000
144,000
944,000
40%
377,600
======
Gross receipts
Add: Compensation income
(P255,000 + 45,000)
Total
Less: Allowable deduction
Taxable income before
personal exemption
Exercise 7-11
725,000
80,000
=====
944,000
300,000
1,244,000
377,600
866,400
=======
Net salaries
8,750,000
62
Exercise 7-12
========
Transportation expenses
within the Philippines
Fringe benefits (170,000/68%)
Transportation, pouch man
Transportation expenses outside
Fringe benefits (544,000/68%)
Total deductible expenses
Exercise 7-13
600,000
250,000
60,000
1,800,000
800,000
3,510,000
=======
105,000
3,500
17,500
70,000
196,000
======
300,000
49,500
250,500
======
Exercise 7-15
Problem 7-2
Salaries (870,000 + 30,000 + 150,000) 1.050,000
Fringe benefits rank-and-file
450,000
Fringe benefits managerial employee
(340,000/68%)
500,000
Representation and traveling allowance
150,000
Rent expense
180,000
Commission (7,425,000 + 75,000) x 5%
375,000
Business expense before donation
2,705,000
Donation subject to limitation (see below) 179,500
Total deductible expense
2,884,500
=======
Gross income from business
(7,500,000 x 60%)
Less: Expenses before donation
Income before donation
10% limit
Allowable deductible donation
Problem 7-3
1. Municipal taxes
Community tax
Documentary stamp tax
(P910 80 30)
License (P4,000 500 100)
Total deductible taxes
2. Representation and traveling allowance
Interest on documentary stamp tax
Interest on borrowings
Interest on license
65
4,500,000
2,705,000
1,795,000
10%
179,500
=======
1,200
1,000
870
3,400
6,470
=====
15,000
30
10,000
100
15,000
6,000
46,130
=======
The interests on documentary stamp tax and on license
fees are not classified as taxes but rather interest
expense. Fringe benefits of key personnel are subject
to fringe benefit tax; hence, the amount was grossedup.
Problem 7-4
Business losses
200,000
Partial loss on equipment
Book value (P800,000 480,000)
x 80%
256,000
Replacement cost
240,000
Deductible loss lower
240,000
Total loss on machinery
Acquisition cost
2,000,000
Less: Accumulated depreciation
(P2,000,000/10) x 6
1,200,000
Book value
800,000
Less: Recoverable amount
200,000
600,000
Deductible loss
1,040,000
=======
Problem 7-5
1. Other business expenses
FB to employees
FR to employees subject to
fringe benefit tax (P204,000/68%)
Interest expense on bank loan
66
1,800,000
120,000
300,000
60,000
5,530,000
2,200,000
3,330,000
90,000
3,420,000
2,377,650
1,042,350
150,000
992,350
=======
Problem 7-6
1. Salaries
Losses on embezzlement
Advertising
Depreciation
Taxes (P190,000 P90,000)
Pension contribution present
(P230,000 P100,000)
Pension contribution past
(P100,000/10)
Entertainment
Actual
Limit (P2,900,000 x 1%)
67
400,000
50,000
20,000
50,000
100,000
130,000
10,000
35,000
29,000
Lower
29,000
Interest expense on bank deposit
Actual
90,000
Less: Reduction due to interest
income (P50,000 x 33%)
16,500
73,500
Total before charitable contribution
862,500
Charitable contribution for public purpose
Actual
150,000
Limit (P2,900,000 1,305,000
85\62,500) = 732,500 x 10%
73,250
Lower
73,250
Total deductible expenses
935,750
======
2. Gross income
(P2,900,000 1,305,000)
Less: Allowable deduction
Net income before
personal exemption
Less: Personal Exemption
(P50,000 + 100,000)
Taxable net income
1,595,000
935,750
659,250
150,000
509,250
=======
Chapter 8
1. B
2. B
3. C
4. A
5.D
6.
7.
8.
9.
10.
C
C
B
D
B
Exercise 8-1
150,000
400,000
=======
On P250,000
On excess (P400,000 250,000) x 30%
Total
Add: Surcharge (P95,000 x 25%)
Interest (P95,000 x 20% x 139/360)
Total tax due and payable
Exercise 8-3
1,000,000
450,000
550,000
50,000.00
45,000,00
95,000,00
23,750,00
7,336.11
126,086.11
========
480,000
850,000
1,330,000
175,000
1,155,000
=======
Exercise 8-4
On 500,000
125,000.00
On excess (P1,155,000 500,000)
x 32%
209,600.00
Total
334,600.00
Less: Quarterly tax paid
180,000.00
Withholding tax on wages
60,000.00
240,000.00
Tax due before penalties
94,600.00
Add: Surcharge (P94,600 x 25%)
23,650.00
Interest (P94,600 x 20% x 35/260)
1,839.44
Total taxes still due and payable
120,089.44
========
Exercise 8-5 B
Gross income (4,000,000 2,200,000) 1,800,000
Add: Interest income
on notes receivable
20,000
Total gross income
1,820,000
Less: Business expenses
1,100,000
Interest expense
[70,000 (90,000 x 33%)
40,300
1,140,300
Income before charitable contribution
679,700
Less: Charitable contribution
Actual
80,000
Limit (P679,000 x 10%)
69,970
69,970
Taxable income before personal exemption
611,730
Less: Personal exemption (P50,000 + 100,000)
150,000
Taxable net income
461,730
=======
71
Exercise 8-6
On P250,000
On excess (461,730 250,000) x 30%
Total
Less: Quarterly tax payment
Balance
Add: Surcharge (P18,519.00 x 25%)
Total tax due and payable
Exercise 8-7
50,000.00
63,519.00
113,519.00
95,000.00
18,519.00
4,629.75
23,148.75
========
Total
Exercise 8-9
91,484.34
=======
125,000
393,000
517,000
300,000
217,000
=======
Net income
Less: Personal exemption
(P50,000 + 75,000)
Net taxable income
Exercise 8-12
2,050,000
125,000
1,925,000
=======
Tax on P500,000
125,000
Tax on excess
(P1,925,000 500,000) x 32%
456,000
Total tax due
581,000
Less: Tax credit
Philippine taxes paid
300,000
Taxes paid in Australia
Actual
200,000
Limit
(P600,000/2,100,000)
x 581,000
166,000
Lower
166,000
466,000
Income tax still due after tax credit
115,000
=======
Problem 8-1
1. Gross business income
4,500,000
Cash dividend from non-resident
foreign corporation
9,000
Property dividend from resident
foreign corporation
36,000
Salary and allowances
500,000
Gain on sale of jewelry (80,000 35,000)
45,000
Interest earned on premium
10,000
Christmas and incentive
(28,000 + 15,000) 30,000
13,000
Interest income on deposit abroad
10,000
Gross taxable income
5,123,000
74
=======
2. Gross taxable income
5,123,000
Less: Cost of sales and
other allowable expenses 2,800,000
Past pension cost
(250,000/10)
25,000
Interest expense
[80,000 (60,000 x 38%)]
57,200
Fringe benefits to supervisor
(40,800/68%)
60,000
2,942,200
Income before donation
2,180,800
Less: Donation actual
(150,000 + 25,000)
175,000
- limit (2,180,000 x 10%)
218,080
- lower (actual)
175,000
Net income before personal exemption
2,005,800
Less: Basic personal exemption
50,000
Additional exemption
50,000
100,000
Net taxable business income
1,905,800
=======
3. Taxable net
Tax due
Income
On
500,000
On excess (1,905,800 500,000)
x 32%
1,405,800
Total
1,905,500
=======
Less: Quarterly tax paid
Tax due and payable
75
125,000
449,856
574,856
175,000
399,856
======
399,856.00
99,964.00
29,989.20
529,809.20
========
Problem 8-2
1. Installment method not adopted by taxpayers
Carlos
Daisy(Spouse)
Compensation income
First Coml. Corp.
Salary (480,000 + 55,000)
535,000
13th month pay
(55,000 30,000)
25,000
Greater Libungan
(60,000 + 14,400)
74,400
Brownies Corporation
(240,000 + 35,000)
275,000
Total gross compensation
634,400
275,000
Less: Basic personal
exemption (M)
50,000
50,000
Additional (25,000 x 3)
75,000
125,000
50,000
Net taxable income
509,400
225,000
======
======
Tax due
Less: Tax withheld
Tax due and payable
128,008
69,400
58,608
======
2. Taxpayers adopted installment payment of tax
Tax due before tax credit
Divided by
Total
Less: Tax withheld
First installment payment of tax
(for credit on second
installment
76
43,750
35,000
8,750
=====
128,008
2
64,004
69,400
43,750
2
21,875
35,000
( 5,396)
======
(13,125)
=====
Second installment
Less: Excess of 1st installment
Tax due on 2nd installment
Problem 8-3
64,004
( 5,396 )
58,608
======
Edwin
Compensation income
(216,000 + 25,000)
Business income
Sales (net)
2,788,000
Less: Cost of sales
1,775,000
Gross profit
1,013,000
Less: Allowable business expenses
Net income/compensation
before exemption
510,000
Less: Basic personal
exemption
50,000
Additional exemption
75,000
50,000
Taxable net income
385,000
=======
Tax due
Less: Tax credit
Tax due and payable
90,500
90,500
======
Problem 8-4
21,875
(13,125)
8,750
=====
Nancy (Spouse)
241,000
503,000
241,000
50,000
125,000
191,000
======
35,250
25,000
10,250
=====
3,600,000
525,000
195,000
150,000
4,470,000
225,000
134,254
Gross income
7,465,000
=======
4,605,254
=======
Problem 8-5
1. a. 8,102,000
b. 5,250,182
Resident
Non-resident
Problem 8-6
1. Gross business income
(P6,000,000 + 4,000,00)
Less: Business expenses
(P4,000,000 + 3,500,000)
Taxes paid in Singapore
Net income before other income
Add: Royalty Singapore
Interest on bank deposit
Singapore
78
2,800,000
5,000
25,000
38,182
2,868,182
=======
10,000,000
7,500,000
300,000
7,800,000
2,200,000
50,000
50,000
100,000
Net income
Less: Personal exemption
(P50,000 + 100,000)
Net taxable income
2,100,000
Tax on P500,000
Tax on excess (P1,950,000 500,000) 32%
Total
Less: Philippine taxes paid
Income tax still due
2. Gross business income
(P6,000,000 + 4,000,00)
Less: Business expenses
(P4,000,000 + 3,500,000)
Net income before other income
Add: Royalty Singapor
50,000
Interest on bank
deposit Singapore
50,000
100,000
Net income
Less: Personal exemption
(P50,000 + 100,000)
Net taxable income
150,000
1,950,000
=======
125,000
464,000
589,000
450,000
139,000
=======
10,000,000
7,500,000
2,500,000
2,600,000
150,000
2,450,000
========
Tax on P500,000
125,000
Tax on excess (P2,450,000 500,000) x 32%
624,000
Total
749,000
Less: Tax credit
Philippines income tax paid
500,000
Singapore
Actual
300,000
Limit (P500,000/2,500,000) x 749,000
149,800
Lower
149,800
649,800
Income tax still due
99,200
========
79
Problem 8-7
Taxable income Philippines
- Malaysia
- Taiwan
Total
3,000,000
2,000,000
500,000
5,500,000
=======
125,000.00
Tax on P500,000
Tax on excess
(P5,500,000 500,000) x 32%
1,600,000.00
Total
1,725,000.00
Less: Tax credit
Philippine quarterly tax
700,000.00
Malaysia
Actual
600,000.00
Limit
(P2,000,000/5,500,000) x 1,725,000 627,272.72
Lower
600,000.00
Taiwan
Actual
250,000.00
Limit
(500,000/5,500,000) x 1,725,000
156.818.18
Lower
156,818.18
1,456,818.18
Philippine income tax still due
after tax credit
268,181.82
=========
CHAPTER 9
True or False 9-1
1. True
2. False. In a general partnership, liabilities of partners
are not limited to their capital contributions.
80
6. B
7. C
8. B
9. C
10.A
1. A
2. C
3. D
4. B
5. D
6. C
7. D
8. D
9. D
10.A
Gross receipts
Less: Cost of services
Gross income
Less: Operating expenses
Net income
82
2,000,000
500,000
2,500,000
600,000
900,000
=======
450,000
10%
45,000
======
450,000
125,000
325,000
======
50,000
22,500
72,500
45,000
27,500
======
1,000,000
400,000
600,000
100,000
500,000
=======
Tax on P500,000
125,000
Less: Creditable withholding tax
45,000
Income tax still due
80,000
=======
Exercise 9-4
A
The partnership is a general
professional partnership; hence, not subject to tax.
83
Exercise 9-5
Gross receipts
Less: Cost of services
(P600,000 + 500,000)
Gross income
Less: Operating expense
Net income
Share of Peter (P1,100,000 x 1/2)
Multiplied by creditable tax rate
Creditable withholding tax
Salary received
Add: Share in the profit
gross method (P2,500,000 x 1/2)
Less: Optional standard deduction
(P1,250,000x 40%) 500,000
Total
Less: Personal exemption
(P50,000 + 75,000)
Net taxable income
Tax on P500,000
Tax on excess
(P1,225,000 P500,000) x 32%
Total
Less: Creditable withholding tax
Income tax still due
Exercise 9-6
Salary received
Add: Share in the partnership
(P1,100,000 x 1/2)
Total
84
2,500,000
1,100,000
1,400,000
300,000
1,100,000
=======
550,000
10%
55,000
=======
600,000
1,250,000
750,000
1,350,000
125,000
1,225,000
=======
125,000
232,500
357,000
55,000
302,000
=======
500,000
550,000
1,050,000
Tax on P500,000
Tax on excess
( P925,000 500,000) x 32%
Total
Less: Creditable withholding tax
Income tax still due
Exercise 9-7
Gross sales
Less: Cost of sales
Gross income
Less: Operating expenses
Net taxable income
Multiplied by
Corporate income tax
(higher than MCIT below)
MCIT (P2,100,000 x 2%)
Exercise 9-8
125,000
925,000
=======
125,000
136,000
261,000
55,000
206,000
=======
3,000,000
900,000
2,100,000
1,200,000
900,000
30%
270,000
=======
42,000
=======
85
252,000
10%
25,200
======
Compensation gross
(P350,000 + 32,000)
Less: Personal exemption
(P50,000 + 50,000)
Net taxable income
382,000
Tax on P250,000
Tax on excess
(P282,000 250,000) x 30%
Total
Less: Withholding tax
Income tax still due
Exercise 9-10
Gross income
Less: Operating expenses
(P2,500,000 x 70%)
Exemption
Net taxable income
Tax on P500,000
Tax on excess
(P730,000 500,000) x 32%
Total tax due
Problem 9-1
100,000
282,000
======
50,000
9,600
59,600
32,000
27,600
======
2,500,000
1,750,000
20,000
1,770,000
730,000
=======
125,000
73,600
198,600
=======
200,000
80,000
120,000
======
3. Gross income
500,000
Less: Operating expenses
320,000
Net income of the partnership
180,000
Multiplied by shares in the profit (6/10)
60%
Distributive share
108,000
======
4. Net income of the partnership
180,000
Multiplied by shares in profit (4/10)
40%
Distributive share on net income
72,000
======
Creditable withholding tax
(P72,000 x 10%)
7,200
======
Gross compensation
(P450,000 + 50,000)
500,000
Add: Share in partnership
(see answer # 2)
120,000
Total
620,000
Less: Personal exemption (H/F)
50,000
Net taxable income
570,000
======
Tax on P500,000
125,000
Tax on excess
(P570,000 500,000) x 32%
22,400
Total
147,400
Less: Tax credit
Withholding taxes on wages 75,000
87
7,200
82,200
65,200
======
108,000
10%
10,800
======
570,000
108,000
678,000
125,000
553,000
======
125,000
16,960
141,960
90,000
10,800 100,800
41,160
======
Problem 9-2
1. Gross income
Less: Operating expenses
Net taxable income
Multiplied by corporate tax rate
88
1,500,000
800,000
700,000
30%
Michael
210,000
=======
Albert
Problem 9-3
1. Gross income (P2,000,000 1,200,000)
800,000.00
128,511.25
25,000.00
40,000.00
193,511.25
10%
19,315.13
========
315,000
100,000
215,000
======
22,500
18,750
41,250
35,000
6,250
=====
800,000
300,000
charitable contribution
Less: Charitable contribution
Actual
Limit (P500,000 x 5%)
Lower
Net income
500,000
30,000
25,000
25,000
475,000
======
The 5% rate is used to determine the limit of the
charitable contribution, since in determining the
distributive shares of the partners, the net income of
the partnership shall be computed in the same manner
as a corporation.
Distributive share
Jonathan (P475,000 x 40%)
Leonard (P475,000 x 60%)
Multiplied by
Creditable withholding tax
Jonathan
190,000
10%
19,000
======
For Jonathan (P190,000- 19,000) 171,000
For Leonard (P285,000 28,500)
Leonard
285,000
10%
28,500
======
256,500
Gross income
Less: Operating expenses
Net income before
charitable contribution
130,000
Less: Charitable contribution
Actual
15,000
Limit 10% of income
13,000
Lower
13,000
Net income
117,000
Add: Distributive share
171,000
91
Leonard
300,000
180,000
120,000
18,000
12,000
12,000
108,000
256,500
Total
Less: Personal exemption
Taxable net income
4. Tax on P140,000
On excess (P238,000
- 140,000) x 25%
Total
Less: Creditable
withholding tax
Income tax still due
288,000
50,000
238,000
======
Jonathan
22,500
364,500
50,000
314,500
======
24,500
47,000
19,000
28,000
======
Leonard
50,000
5. Tax on P250,000
On excess (P314,500
250,000) x 30%
Total
Less: Creditable
withholding tax
Income still due
19,200
69,200
28,500
40,700
======
Problem 9-5
1. Gross income
Less: Business expenses
Income distributed
to beneficiary
2,500,000
3,000,000
100,000
2,600,000
Income before charitable deduction
400,000
Less: Charitable deduction
Actual
30,000
Limit (P400,000 x 5%)
20,000
Lower
20,000
Net income before exemption
380,000
92
Less: Exemption
Net taxable income
20,000
360,000
=======
Tax on P250,000
50,000
On excess (P360,000 250,000) x 30%
33,000
Tax due and payable
83,000
=====
2. Income received from estate
Less: Optional standard deduction
(P100,000 x 40%)
Income before exemption
Less: Personal exemption (single)
Net taxable income
100,000
40,000
60,000
50,000
10,000
======
Tax on P10,000
500
======
The administrator did not subject the income
transferred to the beneficiary to 15% creditable
withholding tax.
Problem 9-6
1. Gross income
Less: Business expenses 3,500,000
Income transferred
to beneficiar
300,000
Net income
Less: Personal exemption
(during death)
Net taxable income
Tax on P500,000
On excess
(P1,150,000 500,000) x 32%
93
5,000,000
3,800,000
1,200,000
50,000
1,150,000
=======
125,000
208,000
Total
Less: Quarterly tax paid
Income tax still due
333,000
250,000
83,000
======
2.Compensation income
(P800,000 25,000 20,000)
Add: Income from the estate
Less: Optional standard deduction
(P150,000 x 40%)
60,000
Total
Less: Basic personal exemption
Net taxable income
Tax on P500,000
Tax on excess
(P795,000 500,000) x 32%
Total
Less: Withholding tax
160,000
Creditable withholding tax
(P150,000 x 15%)
22,500
182,500
Income tax still due
755,000
150,000
90,000
845,000
50,000
795,000
======
125,000
94,400
219,415
36,915
======
3. Compensation income
(P500,000 15,000 18,000)
467,000
Add: Income from the estate
150,000
Less: Optional standard deduction
(P150,000 x 40%)
60,000
90,000
Total
557,000
Less: Basic personal exemption
50,000
Net taxable income
507,000
======
Tax on P500,000
125,000
94
Tax on excess
(P507,000 500,000) x 32%
Total
Less: Withholding tax
Creditable withholding tax
(P150,000 x 15%)
2,240
127,240
90,000
22,500
112,500
14,740
====
Problem 9-7
1. The trust being revocable is not subject to income tax;
hence, the income of the trust will be added to the
gross income of the trustor or grantor.
2. Gross income
Less: Expenses
Income transferred
to the beneficiar
Exemptio
Net Taxable income
2,000,000
1,600,000
150,000
20,000
1,770,000
230,000
=======
Tax on P140,000
22,500
On excess (P230,000 140,000) x 25%
22,500
Tax due
45,000
=====
Problem 9-7
1.
Trust 1
800,000
500,000
180,000
100,000
Gross income
Less: Expenses
Amount transferred
Net income before
personal exemption
Less: Personal exemption
120,000
20,000
95
Trust 2
500,000
300,000
680,000
400,000
100,000
20,000
100,000
======
Tax on P70,000
On excess
(P100,000 70,000) x 20%
(P80,000 70,000) x 20%
Taxes due
2. Consolidated income
Gross income
Less: Expenses
Amount transferred
Net income
Less: Personal exemption
Net taxable income
Trust 1
8,500
6,000
14,500
=====
80,000
======
Trust 2
8,500
14,500
10,500
10,500
=====
1,300,000
800,000
280,000 1,080,000
220,000
20,000
200,000
=======
Tax on P140,000
On excess (P200,000 140,000) x 25%
Total
Less: Taxes paid
Trust 1
14,500
Trust 2
10,500
Income tax still due
3.
Trust 1
Allocation of the P22,500
Trust 1
(P120,000/220,000) x 37,500
Trust 2
(P100,000/220,000) x 37,500
Allocated taxes
Less: Taxes paid
Income tax still due
4. Gross income from trusts
( P180,000 + 100,000)
22,500
15,000
37,500
15,000
22,500
=====
Trust 2
20,454.55
17,045.45
20,454.55 17,045.45
14,500.00 10,500.00
5,954.55
6,545.45
======= =======
280,000
96
50,000
230,000
======
22,500
22,500
45,000
42,000
3,000
=====
Chapter 10
True of False 10-1
1. False. Corporation is created by the operation of law.
2. False. The concept of corporation for income tax
purposes does not include a general professional
partnership, since the latter is not subject to tax.
3. True
4. False. A resident foreign corporation is subject to
income on its income from within the Philippines only.
5. True
6. False. There is no need to prorate the unidentified
income, since it is a domestic corporation. It is
taxable on its income from within and outside the
Philippines.
7. False. A non-resident foreign corporation is subject to
tax based on its gross income.
8. False. A non-resent foreign corporation is subject only
to 30% normal tax rate effective January 1, 2009.
9. True
10. True
97
10. True
Multiple Choice 10-1
1. D
2. C
3. B
4. B
5. A
6. B
7. B
8. D
9. C
10.B
Exercise 10-1 B
Gross income
( P12,000,000 + 3,000,000)
Less: Itemized deduction
(P7,000,000 x 1,800,000)
Taxable net income
Multiplied by
Income tax liability
Exercise 10-2
8,800,000
6,200,000
30%
1,860,000
========
15,000,000
1,500,000
=======
Multiplied by
Normal corporate income tax
Exercise 10-4
Gross income
(P14,000,000 + 1,500,000)
Less: Business expenses
Taxable income
Multiplied by
Income tax liability
Exercise 10-6
4,000,000
200,000
4,200,000
30%
1,260,000
=======
15,500,000
9,000,000
6,500,000
10%
650,000
========
30%
1,080,000
=======
4,000,000
2,500,000
6,500,000
30%
1,950,000
=======
125,000
======
Exercise 10-8
A
The school being a governmentowned institution is tax-exempt.
Exercise 10-9
750,000
======
1,125,000
=======
60,000
=====
72,000
72,000
=====
MCIT
NCIT
Excess of MCIT over NCIT to be
carried forward to succeeding 3 years
Exercise 10-15
60,000
72,000
60,000
12,000
=====
60,000
=====
Dividend received from AA Company was tax-exempt.
Exercise 10-16
Gross income
Add: Other income
Total
Less: Business expenses
Net income before contribution
Less: Charitable contribution
deductible in full
Subject to limitation
(P2,300,000 x 5%)
215,000
Net taxable income
Multiplied by
Normal corporate income tax
102
8,000,000
300,000
8,300,000
6,000,000
2,300,000
100,000
115,000
2,085,000
30%
625,500
=======
Exercise 10-17
160,000
======
Gross income
(P12,000,000 7,500,000)
Less: Business expenses
Net operating loss 2008
Taxable net income
Multiplied by
Normal corporate tax
Exercise 10-19
4,500,000
4,000,000
300,000
4,300,000
200,000
30%
60,000
=======
Exercise 10-20
90,000
=====
175,000
======
Problem 10-1
Direct flight from Philippines to London
Direct flight from Philippines to Paris
Transferred flights from Philippines
to Paris transferred for London
[P7,200,000 x (P6,000/P9,000)]
Total receipts from Philippines
Multiplied by
103
13,500,000
12,000,000
4,800,000
30,300,000
.025
757,500
========
Problem 10-2
NCIT
7,000,000
1. Gross income
Add: Interest income
on receivable
Total
Less: Business expenses
Taxable net income
Multiplied by
Income tax liability
MCIT
7,000,000
200,000
7,200,000 7,000,000
5,000,000
2,200,000 7,000,000
30%
2%
660,000
140,000
======= =======
2.
NCIT
MCIT
4,000,000 4,000,000
3,100,000
900,000 4,000,000
30%
2%
270,000
80,000
======= =======
Gross income
Less: Business expense
Taxable net income
Multiplied by
Income tax liability
4,950,000
2,300,000
2,650,000
1,800,000
850,000
850,000
=======
255,000
53,000
255,000
=======
850,000
60,000
80,000
140,000
Total
Less: Income tax paid
255,000
Final tax on interest
(P60,000 48,000)
12,000
Improperly accumulated earnings
990,000
267,000
723,000
======
477,000
53,000
477,000
=======
1,590,000
1,450,000
Income tax paid
267,000
1,183,000
=======
4,200,000
2,700,000
1,500,000
50,000
1,550,000
=======
465,000
93,000
80,000
2. Gross income
Less: Business expenses
Net taxable income
Income tax (P1,200,000 x 30%)
Less: Tax credit
Philippine tax paid
150,000
Excess minimum
corporate income tax
80,000
Income tax still due
323,000
142,000
=======
3,000,000
1,800,000
1,200,000
=======
360,000
230,000
130,000
=======
Problem 10-6
1. Year 2006
NCIT
(P3,000,000 2,900,000) x 30%
MCIT
(P3,000,000 x 2%)
Income tax due higher
30,000
60,000
60,000
=====
2. Year 2007
NCIT
(P5,500,000 4,800,000) x 30%
MCIT
(P5,500,000 x 2%)
Income tax due higher
Less: Excess of MCIT last year \
(P60,000 30,000)
Income tax still due
107
210,000
110,000
210,000
30,000
180,000
======
3. Year 2008
NCIT
(P7,000,000 6,800,000) x 30%
MCIT
(P7,000,000 x 2%)
Income tax due (higher)
60,000
140,000
140,000
======
Problem 10-7
1.Gross income
(P6,000,000 + 2,000,000 + 3,000,000)
11,000,000
6,000,000
4,800,000
1,200,000
30%
360,000
========
3. Gross income
Multiplied by
Income tax due
6,000,000
30%
1,800,000
========
4. Gross income
Multiplied by
Income tax due
6,000,000
2 1/2%
150,000
108
========
5. Gross income
Multiplied by
Income tax due
6,000,000
7 1/2%
450,000
========
6. Gross income
Multiplied by
Income tax due
6,000,000
4 1/2%
270,000
========
7. Gross income
Multiplied by
Income tax due
6,000,000
25%
1,500,000
========
8. Gross income
Less: Business expenses
Taxable net income
Multiplied by
Income tax due
6,000,000
4,800,000
1,200,000
20%
120,000
========
CHAPTER 11
True or False 11-1
1. False. The income tax credits are deductible from the
income tax due.
2. True
3. True
4. False. The amount is considered as final and full
payment of income tax is due.
5. True
6. True
109
7. True
8. True
9. True
10. False. All government units, including its
instrumentalities, can constitute as withholding agent.
True or False 11-2
1. True
2. True
3. True
4. False. Payments made to a general professional
partnership is not subject to creditable withholding tax,
being among those expressly exempted by law.
5. False. Only compensation for services rendered
within the Philippines is subject to withholding tax.
6. True
7. True
8. True
9. False. The amount of withholding tax is remitted on
before the 10th day after the end of the applicable
month.
10. True
Multiple Choice 11-1
1. A
2. B
3. B
4. C
5. D
6.
7.
8.
9.
C
C
D
C
10. B
Exercise 11-1 B
Taxable compensation income
(P18,000 1,000 500 500)
110
16,000.00
=======
On P12,083
On excess (P16,000 12,083) x 20%
Withholding tax
707.73
783.40
1,491.73
=======
Exercise 11-2 A The compensation is not subject to
withholding tax. The taxpayer is considered a
minimum wage earner.
Exercise 11-3 A
Regular compensation
(P15,000 1,000 800 500) + 4,000
On P15,800
On excess
[(16,700 15,800) + 8,000] x 15%
Withholding tax
Exercise 11-4 C
On regular compensation
(P12,000 10,000)
On excess
(P2,000 + 35,000) x 20%
Withholding tax
Exercise 11-5 D
On P15,832
On excess (P2,167 x 25%)
Withholding ax
Exercise 11-6
16,700.00
=======
208.33
1,335.00
1,543.33
=======
708.33
7,400.00
8,108.33
=======
1,875.00
541.75
2.416.75
=======
480,000
6,000
25,000
511,000
On P250,000
On excess (P161,000 x 30%)
Total
Less: Withholding tax deducted
Income tax still due
Exercise 11-8
100,000
411,000
======
50,000.00
48,300.00
98,300.00
81,597.27
16,706.73
=======
112
125,000
144,640
269,640
143,600
126,040
=====
113