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FINANCIAL ACCOUNTING AND REPORTING 1  Intra-comparability

 Inter-comparability
Conceptual Framework: Cash and Cash Equivalents
4. Understandability (ENHANCING)
Overview of the handouts: 5. Timeliness (ENHANCING) – kung kailan kailangan ang mga
1. Conceptual Framework financial statements, dapat ibigay ng on time.
2. Introduction to Financial Accounting and Reporting 6. Verifiability (ENHANCING) – Kailangan may supporting
3. Cash and Cash Equivalents documents

Objective of Financial Reporting

CONCEPTUAL FRAMEWORK
 Overall objective: to provide financial information about
 Official Name: “Conceptual Framework for
the reporting entity that is useful to existing and
Accounting/Framework for Preparation &
potential investors, lenders, and other creditors, in
Presentation of FS”
making decisions about providing resources to the entity
 Sets out the concepts used in the preparation and
 Specific Objective: to provide information about entity
presentation of financial statements for external users
resources, claims, and changes in resources prospects
 It is not a PFRS (It does not define standard for any of future net cash flows to the entity
particular measurement or disclosure issue: nothing in
the CF overrides any specific PFRS; in the case of Statement of Financial Position
conflict, the requirements of PFRS prevail over the
 Balance Sheet
Conceptual Framework)
 A formal statement showing the resources (assets),
 The purposes of the Conceptual Framework are: obligations (liabilities), and equity at given point in time
a) Assist FRSC in developing PFRS and its review Elements of Statement of Financial Position (Balance Sheet)
and adoption of existing International Financial
Reporting Standards (IFRS) Assets
b) Assist preparers of FS in applying PFRS and in
 Are resources controlled by the entity as a result of
dealing with topics that have yet to form the
past events and from which future economic benefits
subject of PFRS
are expected to flow to the entity
c) Assist auditors in forming an opinion on
whether FS comply with PFRS Liabilities
d) Assist users in interpreting information
contained in the FS  Are the present obligations of the entity arising from
past events, the settlement of which are expected to
e) Provide interested parties with information
about formulation of PFRS by FRSC. result in an outflow from the entity of resources
embodying economic benefits
Qualitative Characteristic of Useful Information
Equity
1. Relevance (FUNDAMENTAL)
 Is the owners’ residual interest in the assets of an
a) Predictive Value entity that remains after deducting its liabilities
b) Confirmatory or feedback vale
Recognition of Assets and Liabilities
2. Faithful Representation (FUNDAMENTAL)
a) Freedom for Error – no errors in financial Assets are recognized when
statements  It is probable that future economic benefits will flow
b) Neutrality – free from bias  Cost or value of can be measured reliably
c) Completeness
Liabilities are recognized when
3. Comparability (ENHANCING)
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 Probable that an outflow of resources embodying
economic benefits will result from the settlement
 Amount can be measure reliably
Current and Non-current Classification
Current Asset – when it satisfies any of the following:
1. Expected to be realized in, or is held for sale or
consumption in the normal course of the enterprise’s
operating cycle
2. Held for trading
3. Expected to be realized within 12 months after the
balance sheet date
Cash or cash equivalent, which is not restricted in its
use
- All other assets should be classified as non-current asset
- Current assets are usually listed in order of liquidity
Current liabilities – when it satisfies any of the following:
1. Expected to be settled in the normal course of the
enterprise’s operating cycle
2. Held for trading
3. Due to be settled within 12 months after balance sheet
date
Entity does not have an unconditional right to defer
settlement of the liability for at 12 months after balance
sheet date
All other liabilities should be classified as non-current
liabilities
Shareholders’ Equity – residual interest of owners in the net
assets of a corporation measured by the excess of assets over
liabilities
CASH AND CASH EQUIVALENTS
Cash
Composition of Cash
 Includes cash on hand as well as current and other
accounts maintained with banks such as the following:
a) Undeposited currency and coins – cashier;
Cash on hand
b) Petty cash – cash items kept on hand to pay
for minor expenditures
c) Demand deposits – amounts on deposit in
checking and savings accounts, respectively
d) Undeposited negotiable checks – are checks
payable to the company or bearer but not yet
presented to the bank for payment
Traveler’s checks – customer’s checks
e) Foreign currencies – converted to their pose
values
f) Bank drafts – commitments by banking
institutions to advance funds on demand by the
party to whom the draft was directed
g) Money orders – similar financial instruments
to bank drafts but are drawn generally from
authorized post offices or other financial
institutions
h) Other short-term funds for current
operations
Current liability sa cash in bank; huwag isali sa
cash equivalents
Bank overdraft is presented as an accounting liability. However,
a bank overdraft that is repayable on demand that forms part of
an entity’s cash management should be included as a component
of cash and cash equivalent
Cash Equivalents (Dapat unrestricted) (Date of purchase)
 Short-term highly liquid investments that are readily
convertible into cash and so near their maturity that
they present insignificant risk of changes in value
because of changes in interest rates. Only highly liquid
investments that are acquired three months before
maturity can qualify as cash equivalents such as the
following:
a) Three-month commercial paper or money
market instrument
b) Three-month time deposit
c) Three-month treasury bills
Valuation of Cash and Cash Equivalents in the statement of
financial position
a) Is generally valued at face amount
b) Cash in foreign currency is valued in Philippine peso
using the current exchange rate as of the balance sheet
date
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c) Cash in bank or financial institutions having financial

difficulty or in bankruptcy should be shown at its
estimated realizable or recoverable value

Financial Statement Presentation

 Show as the first item among the current assets as one

line item but details should be disclosed in the note to
financial statements

Compensating Balance

 As et of amount of cash that a firm must keep to its

checking account or saving account at all times as part
of a loan agreement
 The following are the generally accepted procedures to
disclose compensating balance:

1) Legally restricted compensating balance

a) If held as compensating balance
against short-term borrowing
arrangements, it should be stated
separately under currents assets
b) If held against long-term borrowings,
it should be separately classified as
non-current asset either in the
Investments or Other Assets
c) But under no circumstances should
it be included in the caption “Cash
and Cash Equivalents”
2) Unrestricted – should be included as part of
cash items on deposit
3) In the absence of any information –
compensating balance is always considered
restricted (if the problem is silent)
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Problem 1 – Cash and Cash Equivalents
The controller for SCHNEIZEL Co. is attempting to determine
the amount of cash to be reported on its December 31, 2014,
statement of financial position. The following information is
provided.
1) Commercial savings account of ₱600,000 and a
commercial checking account balance of ₱900,000 are
held at First National Bank of Britannia. (Demand
Deposits, Composition of Cash)
2) Money market fund accounts are held at Eleven Co. (a
mutual fund organization) permits Eastwood to write
checks on this balance, ₱5,000,000. (Cash
Equivalents)
3) Travel advances of ₱180,000 for exclusive travel for the
first quarter of next year (employee to reimburse
through salary reduction). (Advances to Employees)
(not included)
days. (not included) (120 days – 4 months – short
term investments)
9) Schneizel has received a check that is dated January 12,
2015, in the amount of ₱125,000. (not included)
(Received check (postdated on January 12, 2015) Its
December, so it can’t be recorded yet) (accounts
receivable)
10) Schneizel has agreed to maintain a cash balance of
₱500,000 at all times at First National Bank of Britannia
to ensure future credit availability. (agreed, restricted,
compensating balance means it has maintaining
balance) (not included) (separate classification)
11) Schneizel has purchased ₱2,100,000 of commercial
paper of Suzaku Co. which is due in 60 days. (Cash
Equivalents)
12) Currency and coin on hand amounted to ₱7,700.
(Foreign Currencies) (Composition of Cash)

4) A separate cash fund in the amount of ₱1,500,000 is Required:

restricted for the retirement of long-term debt. (not
Compute the amount of cash and cash equivalents to be
included)
reported on Schneizel Co.'s statement of financial position at
5) Petty cash fund of ₱1,000. (Petty Cash, Composition of December 31, 2014
Cash)
Solution:
6) An I.O.U. (I owe you) from Marianne, a company
customer, in the amount of ₱190,000. (Accounts Cash and Cash Equivalents
Receivable) (not included)
Commercial Savings Account ₱600,000
7) A bank overdraft of ₱110,000 has occurred at one of the
banks the company uses to deposit its cash receipts. At Commercial Checking Account ₱900,000
the present time, the company has no deposits at this Money Market Fund Account ₱5,000,000
bank. (not included) (current liabilities)
Petty Cash Fund ₱1,000
Note: Bank Overdraft (no other account) (negative
balance) Commercial Paper ₱2,100,000

Currency and Coin ₱7,700

Cash in Bank, BPI (110,000)
Example other, BPI account (200,000) ₱8,608,700
Net
Overdraft Problem 2 – Cash and Cash Equivalents
 sumobra sa gastos si company pero wala na
The controller of Westeros Company, in an attempt to
siyang balance sa bank.
determine the amount to be reported on its December 31, 2014
 Can be net if may another account pero dapat
statement of financial position as cash and cash equivalents, has
same bank.
identified the following items:
8) The company has two certificates of deposit, each
totaling ₱500,000. These CDs have a maturity of 120
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 Correct cash balance in BPI, restricted for payroll equivalent pesos)

payment, ₱350,000 (included) (payroll fund siya kaya (included) (Foreign
kasali) Currencies)
 Special account in BDO used as a bond sinking fund,
Savings deposit in a closed 150,000
₱350,000 (not included) bank (not included)
 Postal money orders, ₱90,000 (included)
(Composition of Cash) Postage stamps (not 1,000
 Treasury warrants, ₱100,000 (included) (It is like included) (Prepaid
treasury bill) expense)
 Check from a customer on hand dated January 2, 2013,
Employee’s postdated 4,000
₱180,000 (not included) (it should be encash) (stale
check (not company’s)
check) (6mos. No check) (not included)
 Traveler’s check on hand, ₱200,000 (included)
 Utility deposit receipt (made to Essos Company), IOU from employees 10,000
₱250,000 (not included) (wala na siya sayo) (Accounts Receivable)
 Checks to suppliers on hand (dated December 29, 2012), (not included)
(Advances)
₱45,000 (included) (undelivered check)

Required: Credit memo from a vendor 20,000

The amount to be reported by WESTEROS Company as cash and for a purchase return
(Purchase Return from
cash equivalents is
vendor) (not included)

Solution: Traveler’s check 50,000

(included)
Cash and Cash Equivalents
Money order 30,000
Payroll Payment ₱350,000 (included) (Composition
of Cash)
Postal Money Orders ₱90,000
Treasury Warrants ₱100,000 Petty cash fund 10,000
Traveler’s check on hand ₱200,000 (P4,000 in currency and
Checks to suppliers on hand ₱45,000 expense receipts for
P6,000) (included)
₱785,000
(Composition of Cash)

Pension Fund (investment 2,000,000

Problem 3 – Cash and Cash Equivalents
– long term fund) (not
The following data pertain to DANVERS Corporation on December included)
31, 2014:
DAIF (NSF) check of 15,000
customer (not included)
Current account at P1,800,000
Metrobank (Demand Customer’s check dated 80,000
Deposits) 1/1/15 (postdated) (not
included)
Current account at Allied (100,000)
Bank (not included) (Bank Time deposit – 30 days 200,000
Overdrafts) (Cash Equivalents)
(included) (30 days – 1
Payroll account (included) 500,000 month)

Foreign bank account (in 800,000 Money Market Placement 500,000

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(due 6/30/15) (not Balance per books ₱6,540

included)

Treasury bills, due 3/31/15 200,000 Month of July Results

(purchased 12/31/14)
(within 3 months till due Per Bank Per Books
date) (included)
Balance July 31 ₱8,650 ₱9,250
Treasury bills, due 1/31/15 300,000
(purchased 1/1/14) (not July deposits 5,000 5,810
within 3 months till due
date) (not included) July checks 4,000 3,100

July note collected (not 1,000 ---

Required:
include in July deposit)
Compute for the cash and cash equivalents that should be
reported on the December 31, 2014 statement of financial position July bank service charge 15 ---
of DANVERS Corporation.
July NSF check from a 335 ---
Solution: customer, returned by the
Cash and Cash Equivalents bank (recorded by bank as

Current Account at Metrobank ₱1,800,000 a charge)

Payroll Account ₱500,000 Required:

Foreign bank account (in equivalent pesos) ₱800,000 a) Prepare a bank reconciliation going from balance per
bank and balance per book to correct cash balance.
Traveler’s check ₱50,000
b) Prepare the general journal entry or entries correct the
Money order ₱30,000
Cash Account.
Petty cash fund ₱4,000
Note:
Time deposit – 30 days ₱200,000
Book Bank
Treasury bills ₱200,000

₱3,584,000 Credit Memo Deposit in Transit

Debit Memo Outstanding Checks

Problem 4 – Bank Reconciliation
Error Error
PEARSON-SPECTER Company deposits all receipts and makes all
payments by check. The following information is available from the Credit Memo
cash records.
 Collected by bank; not recorded by book
June 30 Bank Reconciliation
Debit Memo
Balance per bank ₱7,000
 NSF (recorded by book, must be deducted); Bank
Add: Deposits in transit 1,540 Service Charge
Deduct: Outstanding checks (2,000)
Outstanding Checks – not yet encashed
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Deposits during ₱32,200 41,569

August
Solution:
Note collected for 1,040 42,609
Unadjusted Balance per book ₱9,250
depositor, including
Add: Credit Memo ₱40 interest

July Note collected 1,000 Checks cleared ₱34,500 8,109

10,250 during August

Less: Debit Memo Bank service 20 8,089

charges
July Bank service charge ₱15
Balance, August 31 8,089
July NSF check 335 350
The general ledger Cash account contained the following entries f
Adjusted Balance per book ₱9,900
or the month of August.
Journal Entries:
Cash
Cash in Bank 1,000
Balance, August 1 10,050 Disbursements in August 34,903
Notes Receivable 1,000

# Receipts during August 35,000

Bank Service Charge 15

Cash in Bank 15 Deposits in transit at August 31 are ₱3,800, and checks

# outstanding at August 31 total ₱1,050. Cash on hand at August 31

is ₱310. The bookkeeper improperly entered one check in the
Accounts Receivable 335
books at ₱146.50 which was written for ₱164.50 for supplies
Cash in Bank 335 (expense); it cleared the bank during the month of August

# Required:

a) Prepare a bank reconciliation dated August 31, 2014,

Problem 5 - Bank Reconciliation proceeding to a correct balance.
Keating Company has just received the August 31, 2014, b) Prepare any entries necessary to make the books
bank statement, which is summarized below. correct and complete.

Country National Disbursements Receipts Balance c) What amount of cash should be reported in August 31

Bank statement of financial position?

Balance, August 1 ₱9,369 Solution:

Per Book
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Unadjusted Balance per book ₱10147

Add: Credit Memo

Notes Collected 1040

11187

Less: Debit Memo

Bank Service Charge 20

Supplies Expense 18

Adjusted Balance per book ₱11149

Per Bank

Unadjusted Balance per bank ₱8089

Add: Deposit in Transit 3800

Total 11889

Less: Outstanding Check (1050)

10839

Add: Error 310

Adjusted Balance per bank ₱11149

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INCOME TAXATION Similarities

General Principles and Introduction to Income Taxation 1) Inherent in the State

Overview of the handouts 2) Exist independently of the Constitution
 Definition of Taxation Taxation – Tax Law
3) Constitute three methods by which the State interferes
 Purpose of Taxation - Income Taxation with private rights and property

 Limitations of Taxation - Business Taxation 4) Legislative in nature and character

 Types of Income Taxpayers 5) Each presupposes an equivalent compensation

DEFINITION (CIR vs. ALGUE) Distinctions (Differences)

Inherent power of the sovereign state exercised by a) As to purpose

the legislature imposing proportionate amount upon Taxation Raise revenue
transactions, objects, people, etc. to raise revenue in order
to defray government expenses. Police Power Promote general welfare

“Inherent power of the sovereign state…” Eminent Domain Public Purpose

Taxation is inherent in sovereignty; hence, it may be exercised Note:

although not expressly granted by the Constitution
 Taxation – BIR and Bureau of Customs
Inherent Powers of the State (Legislative)
 Police Power – PNP
1) Taxation Power
 Eminent Domain – All branches; Meralco, Pelco, among
 Enforce proportional contribution from its others)
subjects to sustain itself.
b) As to authority which exercises the power
2) Police Power
Taxation Government
 General power of the state to enact laws to
Police Power Government
protect the well-being of the people
Eminent Domain Government and Public Utilities
 Etchagaray vs. People of the Philippines

3) Eminent Domain
c) As to persons affected
 Power of the state to take private property for
public use after paying just compensation Taxation Community

 Aglipay vs. People of the Philippines (10-15 Police Power Community

years compensation
Eminent Domain Owner of Property
Note:

 They exist even without Constitution

d) As to importance
 Philippine Constitution of 1987
Taxation Most important (Lifeblood
o Laws made must abide the Constitution Doctrine)

Police Power Most important (Most superior

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– encompassed Taxation and  Burden of proof: Taxpayer (in case the law is vague)
Eminent Domain)

Eminent Domain Important

Taxpayer must show proof of tax exemption

PURPOSE OF TAXATION
e) As to what is taken
“… to raise revenue…” (main purpose)
Taxation Money
a) The principal (primary) purpose is REVENUE PURPOSE
Police Power Rights (for gov'tal needs)

Eminent Domain Property b) Secondary purpose:

a) Compensatory purposes

f) As to amount of imposition I. Reduce excessive inequalities of

wealth
Taxation Unlimited (It is unlimited as to
amount; It is limited as to tax II. Maintain high level of employment
laws like VAT 12%)
III. Control inflation (Higher Price, Low
Police Power Limited (cost of regulation) demand, low inflation)

Eminent Domain No amount (just compensation) b) Sumptuary or regulatory purpose

 To implement the police power

g) As to relationship to the non-impairment of
Note:
obligations clause of the Constitution
Poll Tax – Cedula; can be not paid without getting jailed.

Taxation Inferior
Theory of Taxation
Police Power Superior
 Existence of the gov't is a necessity, but it cannot
Eminent Domain Superior
continue without means to pay its expenses, thus, has a
right to compel all its citizens and property to contribute
“…exercised by the legislature…”
Basis of Taxation
Taxation is legislative in character, hence, only legislature can
impose taxes  The basis is the reciprocal duties of protection and
support between the State and its inhabitants
Tax Law
 The State collects taxes from the subjects of taxation
 In favor of the government in order that it may be able to perform the functions of
Benefits

government
 RELATIVE majority (50% + 1 vote of all the QUORUM)
 The citizens pay taxes in order that they may be secure
Tax Exemption d in the enjoyment of the benefits of organized society
 Against the government (benefits received theory)

 ABSOLUTE majority (50% + 1 vote of all MEMBERS

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Lifeblood Theory are subject to tax (e.g. LBP) (Land Bank is

taxable)
 Taxes are the lifeblood of the government and their
prompt and certain availability are imperious  SSS, GSIS, PhilHealth, Local Water District, (under
(expecting obedience) need TRAIN Law) are not taxable

 Upon taxation depends the government's ability to serve N Non-Delegation of Taxing Power
the people for whose benefit taxes are collected.
 Tax power can’t be passed
Processes Embodied in the Term 'Taxation'
 Legislative has the tax power
a) Levying or imposition of tax which is a legislative act.
 The President fixes tariffs and other international
b) Collection of the tax levied which is essentially taxation matters.
administrative in character.
 Exceptions:

Basic Principles of a Sound (Good) Tax System (Canons of I. President to fix tariff rates, import/export
Taxation) quotas, tonnage, wharfage dues, and other
duties

a) Fiscal Adequacy – This means that the sources of
revenue, should be sufficient to meet the demands of
public expenditures (enough; has enough sources to
pay expenditures; no deficits)
b) Theoretical Justice – This means that the tax burden
should be proportionate to the taxpayer's ability to pay
(ability to pay principle) (according to the ability of tax
payers to pay)
c) Administrative Feasibility – This means that the laws
should be capable of convenient, just and effective
administration. (tax system is easy to implement;
example online registration of taxes)
LIMITATIONS OF TAXATION
Although inherent and legislative in character, TAXATION
is subject to Constitutional and Inherent Limitations:
II. Local Government have power to create its
own sources of revenue
III. Delegation to administrative agencies for
implementation of tax laws, and collection to
BIR
T Territoriality
 The levy must apply within territorial limits
 Except: Resident Citizen and Domestic Corporation
(taxable within and without)
I International Comity
 Treaties are followed
 Cannot tax foreign ambassador nor impose real
property taxes upon foreign embassies
 Foreign embassy and ambassador can’t be taxed.
Constitutional Limitations

Inherent Limitations  1987 Philippine Constitution

P Public Purpose  Due process

 Must be for public use  Equal protection of the law

E Exemption of the Gov't, any political subdivision thereof,  Uniform

or agencies performing PURELY governmental functions
 Non-imprisonment for non-payment of poll tax
 GOCCs, Gov't Agencies which do not perform
governmental function and are engaged in business  Progressive
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Double Taxation TYPES OF INCOME TAXPAYERS

Same subject I. Individuals

Same purpose a. Resident Citizen (RC)

Must be complete
Same time frame b. Non-Resident Citizen (NRC)
to be direct
Same jurisdiction c. Resident Alien (RA) (foreigner; has purpose
of living here)
Same type
d. d. Non-Resident Alien – Engage in Trade or
 Direct – all are present
Business (NRA-ETB)
 Indirect – one of them is missing
e. e. Non-Resident Alien – Not Engage in Trade or
Escape from Taxation Business (NRA-NETB)

A. Results to loss of government revenue II. Corporation

1) Evasion – illegal (trickery) (Example: Adjust a. Domestic Corporation (DC) – established

(decrease) income or increase expenses) under PH Law

2) Avoidance – legal (choosing options allowed b. b. Resident Foreign Corporation/Resident

by law) Corporation (RFC/RC) – branch

3) Exemption – granted by constitution, law, or c. c. Non-Resident Foreign Corporation/Foreign

contract Corporation (NFRC/FC) – does not operate in
the PH
a) A.k.a. Tax Holiday – e.g. BOI

I. Pioneer – 6 years 1987 Philippine Constitution, Art. IV Sec. 1:

II. Non-pioneer – 4 years a. Those who are citizens of the Philipines at the time of
B. Do not result to loss of gov't revenue the adoption of this Constitution (February 2, 1987)

1. Shifting – transferring burden to another b. Those whose fathers or mothers are citizens of the
party Philippines

a. Forward – normal flow of
distribution
b. Backward – opposite of backward
c. Onward – exhibits both forward and
backward
c. Those born before January 17, 1973, of Filipino mothers,
who elect Philippine citizenship upon reaching the age
of majority; and
d. Those who are naturalized in accordance with law.
1-3: Natural-born citizens

2. Transformation – elimination of wastes or 4: Naturalized citizens

losses

3. Capitalization – adjustment of the value of Note:

asset Jus Sanguinis

- Latin: Right of Blood

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Jus Soli
NRA-ETB ✓
- Territory Final Tax only
NRA-NETB ✓
Residence
Corporate
 Intention
DC ✓ ✓
 Length of stay
RC ✓
a. Resident
FC ✓
 without definite intention as to his stay

 for a definite purpose but would require an

Additional Information:
extended stay
Taxation
 less than 183 days abroad

b. Non-resident  Proportional

 Visa holder: migration, study, working o 12% for all

 For tourist visa (3+3 months) after 6 months – o Doesn’t care of equity of income
considered TNT (thus, non-resident)
 Progressive
 183 days or above abroad
o According to income
Note:
o Increase Income, Increase Tax Rate and vice
Priority
versa
 Intention
 Regressive
 Length of stay
o Opposite
 Visa
o Pro-rich
Non-resident Aliens
o Increase Income, Decrease Tax Rate and vice
a. ETB – more than 180 days in PH versa

b. NETB (Not Engaged in Trade and Business) – 180 and below o To encourage poor to work harder

General Rules in Income Taxation Stages of Taxation

Taxable on income earned
1. Levy/Levying/Imposing
Individual Within Without
o Legislative imposes taxes.
RC ✓ ✓
2. Collection
NRC ✓
o BIR collects taxes.
RA ✓
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3. Payment  Assessment/Enforcement System – control procedur

es of BIR, auditing a business, among others.
o Compliance of citizens.
Marshall Doctrine
Income Taxation
- The power to tax involves the power to destroy
 Regular Income Tax
- Discourage people
o Tax bracket.
- Example: Excise tax (cigarettes and alcoholic beverages)
 CGT (Capital Gain Tax)
Holmes Doctrine
o If used, regular income tax and final tax will not
be taxed. (Tax avoidance) (Eminent Domain) - Taxation power is not the power to destroy while the
court sits.
 Final Tax
- Power to build
Resident Foreign Corporation
- Example: Encourage to build business in eco zone
 Foreign Corporation in Philippines
because they have less tax or not taxable.
 Established by law (Foreign)

Non-resident Corporation

 No branch in Philippines

Situs – place of taxation

 Business is taxed where it is situated.

 Service fees are subject to tax where they are

rendered.

 Sale of Goods – Gain on sale is subject to tax on place

of sales.

 Property tax situs – real property tax; where the

property is located

 Personal tax situs – persons are taxable in their place

of residence.

Tax Collection System

 Withholding System – tax deducted in salary

 Voluntary Compliance System – Filing ITR in BIR;

Example, lawyers
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1. Assume there are 100 congressmen in the Philippines. A tax
exemption law is being passed for educational institutions
catering for blind. There are only 70 congressmen who attended
the congressional consideration of the proposed exemption law. It
only takes 36 votes for this law to be approved. False. It should
be 51.
2. Lost Believers is a religious institution which focuses on the
counselling and redirection of the life of crazy people. Due to its
benevolence and charitable achievements, the Philippine
Government grants a 1-hectare lot to Lost Believers to build on a
chapel. This grant is void because of non-appropriation for
religious purposes. True. Bawal magappropriate ang
government sa religious sector
3. Eminent domain refers to the power to take public property for
private use after paying just compensation. False. Public use.
4. Police power being the most superior power of the State is not
subject to any limitation. False. It has Constitutional and
Inherent limitations.
5. Taxation power shall be exercised by Congress even without an
express Constitutional grant. True.
6. Taxes may be collected even in the absences of a law since
obligation arising from law is always presumed. True.
13. The aspects (stages) of taxation are share by the legislative
and executive departments. True.
14. Only the government may exercise the three inherent powers
of a state. False. Also, public utilities can.
15. Our National Internal Revenue Laws are civil in nature. True.
16. Taxation is unlimited as to the amount of imposition. True.
17. In case of doubt, tax statutes are construed liberally in favor of
the government and strictly against the government and liberal in
favor of the taxpayer. True.
19. Exemptions from taxation are highly disfavored in law and he
who claims tax exemption must be able to justify his claim. True.
20. No person shall be imprisoned for debt or non-payment of poll
tax. True.
21. A purchaser who asks for discount or refuses to but at regular
prices (unless it is reduced by the amount equal to tax he will pay)
is an example of a scheme of shifting the incidence of taxation.
False. Because “discount”.
22. The provisions of taxation in the Philippine Constitution are
grants of power enabling the state to impose taxes. False. It
should be limits not grants.

7. In case of conflict between the provisions of a tax treaty and 23. In Police Power of the State, the person who is parting with his
domestic law, the tax treaty shall prevail. True. Treaties are money or property is presumed to receive a benefit. False.
always honored before domestic laws. It should be Taxation Power not Police Power.

8. The tax exemption of properties used by diplomats or heads of 24. For thee exercise of the power of taxation, the state can tax
states in the exercise of sovereign powers and diplomatic anything at any time. True,
functions is a constitutional limitation. False. Both Constitutional
25. Power of eminent domain may ne exercised by public service
and Inherent Limitations.
companies and private utilities. False. Public utilities.
9. Schneizel, a Canadian citizen, who stayed in the Philippines for
181 days is taxable within. True. ETB.

10. Cornelia, an American citizen, married Clovis, a resident

citizen. She had been living in Manila since 1999. Cornelia's income
is taxable within and without the Philippines. False.

11. Euphemia, a native of Italy, now a naturalized Filipino citizen and

living in Quezon City since 2000 is taxable within and without the
Philippines. True.

12. Odysseus, a Filipino citizen born in Sampaloc Manila but

working as overseas contract worker in Spain is taxable on his
income within the Philippines. True. NRC.