solutions manual transfer & business taxation, 2015 …

SOLUTIONS MANUAL

TRANSFER & BUSINESS TAXATION, 2015 EditionBy: TABAG & GARCIA

CHAPTER 1 – SUCCESSION & TRANSFER TAXESTRUE OR FALSE

1. TRUE 6. TRUE 11. FALSE 16. TRUE2. TRUE 7. FALSE 12. TRUE 17. FALSE3. FALSE* 8. FALSE 13. TRUE 18. TRUE4. FALSE 9. TRUE 14. TRUE 19. TRUE5. FALSE 10. FALSE 15. FALSE 20. TRUE

*The taxpayer for estate tax purposes is the estate as a juridical person.MULTIPLE CHOICE

1. D 12. C 23. D 34. D 45. B2. A 13. C 24. B 35. B 46. C3. D 14. B 25. D 36. B 47. D4. C 15. D 26. D 37. D 48. D5. C 16. C 27. B 38. B 49. A6. A 17. B 28. D 39. D 50. B7. B 18. D 29. A 40. D 51. A8. A 19. C 30. D 41. B 52. D**9. B 20. B 31. B 42. D 53. D

10. A 21. B 32. A 43. B 54. D11. D 22. B 33. D 44. B 55. B

**Inheritance and repudiation takes effect upon death of the decedent

CHAPTER 2 – GROSS ESTATE

1 | T r a n s f e r & B u s i n e s s T a x a t i o n ( 2 0 1 5 E d i t i o n ) b y T a b a g a n d G a r c i a

PROBLEM SOLVING(P2.1) (1) P19,300,000 (2) P19,300,000 (3) P11,800,000 (4) P14,300,000

Citizen/Resident(# 1 & 2)

NRA with R

(# 3)

NRA w/o R

(# 4)Family home in the Philippines P8,000,000 P8,000,000 P8,000,000Parcel land of with vacation house in Malaysia 5,000,000Farm land in the Philippines 3,000,000 3,000,000 3,000,000Shares of stock of a domestic corporation deposited in a bank safety deposit box in Malaysia

2,000,000 2,000,000

Shares of stock of a foreign corporation the entire business of which is in the Philippines, deposited in a bank safety deposit box in Malaysia

500,000 500,000

Receivable from a friend who has no property whatsoever 300,000 300,000 300,000Receivables under insurance policies:

Life insurance policy, taken by the decedent on his own life, with his estate as revocable beneficiary

200,000 200,000 200,000

Life insurance policy, taken by the decedent, with his daughter as revocable beneficiary

300,000 300,000 300,000

Life insurance policy, taken by the decedent on his own life, with his son as irrevocable beneficiary

- - -

Life insurance (group) taken by the employer of the decedent, with the estate as revocable beneficiary

- - -

Property insurance, for a loss of property 50,000 50,000 50,000 Accident insurance, for injury sustained 50,000 50,000 50,000

TOTAL GROSS ESTATE P19,300,000 P11,800,000 P14,300,000

(P2.2)To Juan P25,000,000To Pedro 18,000,000To Maria 15,000,000To Sisa 20,000,000Total Gross Estate P78,000,000

(P2.3)Shares of stock (Frozen Co.)[(P8M+3M)/800,000sh x 100,000 shares P1,375,000Shares of stock (Divergent Co..)100,000 shares x P15** 1,500,000Shares of stock (Lenovo Co..)100,000 shares x P12 1,200,000Total Gross Estate P4,075,000

***Mean value shall be used only if the quotation price at the date of death is not determinable (RR 2-2003)

(P2.4) (1)P230,0000; (2)P1,100,000; (3)P0; (4)P5,000,000; (5)P1M + [1M x (1M x 10% x 1.5)] = P1,150,000

MODIFIED IDENTIFICATIONEXERCISE A

1. Included 6. Excluded2. Included 7. Excluded *3. Excluded 8. Included **4. Included 9. Excluded


5. Excluded 10. Included****Designated by the prior decedent**Exclusions from the gross estate. Nonetheless, the tax code requires these items to be included first in the gross estate before deducting the same from the gross estate.*** Bequests to charitable institutions are considered exclusions from the gross estate only if the problem clearly statesthat not more than 30% were used for administrative purposes. However, even if not more than 30% of the bequests were used for administrative purposes, the tax code still require these items to be included first in the gross estate before deducting the same for estate tax purposes.

EXERCISE B EXERCISE C1. P0; valid sale2. P0; valid sale3. P0; valid sale4. P4,000,0005. P6,000,000

1. P10M2. P20M3. P5M4. P10M5. P0

TRUE OR FALSE1. TRUE 6. FALSE 11. FALSE 16. TRUE2. TRUE 7. FALSE 12. TRUE 17. TRUE3. TRUE 8. FALSE 13. TRUE 18. FALSE4. FALSE 9. TRUE 14. FALSE 19. TRUE5. TRUE 10. TRUE 15. FALSE 20. FALSE

MULTIPLE CHOICE1. A 16. D 31. C 46. D 61. A2. B 17. C 32. B 47. C 62. A3. D 18. B 33. A 48. C 63. C4. B 19. D 34. B 49. D 64. D5. C 20. A 35. B 50. D 65. B6. C 21. D 36. D 51. D 66. A7. A 22. A 37. C 52. C 67. C8. B 23. B 38. B 53. C 68. C9. A 24. A 39. C 54. C 69. D

10. A 25. C 40. C 55. B 70. D11. A 26. C 41. C 56. D 71. D12. B 27. C 42. B 57. C 72. A13. D 28. D 43. C 58. C 73. D14. A 29. B 44. B 59. A 74. D15. C 30. D 45. C 60. A 75. B

Supporting Computations (Multiple Choice):(22).

Bank deposit in the foreign branch of a domestic bank P500,000Bank deposit in Makati branch of a foreign bank 300,000Shares of stock issued by a domestic corporation (certificate kept in Canada)

1,000,000

Franchise exercised in Manila 800,000Receivable, debtor from Mindanao 200,000Total Exclusion from the gross estate P2,800,000

(23).


House and lot, family home in Quezon City P1,500,000Bank deposit in Makati branch of a foreign bank 300,000Shares of stock issued by a domestic corporation (certificate kept in Canada)

1,000,000

Franchise exercised in Manila 800,000Receivable, debtor from Mindanao 200,000Total Inclusion from the gross estate P3,800,000

(25).Shares of stocks, domestic corp. (certificate kept in UK)

P250,000

Shares of stocks, domestic corp. (certificate kept in Phils.)

100,000

Franchise exercised in the Phils. 200,000Receivables, debtor is from Phils. 50,000Intangibles subject to reciprocity P600,000

(26).Land & building, Philippines P2,000,000House and lot, Philippines 3,500,000Shares of stocks, domestic corp. (certificate kept in UK) 250,000Shares of stocks, domestic corp. (certificate kept in Phils.) 100,000Franchise exercised in the Phils. 200,000Receivables, debtor is from Phils. 50,000Gross Estate P6,100,000

(32). (P12M/100,000) x 1,000 shares = P120,000(33). P100 x 1,000 shares = P100,000; Par Value=P10M/100,000 = P100/share(34). P110 x 1,000 shares = P120,000(35). (P140 + P80/2) x 1,000 shares = P110,000

(43).Consideration

receivedFMV upon transfer FMV upon death Gross Estate

Land P1,500,000 P1,500,000 P2,000,000 None. Valid saleShares of stock 100,000 50,000 150,000 None. Valid saleVintage car 50,000 80,000 100,000 P50,000Painting 250,000 400,000 500,000 250,000INCLUSION IN THE GROSS ESTATE P300,000

CHAPTER 3 – DEDUCTIONS FROM THE GROSS ESTATE

PROBLEM SOLVING

(P3.1) (Funeral Expenses)Case A: P150,000Case B: P200,000Case C: P150,000Case D: P150,000

(P3.2) P0Mourning clothing (donated by the decedent’s employer) P-Expenses paid by relatives -


Telecommunication charges paid by the friends -Cost of burial plot, coffin, interment fees and other funeral chargespaid by an insurance company

-

DEDUCTIBLE FUNERAL EXPENSE -nil-

(P3.3) P183,500 computed as follows:Embalming charges P15,000Burial apparel of the decedent 3,500Cost of coffin 85,000Mourning apparel of the surviving spouse during the burial 2,000Mourning apparel of the minor child (P12,000/6) 2,000Snacks and drinks during the wake 12,500Honoraria of priest for daily masses before burial 4,000Telecommunication charges to inform relatives 10,000Charges for death notice published in a newspaper 1,500Cost of video footage of the burial and interment 12,000Funeral car service during interment 4,000Honorarium of priest who celebrated the mass during interment 2,000Cost of tombstone 30,000ACTUAL FUNERAL EXPENSE P183,500Vs. Limit (P5% of P10M) 500,000ALLOWABLE FUNERAL EXPENSE P183,500

NOTE: Hospital bills for two months of confinement before decedent’s death should be charged to “medical expenses”

(P3.4) (Claim Against Insolvent Persons)Case A: P100,000

Case B: P333,333 computed as follows:Receivable P500,000Collectible portion (400/1,200) x 500,000 (166,667)Deductible claim (Uncollectible portion) P333,333

Case C: P0. Debtor is not insolvent

CaseD: P0. Debtor is not insolventTotal Assets P1,200,000Taxes payable (Gov’t is a priority creditor) (800,000)Assets after deducting unpaid taxes P400,000

Receivable (CAIP) P500,000Collectible (400/800) x 500,000 (250,000)Deductible Claim against Insolvent Persons P250,000

(P3.5) P133,333 computed as follows:Debtor’s Assets P400,000Taxes payable (Gov’t is a priority creditor) (200,000)Assets after deducting unpaid taxes P200,000

Receivable (CAIP) P200,000Collectible (200/600) x 200,000 (66,667)Deductible Claim against Insolvent Persons P133,333


(P3.6) P2,097,000 computed as follows:Ordinary Deductions:Claim against insolvent person (500,000-400,000) P100,000Unpaid taxes on the estate before death 150,000Unpaid mortgage on the estate 200,000Funeral expenses

Actual = P182,000 + 37,500 = P219,500Limit = P5M x 5% = P250,000Maximum = P200,000

200,000

Judicial expenses 100,000Unpaid loans arising from debt instruments (notarized) 125,000Unpaid loans arising from debt instruments (not notarized). Thedebt instrument was issued by a financial institution not requiringnotarizations for debt instruments issued

75,000

Casualty loss 65,000Special Deductions:Standard deduction 1,000,000Medical expenses 82,000Total Allowable deduction from the gross estate P2,097,000

(P3.7) Question 1: P217,500

Question 2: P217,500 Same answer with question #1. Whether or not the estate was settled judicially is irrelevant in the determination of allowable deduction for judicial expenses.

Solution:Expenditures incurred for the collection of assets and payment of debts P100,000Attorney’s fees (1/2 were incurred after six months) P40,000 x 1/2 20,000Accountant’s fees 25,000Executor’s commission 15,000Appraiser’s fees 2,500Court fees 18,000Cost of preserving and distributing the estate 15,000Cost of storing or maintaining the property of the estate 12,000Brokerage fees for selling property of the estate 10,000Total allowable judicial expenses P217,500

(P3.8) P265,000 computed as follows:To the executor, for time and effort in executing the will P30,000To a lawyer, for legal advice in carrying out the will 80,000To an appraiser, for establishing property values 70,000To an accountant, for estate tax return preparation 30,000Court fees 18,000Cost of preserving and distributing the estate 15,000Cost of storing or maintaining the property of the estate 12,000Brokerage fees for selling property of the estate 10,000DEDUCTIBLE JUDICIAL EXPENSES P265,00


0

(P3.9) P2,500,000 computed as follows:Loss due to shipwreck, two (2) months after the decedent’s death. P500,000Robbery loss, seven (7) months after the decedent’s death. The decedent’sexecutor was allowed by the Bureau of Internal Revenue to extendthe filing (within the period allowed by the Tax Code) of estate tax return dueto a meritorious reason

2,000,000

Allowable Deduction P2,500,000

(P3.10) P262,500 computed as follows:Value to take P937,5001st Deduction: Mortgage paid (187,500)Initial basis P750,0002nd Deduction: Proportionate deduction(750/4,500) x 562,500 (93,750)Final Basis P656,250x Vanishing rate 40%Vanishing Deduction P262,500

(P3.11) STANDARD DEDUCTIONCase A: P1,000,000Case B: P1,000,000Case C: P1,000,000Case D: P0Case E: P0

(P3.12) MEDICAL EXPENSESCase A: P500,000Case B: P500,000Case C: P150,000Case D: P500,000Case E: P0

(P3.13) FAMILY HOMECase A: P1,000,000Case B: P500,000Case C: P0Case D: P500,000Case E: P600,000Case F: P750,000; [ (1M/2) + (500,000/2)]

(P3.14) P1,550,000 computed as follows:Funeral expenses Actual P300,000 – 120,000 = P180,000Limit = P3M x 5% = P150,000

P150,000

Standard deduction 1,000,000Medical expenses 400,000Total amount deductible from the gross estate P1,550,00

0


(P3.15) Question 1: P2,430,000 (Decedent: Resident Citizen)

Question 2: P2,430,000 (Decedent: Resident Alien) (same computation with Q#1).Domestic shares of 2,000 shares inherited 6 years ago P800,000House and lot, family home, located in Europe, inherited 2 years ago 2,000,000Jewelry items, in the Philippines at the time of death 400,000Jewelry items kept in a vault abroad 200,000Bank deposit in a Philippine branch of a U.S. bank 500,000Transfer for Public Use 250,000GROSS ESTATE P4,150,000ORDINARY DEDUCTIONS: Funeral expenses, Philippines (max.) 200,000 Judicial expenses, abroad 100,000 Judicial expenses, Philippines 50,000 Claims against the estate 120,000 Transfer for Public Use 250,000 Vanishing deductions - (720,000)SPECIAL DEDUCTIONS Standard Deduction 1,000,000 Family Home - Medical Expenses - RA 4917 - (1,000,000)NET TAXABLE ESTATE P2,430,000

(P3.16) Question 1: P2,757,500 computed as follows:GROSS ESTATE:TFPU P300,000House & lot in Makati, F. Home 1,500,000Personal properties 1,500,000Farm lot 825,000Claim against an insolvent debtor 225,000Transfer in contemplation of death 1,500,000 P5,850,000DEDUCTIONS:Funeral expenses 200,000Judicial expenses 67,500TFPU 300,000 CAIP 225,0000Unpaid mortgage on the farm lot 75,000Standard 1,000,000Medical expenses 225,000F.Home 1,000,000 (3,092,500)TAXABLE NET ESTATE P2,757,50

0

Question 2: P2,672,330 computed as follows:GROSS ESTATE:TFPU P300,000House & lot in Makati, F. Home 1,500,000Personal properties 1,500,000Farm lot 825,000Claim against an insolvent debtor 225,000Transfer in contemplation of death 1,500,000 P5,850,000DEDUCTIONS:


Funeral expenses 200,000Judicial expenses 67,500TFPU 300,000 CAIP 225,0000Unpaid mortgage on the farm lot 75,000VANISHING DEDUCTIONS** (85,170)Standard 1,000,000Medical expenses 225,000F.Home 1,000,000 (3,177,670)TAXABLE NET ESTATE P2,672,33

0Value to Take P575,000

Less: Mortgage paid (150,000-75,000) (75,000)

Initial Basis P500,000

Less: Proportionate Deduction(500/5,850 x P867,500 (74,145)Final Basis P425,855

x Vanishing Deduction Rate 20%

VANISHING DEDUCTION P85,170**

(P3.17) Question 1: P426,000 computed as follows:VTT Land P1,250,000Mortgage paid (50,000)Initial Basis 1,200,0002nd Deduction1,200/8,000 x 900,000* (135,000)Final Basis 1,065,000x Vanishing Deduction Rate 40%Vanishing Deduction P426,000*1,200+100-100600+300=P900,000

Question 2: P4,174,000 computed as follows:GE P8,000,000ELIT (600,000)TFU (300,000)VD (426,000)Stndrd (1,000,000)FHome (1,000,000)Med Exp (500,000)TNE P4,174,000

TRUE OR FALSE1. TRUE 7. TRUE 13. FALSE 19. TRUE 25. TRUE2. TRUE 8. TRUE 14. FALSE 20. TRUE 26. TRUE3. TRUE 9. TRUE 15. TRUE 21. TRUE 27. FALSE4. TRUE 10. FALSE 16. FALSE 22. FALSE 28. TRUE5. TRUE 11. FALSE 17. TRUE 23. TRUE 29. FALSE6. FALSE 12. FALSE 18. TRUE 24. TRUE 30. TRUE

MULTIPLE CHOICE


1. C 11. C 21. A 31. C 41. C2. D 12. B 22. A 32. A 42. A3. D 13. A 23. B 33. C 43. A4. C 14. A 24. B 34. B 44. C5. B 15. A 25. B 35. B 45. D6. B 16. D 26. C 36. D 46. A7. D 17. D 27. A 37. A 47. A8. C 18. C 28. C 38. D 48. A9. A 19. D 29. D 39. D 49. B

10. B 20. P650,000 30. C 40. D 50. D

Supporting Computation (Multiple Choice):(6).

Mourning clothing of the decedent’s surviving spouse P1,500Mourning clothing of the decedent’s dependent children 3,200Expenses of the wake preceding the burial 40,000Publication charges for death notices 5,000Telecommunication expenses incurred in informing relatives of thedeceased

3,000

Cost of burial plot 20,000Interment fees and charges 12,000Expenses for the performance of the rites & ceremonies incident tointerment

5,000

Actual Funeral Expenses P89,700Limit: 5% of Gross Estate (P2M x 5%) P100,000ALLOWED (Lower Amount) P89,700

(14.)Real property tax for the year 2013 P100,000Notarized interest bearing promissory note 100,000Accrued interest on the promissory note at the time of death 20,000Income tax due for 2013 200,000Allowable deductions P420,000

(20).Income tax from practice of profession - 2013 P300,000Income tax from practice of profession for Jan.-June ‘14 100,000Real property taxes for 2013 150,000Business taxes for 2013 100,000Deductible taxes P650,000

(37).Value to take/Initial Basis P900,000Mortgage paid (50,000)Initial basis 850,0002nd Deduction: (850/1,000 x P100,000**) (85,000)Final Basis P765,000X Vanishing rate 40%VANISHING DEDUCTION P306,000** Mortgage P150,000 – 50,000


(49).Shares, domestic corporation P500,000Tangible personal property 1,500,000Gross Estate 2,000,000ELIT (500,000 x 2,000/2,500) (400,000)Taxable Estate P1,600,000TAX DUE1st P500,000 P15,000In excess of P500,000 = (1,100,00 x 8%) 88,000Estate Tax Due P103,000

(50).Gross Estate (Tangible property Phils.) P6,000,000ELIT (1,200,000 x 6,000/10,000,000) (720,000)Taxable Estate P5,280,000

CHAPTER 4 – PROPERTY RELATIONS

PROBLEM SOLVING

P4.1ACP CPG

1. C E2. C C3. C E4. C E5. E E6. C E7. E E8. C E9. E E10. E E

P4.2Exclusive Common Total

Land inherited during marriage P2,400,000Other personal property owned before marriage P1,600,000Other personal property acquired during marriage 500,000Total P2,400,000 P2,100,000 P4,500,000Deductions:Funeral expenses (200,000)Judicial expenses (100,000)Vanishing deduction** (1,120,000)Net estate before special deduction and share of the surviving spouse

P1,280,000 P1,800,000 P3,080,000

Standard deduction (1,000,000)Medical expenses (500,000)Share of the Surviving Spouse (1,800,000/2) (900,000)NET TAXABLE ESTATE P680,000

VANISHING DEDUCTION**Value to Take/Initial Basis P1,500,000


Proportional Deduction (1,500/4,500 x P300,000) (100,000)Final Basis P1,400,000x Vanishing Deduction % 80%Vanishing Deduction P1,120,000

Since the problem is silent as to the type of the marriage settlement but one of the requirements is to compute for “community property”, ACP should be used. The term “community” property is applicable to ACP.

P4.3 (a)P1,624,773 (b)P4,132,955 (c)P3,691,250 (d)P321,038

Exclusive Common TotalExclusive properties P2,000,000Conjugal properties* P5,000,000 P7,000,000ELIT** (867,045)Vanishing Deductions *** (175,227)Transfer for Public Use **** (200,000)Net Estate P1,624,773 P4,132,955 P5,757,728Share of the Surviving Spouse (4,132,955/2) (2,066,478)Net Taxable Estate P3,691,2501st P2,000,000 P135,000In excess of P2,000,000 @ 11% 186,038ESTATE TAX DUE P321,038

*The problem is silent as to reciprocity, hence, the gross estate should include tangible and intangible properties within the Philippines.

**ELIT:Funeral expenses P200,000Judicial expenses 800,000Claim against the estate 1,725,000TOTAL ELIT P2,725,000X 7,000/22,000ALLOWABLE ELIT P867,045

**VANISHING DEDUCTIONS:Value to take P500,0 001st Deduction: Mortgage paid -Initial basis P500,0002nd Deduction: Proportionate deduction(500/7,000) x 867,045 (61,932)Final Basis P438,068x Vanishing rate 40%Vanishing Deduction P175,227

**** Since the properties were already classified as exclusive and common, it should be assumed that the exclusive properties were already inclusive of transfer for public use.

P4.4(Decedent: Resident Citizen)

a) Vanishing deduction = P1,676,200b) Net exclusive property of the decedent = P7,200,000c) Net community property = P19,300,000d) Net Taxable estate = P14,850,000e) Estate tax due = P2,185,000


Exclusive Conjugal Total

Exclusive properties P10,000,000

Ordinary Deductions:

Conjugal properties 20,000,000 P30,000,000

Funeral expenses (200,000) (200,000)

Judicial expenses (300,000) (300,000)

Claims against conjugal properties (200,000) (200,000)

Claims against exclusive properties* (400,000) (400,000)

Legacy-local government (Tr. for Public Use) ** (723,800) - (723,800)

VANISHING DEDUCTION*** (1,676,200) (1,676,200)

Net exclusive/conjugal P7,200,000 P19,300,000 P26,500,000

Special Deductions:

Standard deduction (1,000,000)

Medical expenses (500,000)

Amount received under RA4917 (1,500,000)

Share of the surviving spouse (P19.3M/2) (9,650,000)

NET TAXABLE ESTATE P14,850,000

ESTATE TAX DUE (Refer to the Tax Table) P2,185,000

*From the information provided in the problem, the amount of P400,000 as “claim against exclusive property” shouldpertain to the unpaid mortgage on the land inherited. Therefore, the present decedent paid P100,000 on the originalamount of the mortgage (P500,000). This should be taken into consideration in computing the vanishing deduction.** LEGACY AGAINST EXCLUSIVE PROPERTIESLegacy means bequest or inheritance of personal properties. The deductible legacy/devised (bequests) under the taxcode are:

Transfer for “public use” (Rule: Include both in the “Gross Estate” as well as in the “Deductions from theGross Estate) ; and

Bequests to charitable institutions wherein not more than 30% of the bequest was used for administrativepurposes (Rule: Same as transfer for public use)

TRANSFER FOR PUBLIC USEValue to take P3,000,000Mortgage Paid (refer to explanation above) (100,000)Initial basis P2,900,0002nd Deduction: 2,900/30,000 x P1.1M (106,333)


Final Basis P2,793,667x rate 60%Vanishing Deduction*** P1,676,200

P4.5 (Decedent: Resident Alien) (a) Net Taxable estate = P3,570,000; (b)Estate tax due = P307,700House and lot, USA * P2,000,000Investment in stock, Philippines 800,000Investment in stock, USA 1,000 000Investment in bonds, USA 700,000Cash in bank, Philippines 300,000Cash on hand, Philippines 50,000Accounts receivable (fully uncollectible) 200.000Car, Philippines 800,000Legacy in favor of Philippine National Red Cross** 50,000Devise to Quezon City for children’s playground** 70,000Total Gross Estate P5,970,000Ordinary Deductions:Funeral expenses P150,000Judicial expenses 300,000Unpaid Philippine income tax for income in 2011 120,000Loss on December 31, 2012 due to theft 10,000Legacy in favor of Philippine National Red Cross 50,000Devise to Quezon City for children’s playground 70,000Accounts receivable (fully uncollectible) *** 200,000 (900,000)Special Deductions:Standard deduction (1,000,000)Medical expenses (500,000)Net Taxable Estate P3,570,000Estate Tax Due (Refer to the Tax Table) P307,700

*Family home is not allowed as a deduction for single decedent**To be deductible, the legacy/devise should be included first in the decedent’s gross estate***Assume the debtor is an insolvent person.

P4.6 (Decedent: Resident Alien)a) Vanishing deduction = P441,463b) Net Taxable estate = P3,200,000c) Estate tax due = P386,739

Exclusive Conjugal TotalLand P3,000,000House and Lot, furniture and appliances P5,000,000Other tangible personal properties 1,200,000Amount received under RA4917 1,000,000Claims against insolvent persons 50,000 P10,250,000Ordinary deductions:Funeral expenses (200,000)


Judicial expenses (100,000)Other claims against conjugal properties (500,000)Claims against insolvent persons (50,000)Unpaid mortgage** (350,000)VANISHING DEDUCTION* (441,463)Net exclusive/conjugal P2,208,537 P6,400,000 P8,608,537Special deductions:Standard deduction (1,000,000)Medical expenses (120,000)Share of the surviving spouse (3,200,000)TAXABLE ESTATE P4,288,537Estate Tax Due P386,739

Value to take/Initial Basis*** P2,500,0002nd Deduction: 2,500/10,250 x 1,200,000 (292,683)Final Basis P2,207,317x rate 20%Vanishing Deduction* P441,463** P700,000 – 350,000 = P350,000***The amount paid on the mortgage should not be considered in computing the vanishing deduction because theamount pertains to a mortgage entered into by Pedro during his lifetime. To be deductible, the mortgage should havebeen assumed on the property at the time of inheritance.

TRUE OR FALSE1. TRUE 6. FALSE 11. FALSE2. TRUE 7. FALSE 12. TRUE3. TRUE 8. TRUE 13. TRUE4. FALSE 9. TRUE 14. FALSE5. FALSE 10. FALSE 15. TRUE

MULTIPLE CHOICE1. 7. 13. 19. 25.2. 8. 14. 20. 26.3. 9. 15. 21. 27.4. 10. 16. 22. 28.5. 11. 17. 23. 29.6. 12. 18. 24. 30.

Supporting Computations (Multiple Choice)(No. 22 & 23)

Gross Estate: Exclusive ConjugalRest House in Batangas P2,500,000Car 1,000,000Commercial land 5,000,000Income from the commercial land 500,000Income from exclusive property of the spouse 200,000Jewelry owned before the marriage 300,000Other properties at the time of her death 1,000,000Gross Estate P8,800,000 P1,700,000


(No. 24 & 25)Gross Estate: Exclusive CommonRest House in Batangas P2,500,000Car 1,000,000Commercial land 5,000,000Income from the commercial land 500,000Jewelry owned before the marriage 300,000Other properties at the time of her death 1,000,000Gross Estate P2,500,000 P7,800,000

(No. 26)Conjugal properties P200,000Conjugal Deductions: Funeral expenses

Actual = P45,000Limit = (P500,000 + 200,000) x 5% = 35,000

(35,000)

Judicial expenses (20,000) Claim against the estate (45,000)Net Conjugal properties P100,000Divide 2Share of the Surviving Spouse P50,000

(No. 27)Real property, Philippines P4,000,000Real property, USA 5,000,000Funeral expenses (200,000)Judicial expenses (200,000 – 50,000) (150,000Claim against insolvent persons (50,000)Unpaid taxes (50,000)Balance P8,550,000Standard Deductions (1,000,000)Medical expenses (max.allowed) (500,000)Family Home (P1,500,000/2) (750,000)Share of the surviving spouse (P8,550,000/2) (4,275,000)Net Taxable Estate P2,025,000

(No. 28)Exclusive Common Total

Conjugal real properties P5,000,000Conjugal family home 1,500,000


Exclusive properties P2,500,000Total P2,500,000 P6,500,000 P9,000,000Ordinary Deductions: Funeral expenses

Actual P300,000 x 25% = P75,000Limit = 5% x P9M = P450,000

(75,000)

Casualty losses (from excl.property) (100,000) Miscellaneous deductions (P1M x 75%) (750,000) (825,000)Net P2,400,000 P5,675,000 P8,075,000Special Deductions: Standard Deductions (1,000,000) Medical expenses (P500,000 x 50%) (250,00) Family Home (1,500,000/2) (750,000) Share of the surviving spouse (5,675,000/2) (2,837,500)Net Taxable Estate P3,275,000

(No. 29) ABSOLUTE COMMUNITY OF PROPERTYExclusive Common

Properties-Land P2,400,000Other personal property owned before marriage 1,600,000Other personal property acquired during marriage 500,000Gross Estate P2,400,000 P2,100,000Funeral expenses (200,000)Judicial expenses (100,000)Net conjugal before special deductions P1,800,000Share of surviving spouse (P1,800,000/2) P900,000

(No. 30) CONJUGAL PARTNERSHIP OF GAINSExclusive Common Total

Properties-Land P2,400,000Other personal property owned before marriage 1,600,000Other personal property acquired during marriage**** P500,000Gross Estate P4,000,000 P500,000 P4,500,000Ordinary DeductionsFuneral expenses (200,000)Judicial expenses (100,000)Vanishing Deductions***** (1,120,000)Net Estate Before Special Deductions P2,880,000 200,000 P3,080,000Standard deductions (1,000,000)Medical expenses (500,000)Share of the surviving spouse (P200,000/2) (100,000)Share of surviving spouse (P1,800,000/2) P1,480,000

****If silent and unless the problem clearly illustrate that it is exclusive, assume the property is common.

Value to take P1,500,0 001st Deduction: Mortgage paid -Initial basis P1,500,0002nd Deduction: Proportionate deduction(1,500/4,500) x 300,000 (100,000)Final Basis P1,400,000x Vanishing rate 80%Vanishing Deduction P262,500 *****


CHAPTER 5 – ESTATE TAX CREDIT AND ESTATE TAX DISTRIBUTABLE

PROBLEM SOLVINGP5.1

(1)P200,000 (2)P0; not allowedNet Taxable Estate P10,000,000

Estate Tax Due [P465,000 + (5M x 15%)] P1,215,000Estate tax credit (4/10 x P1,215,000) vs P200,000 (200,000)Estate tax payable P1,015,000

P5.2Net Taxable Estate P2,000,000

Estate Tax Due P135,000Estate tax credit (67,500)Estate tax payable after tax credit P67,500

Net Taxable Estate P2,000,000

Limit 1: Limit Actual AllowedCanada: 500/2,000 x P135,000 P33,750 P150,000 P33,750USA: 500/2,000 x P135,000 33,750 110,000 33,750

P67,500Limit 2:1,000/2,000 x P135,000 P67,500 260,000 67,500ALLOWED TAX CREDIT P67,500

P5.3 ASSUME: ESTATE TAX PAID U.S.A. = P250,000

(a) Net Taxable estate = P3,570,000; (b)Estate tax due after tax credit = P142,770(c ) Net Distributable Estate = P4,427,230

House and lot, USA * P2,000,000Investment in stock, Philippines 800,000Investment in stock, USA 1,000 000Investment in bonds, USA*** 700,000Cash in bank, Philippines 300,000Cash on hand, Philippines 50,000Accounts receivable 200.000Car, Philippines 800,000Legacy in favor of Philippine National Red Cross** 50,000Devise to Quezon City for children’s playground** 70,000Total Gross Estate P5,970,000Ordinary Deductions:Funeral expenses P150,000Judicial expenses 300,000


Unpaid Philippine income tax for income in 2011 120,000Loss on December 31, 2012 due to theft 10,000Legacy in favor of Philippine National Red Cross 50,000Devise to Quezon City for children’s playground 70,000Accounts receivable (fully uncollectible) 200,000 (900,000)Special Deductions:Standard deduction (1,000,000)Medical expenses (500,000)NET TAXABLE ESTATE P3,570,000Estate Tax Due P307,700Estate Tax Credit Limit: [(3,200/5,970) x 307,700 = P164,930 Actual: P250,000

(164,930)

ESTATE TAX DUE AFTER ESTATE TAX CREDIT P142,770NOTE:*Family home is not allowed as a deduction for single decedent**To be deductible, the legacy/devise should be included first in the decedent’s gross estate*** Considered as Estate “within”

TOTAL GROSS ESTATE (Refer above) P5,970,000Ordinary Deductions:Funeral expenses P150,000Judicial expenses 300,000Unpaid Philippine income tax for income in 2011 120,000Loss on December 31, 2012 due to theft 10,000Legacy in favor of Philippine National Red Cross 50,000Devise to Quezon City for children’s playground 70,000Accounts receivable (fully uncollectible) 200,000 (900,000)Special Deductions:Standard deduction -Medical expenses (500,000)Estate Tax Due after tax Credit (142,770)NET DISTRIBUTABLE ESTATE P4,427,230

P5.4Real property, Philippines P4,000,000Claim Against Insolvent Persons 50,000Real property, USA 3,000,000Real property, Japan 2,000,000Net estate, Malaysia (1,000,000)Total Gross Estate (common) P8,050,000Funeral expenses (maximum) (200,000)Judicial expenses (P200,000-100,000) (100,000)Claim against insolvent persons (50,000)Unpaid taxes (50,000)Net estate before special deductions P7,650,000X (Share of the surviving spouse) 1/2Net estate of the decedent in the conjugal properties P3,825,000Standard Deduction (1,000,000)Family Home (1,000,000)Medical Expenses (500,000)NET TAXABLE ESTATE P1,325,000

TAX DUE:1ST P500,000 P15,000


In excess of P500,000 @ 8% 66,000ESTATE TAX DUE P81,000Estate Tax Credit (None; No Estate Tax Payments abroad) ----ESTATE TAX PAYABLE P81,000

Total Gross Estate (common; as computed above) P8,050,000Funeral expenses (actual) (300,000)Judicial expenses (actual) (200,000)Claim against insolvent persons (50,000)Unpaid taxes (50,000)Net estate before special deductions P7,450,000X (Share of the surviving spouse) 1/2Net estate of the decedent in the conjugal properties P3,725,000Standard Deduction ------Family Home ------Medical Expenses (actual) (650,000)Estate Tax (81,000)NET DISTRIBUTABLE ESTATE P2,994,000

MULTIPLE CHOICE1. B 8. A 15. A 22. C 29. C2. C 9. D 16. C 23. A 30. D3. D 10. A 17. C 24. C 31. A4. C 11. D 18. A 25. D 32. B5. C 12. D 19. D 26. C6. C 13. A 20. A 27. A7. C 14. D 21. C 28. B

Supporting Computations:No.5

Estate tax due (for P4M) P355,000Estate tax credit (3/4 x P355,000) vs P80,000 (80,000)Estate tax payable P275,000

No. 6Estate tax due (for P500,000) P55,000Less: Estate tax credit (20,500)Estate tax payable P34,500

Limit 1: Limit Actual AllowedSingapore: 300/1,000 x P55,000 P16,500 P30,000 P16,500USA: 100/1,000 x P55,000 5,500 4,000 4,000

P20,500Limit 2:400/1,000 x P55,000 P22,000 34,000 22,000


ALLOWED TAX CREDIT (LOWER AMOUNT) P20,500

No. 7Gross Estate P10,000,000Deductions (5,000,000)Share of the surviving spouse (5,000,000 x 60% x 50%) (1,500,000)Net taxable estate P3,500,000Tax Due P300,000Estate tax credit (2.8/3.5 x P300,000) vs P124,500 (124,500)Estate tax payable P175,500

Net estate France = [(6M -2M) x 0.6 x 1/2] + (6M-2M) x 0.4 = P2,800,000Net estate R.P. = [(4M-3M) x 0.6 x 1/2] + (4M-3M) x 0.4 = P700,000

No. 8Estate tax due (for P500,000) P71,000Less: Estate tax credit (41,417)Estate tax payable P29,583

Limit 1: Limit Actual AllowedJapan: 300/1,200 x P71,000 P17,750 P20,000 P17,750USA: Exclude for purposes of computing Limit 1 - - -HK: 450/1,200 x P71,000 26,625 45,000 26,625

P44,375Limit 2: (Include USA)700/1,200 x P71,000 P41,417 65,000 41,417ALLOWED TAX CREDIT (LOWER AMOUNT) P41,417

No. 9 and 10Net Taxable Net Distributable

Property inherited P1,400,000 P1,400,000Property acquired through own labor 3,600,000 3,600,000Funeral expenses (200,000) (240,000)Judicial expenses (200,000) (200,000)Claims against the estate

NotarizedNot notarized

(40,000)-

(40,000)(20,000)

Standard deduction (1,000,000) -Net Taxable/Distributable estate P3,560,000 P4,500,000

CHAPTER 6 – DONOR’S TAX

PROBLEM SOLVING

P6.1ITEM Q#1 Q#2 Q#3 Q#4 Q#5

A P800,000 P800,000 P800,000 P800,000 P800,000B 3,000,000 3,000,000 3,000,000C 250,000 250,000 250,000 250,000


D 100,000 100,000 100,000 - 100,000E* 5,000,000 5,000,000 5,000,000F 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000G 100,000 100,000 100,000 - 100,000H 100,000 100,000 100,000 - -I 500,000 500,000 500,000 500,000 500,000

Land 1** - - - - -Land 2*** - - - - -Land 3**** 5,000,000 5,000,000 5,000,000 - -

Car 200,000 200,000 200,000 200,000 200,000GROSS GIFT

P16,550,000 P16,550,000 P16,550,000 P3,000,000 P3,450,000

*The question is “gross gifts”, hence, disregard the mortgage.**Sale of Land #1 is a transfer with insufficient consideration. However, unlike in Estate Taxation, Transfer with insufficient consideration for donor’s tax purposes is not taxable if the property donated is a real property classified as capital asset subject to capital gains tax.

*** Sale of Land # 2 is considered bonafide or valid sale.****Sale of Land #3 is a transfer with insufficient consideration. Nonetheless, the sale is subject to donor’s tax because the property was not subjected to capital gains tax. Capital gains tax on real properties are applicable only on sale of real properties classified as capital assets located in the Philippines.

P6.2ITEM Q#1 Q#2

A P4,500,00 P4,500,00B 1,000,000 -C 1,500,000 -D 2,000,000 -E 3,000,000 3,000,000F 500,000 -

Car, Alabang 200,000 200,000Car, Malaysia 200,000 -Land Cebu - -GROSS GIFT P12,900,000 P7,700,000

P6.31.P0 2.P5,000 3.P10,000 43,000

P6.4Donation-Red Cross (exempt under a special law)* P100,000Donation to Manila City Hall * 300,000Mortgage on the land (400,000 x ¼) 100,000Total deductions from the gross gifts P500,000

*Exempt donations which partake the nature of deductions and are, therefore , deductible from the gross giftsto arrive at taxable net gifts.

P6.5Relative Stranger

Cash to his son on account of marriage P50,000Cash to PPCRV for 2013 election - -


Jewelry to his auntie 46,000Shoes and bags to his girlfriend 30,000Books to the City of Makati 20,000Second hand car to his first cousin 500,000Brand new SUV to his second cousin (subject to revocation) - -Shares of stocks of a domestic corp. to his best friend 150,000Car to his daughter (a donation mortis causa) - -Forgiven a loan due from his brother(50,000-25,000) 25,000Sports equipment to his brother in law 75,000Parcel of land to the Philippine government for public use 1,000,000Gross Gifts P621,000 P1,275,000

NOTE: Cash to PPCRV. Not considered as donation under the tax code. It is subject to the rules and regulations of

the COMELEC under the election code of the Philippines. Books for the City of Makati AND Land for Public Use. Although the donations are exempt, should be

considered in the determination of “gross gifts” Gift subject to revocation is not a gift. Donation mortis causa is a donation subject to estate tax, not donor’s tax.

P6.6a) March 1 = P2,000b) May 30 = P18,000c) June 30 = P90,000d) July 31 = P0e) September 30 = P447,200

SolutionGross Gifts P200,000Dowry - 1 year after celebrationNet taxable gift P200,000Donor’s Tax Due/ Payable – March 1 P2,000

Gross gift P500,000Less: Mortgage assumed by the donee (100,000)Add: Prior net gift 200,000Taxable gift – May 30 P600,000

Donor’s Tax Due P20,000Less: Tax paid (2,000)Donor’s tax payable-May 30 P18,000

Donor’s tax payable-June 30(P300,000 x 30%)

P90,000

Donor’s tax payable-July 31 (Bantay Bata) P0

September 30Relative Stranger Total

Gross Gift P1,500,000 P1,500,000Dowry (10,000) -Mortgage assumed (300,000) (300,000)Prior net gift 600,000Taxable gift P1,790,000 P1,200,000


@30%Tax Due P107,200 P360,000Less: Tax Payments (20,000)Tax Payable P87,200 360,000 P447,200

P6.71) January 15, 2012 = P32,0002) April 1, 2012 = P6,0003) December 25, 2012 = P04) March 30, 2013 = P30,0005) May 25, 2013 = P0

Solution

Gross Gifts-Jan. 1, 2014 P1,000,000Less: Encumbrance (200,000)Taxable gift P800,000Donor’s tax due/payable-Jan. 1, 2014 P32,000

Gross gift – April 1, 2014 P100,000Add: Prior net gift 800,000Taxable gift P900,000Donor’s Tax Due P38,000Less: Tax paid (32,000)Donor’s tax payable-Apr. 1, 2014 P6,000

December 25, 2014 P0

March 30, 2015P100,000 x 30% P30,000

The rule that gift of not more than P100,000 is exempt is applicable only to donations made to relatives.

May 25, 2015Gross gift P200,000Deductions (200,000)Taxable gift P0Tax Due P0

P6.81) October 8, 2015 = P9,8002) November 4, 2015 = P1,200

June 6, 2015Husband Wife Total

Gross Gift P240,000 P240,000Dowry (10,000) (10,000)


Mortgage assumed (2,000) (2,000)Taxable gift P228,000 P228,000

Donor’s Tax Payable P3,120 P3,120 P6,240

October 8, 2015Husband Wife Total

Gross Gift P30,000 P30,000Dowry --- (10,000)Prior Net Gift 228,000Taxable gift P228,000 P248,000

@30Donor’s Tax (Tax Table) P3,920Tax Paid-June 6 (3,120)Donor’s Tax Payable P9,0000 P800 P9,800

November 4, 2015Husband Wife Total

Gross Gifts (strangers) P7,000 P7,000Exempt (5,000) (5,000)Prior Net Gift - -Taxable gift P2,000 P2,000

@30 @30Donor’s Tax Payable P600 P600 P1,200

P6.9 (1)P7,000 (2)P2,600 (3)P69,800 (4)P30,000Feb. 15, 2015

Mr.Macariola Mrs.Macariola TotalGross Gifts P200,000 P200,000Dowry (beyond 1 year) - -Mortgage assumed (50,000) (50,000)Taxable gift P150,000 P150,000Donor’s Tax Payable P1,000 P1,000 P2,000

March 30, 2015Mr.Macariola Mrs.Macariola Total

Gross Gifts P200,000 P-Prior net gift 150,000Taxable gift P350,000Donor’s Tax 8,000Donor’s tax paid (1,000)Donor’s Tax Payable P7,000 P7,000

June 1, 2015Mr.Macariola Mrs.Macariola Total

Gross Gifts P- P100,000Dowry - (10,000)Prior net gift 150,000Taxable gift 240,000Donor’s Tax P3,600Donor’s tax paid (1,000)Donor’s Tax Payable 2,600 P2,600


October 12, 2015


Mr.Macariola Mrs.Macariola TotalDonation to

StrangerDonation to a

RelativeDonation to a

RelativeGross Gifts P200,000 P200,000 P400,000Dowry (claimed June 1) - - -Mortgage assumed (50,000) (50,000)Prior net gift 350,000 240,000Taxable gift 150,000 550,000 590,000

@30%Donor’s Tax P17,000 P19,400Donor’s tax paid (8,000) (3,600)Donor’s Tax Payable P45,000 P9,000Total P54,000 P15,800 P69,800

Gift Tax of Clifford P100k@30% = P30,000

P6.10 ------ (For Estate Tax)

TRUE OR FALSE1. TRUE 7. FALSE 13. FALSE 19. FALSE 25. TRUE2. TRUE 8. TRUE 14. FALSE 20. FALSE 26. TRUE3. FALSE 9. FALSE 15. FALSE 21. FALSE 27. FALSE4. TRUE 10. FALSE 16. FALSE 22. FALSE 28. TRUE5. TRUE 11. TRUE 17. FALSE 23. FALSE 29. FALSE6. TRUE 12. FALSE 18. FALSE 24. TRUE 30. FALSE

MULTIPLE CHOICE1. A 11. D 21. C 31. C 41. B2. A 12. B 22. A 32. D 42. A3. C 13. C 23. D 33. A 43. A4. C 14. D 24. C 34. B 44. C5. B 15. B 25. C 35. D 45. B6. D 16. D 26. D 36. C 46. B7. D 17. A 27. C 37. B 47. D8. D 18. B 28. D 38. D 48. D9. D 19. C 29. B 39. D 49. A

10. C 20. D 30. B 40. A 50. C

Supporting computation:No. 18. If the sale is considered fictitious, the entire value at the date of sale is subject to donor’s tax.No. 21.Letter “a” – onerous transferLetter “b” - To be considered valid donation, the renunciation should be specifically and categorically done in favor of identified heir(s) to the exclusion or disadvantage of the other co-heir(s) in the hereditary estate.Letter “c” – gratuitous transfer, subject to donor’s tax

No. 24. Donation to Pedro ClaraGross Gifts (2M/2) /2 P500,000 P500,000Less Dowry (10,000) -Net taxable gift P490,000 P500,000


No. 27. DONEE

Son D. in LawGross Gifts (5M/2) P2,500,000 -Less Dowry (10,000) -Net taxable gift P2,490,000 -

No. 31-33. Husband Wife

NG (3/1) 125,000 125,000Tax Due (P25,000 x 2%) P500 P500

GG (5/1) P100,000 P100,000Dowry (10,000) (10,000)PNG 3/1 125,000 125,000NG P215,000 P215,000

Tax Due P2,600 P2,600Tax Paid 3/1 (500) (500)D.T. Payable P2,100 P2,100

GG (7/1) 100,000 100,000PNG 3/1 and 5/1 215,000 215,000TNG P315,000 P315,000Tax Due 6,600 6,600Total Taxes Paid 7/1 P13,200

No. 38. Taxable gift P300,000Tax Due P6,000Tax Credit P4,500 vs. (200/300 x P6,000=P4,000) (4,000)D.T.Pyable P2,000

CHAPTER 7 – BUSINESS TAXESMULTIPLE CHOICE

1. A 7. B 13. D 19. C 25. A*2. D 8. C 14. C 20. D 26. D3. D 9. D 15. B 21. D 27. C**4. D 10. C 16. C 22. A 28. A5. D 11. A 17. A 23. D 29. A6. C 12. C 18. D 24. C 30. C* The end-useR (person using the communication facility is the one liable for OCT, not the communication company.**3% CCT is applicable only to domestic carriers transporting passengers by land, not by air or sea.


CHAPTER 8 – VALUE ADDED TAX

ERRATUM: Page 257, Question#2 of Illustration 18 Case B. Change the following

Question2:

Answer: P108,000 change to P372,000. INPUT VAT Transfer costs (From BOC to the importer’s warehouse in Isabela)(P6,000,000 x 5%) x12%

(300,000)(36,000)

Page 258, Case B of Illustration 19 . Change the following data:

Freshko, a manufacturer of sardines has the following data for the month of June:Sales, sardines, (net) P12,000,000 Change to P10,000,000

PROBLEM SOLVINGP8.1

Case A ECase B ECase C ECase D V

P8.2Case A X Case E V Case I VCase B X Case F X Case J XCase C V Case G V (0%)Case D V Case H V

P8.3a) nilb) Vat Payable = P134,400 x 3/28 = P14,400c) Vat Payable = OV P201,600 x 3/28 – Input Vat P14,400 = P7,200d) nil

P8.4Cash Sales P660,800Sales on account 246,400Transactions deemed sale (22,400+16,800+19,040+8,960) 67,200Total sales subject to vat P974,400x 3/28Output Vat P104,400Less: Input vat (P291,200 x 3/28) (31,200)Vat Payable P73,200

P8.5OUTPUT:Sales (P8M – 400,000) x 12% P912,000


Sales from consignment (March and Feb.) (20+10) x P10,000 x 12%

36,000

Transactions deemed sales January 8 consignment (20 x P10,000) x 12% 24,000 Goods withdrawn 6,000 Goods taken as payment to creditors 3,600 P981,600INPUT VAT Purchase of goods, supplies, freight/insurance) 82,080 Capital goods (P1,100,000 x 12%) / 48 mos. 2,750 (84,830)VAT PAYABLE P896,770

P8.6Sale of school supplies P1,680,000Sale of gift items 1,008,000Sales subject to output vat P2,688,000x 3/28Output Vat P288,000Less:

Input vat on purchases directly attributable to vatable sales (Purchase of school supplies and gift items)P1,344,000 x 3/28 P144,000

Input vat on purchases attributable to vatable and nonvatable sales (Purchase of computers)P448,000 x 3/28 x (2,400/3,600)** P32,000

Purchase of office supplies used in vatable and non-vatable transactions from non-vat registered suppliers nil (176,000)

Vat Payable P112,000**Total Vatable Sales net of vat = P2,400,000Non-vatable sales = P1,200,000Total Sales, net (vatable and non-vatable) = P3,600,000

P8.7Output Vat (P896,000 x 3/28) P96,000 Note:Less: Input vat The input vat on capital goods is not amortized because the

acquisition cost is not more than P1M. P224,000 x 3/28 (24,000) P112,000 x 3/28 x 80% (9,600) The ratio of vatable sales to total sales = 80% P2,240 x 3/28 x 80% (192)

Vat Payable P62,208

P8.8 Assume amounts are vat inclusive(a)

Total Input Vat (P374,000 + 69,848 + 154,000 + 55,000) x 3/28 = P69,948(b)

Output vat (P330,000 + P274,996) x 3/28 P64,821Less: Input vat (P374,000 + 69,848 + 154,000) x 3/28 (64,055)Vat Payable P766

Note: Sale to export oriented enterprise is considered export sale subject to 0% vat only if more than 70% ofits annual production is actually exported


P8.9(a) P28,800(b) P12,600

Output Vat (P350,000 x 12%) P42,000Less:

Input vat on importation:CIF (cost, insurance, freight) value P229,195Charges/expenses incurred in claiming the goods:Wharfage 1,540Arrastre 2,295Customs duty 4,090Brokerage fee and documentary stamps 330Facilitation expense -Marine cargo insurance 2,550

Total P240,000x 12% (28,800)

Input vat on Freight from customs to warehouse (600)Vat Payable P12,600

P8.10(a)

1st Quarter Output Vat (P3M x 12%) P360,000INPUT VAT: Purchases (P1.2M x 12%) (144,000) Purchase of machinery (P2.5M x 12%) / 36 x 3mos. (24,500) Unused input vat as of end of 2014 (125,000)Vat Payable P66,500

(b)2nd Quarter Output Vat (4.8M x 12%) P576,000

Input Vat Purchases (P3M x 12%) (360,000) Unused input vat on capital goods (P2.5M x 12%-24,500) (275,500)Excess Input vat (P59,50

0)

P8.11Output vat (P336,000 x 12%) P40,320Input vat: On purchases (P112,000 x 3/28) (12,000) Transitional input vat: Higher between 2% of beg. Invty vs. P10,000 (10,000)Vat Payable P18,320

P8.12(a) P3,400(b) P80,000

Output vat (P800,000 x 12%) P96,000Less: Input Vat Presumptive I.V (P85,000 x 4%) (3,400)


Purchased of olive oil (P67,200 x 3/28) (7,200) Purchased of can containers (P25,000 x 12%)) (3,000) Payments for paper labels (P12,000 x 12%) (1,440) Purchased of cardboard for boxes (P8,960 x 3/28) (960) Payments for hauling services nilVat Payable P80,000

P8.13Output vat (672,000 x 3/28) P72,000Less: Input Vat Pres. Input vat on purchased of fruits from farmers @ 4% (8,000) Purchased of bottles (P22,400 x 3/28) (2,400) Purchased of can containers (P50,000 x 12%) (6,000) Payments for paper labels (P5,600 x 3/28) (600) Purchased of cardboard for boxes (P3,360 x 3/28) (360) Payments for hauling services (P60,000 x 12%) (7,200)Vat Payable P47,440

P8.14Subject to Value Added TaxHotel rooms (P1.8M x 12%) P216,000Dining Hall: Sale of food and refreshments (P2.2M x 12%) 264,000

Sale of wine, beer and liquor (P950,000 x 12%) 114,000Other revenues (P700,000 x 12%) 84,000

Subject to Percentage Tax (Amusement Tax)Disco: Sale of food and refreshments (P1.6M x 18%) 288,000 Sale of wine, beer and liquor (P1.2M x 18%) 216,000TOTAL BUSINESS TAXES P1,182,00

0

P8.15OUTPUT VAT based on collections (15M + 10M + 5M) P3,600,000INPUT VAT on purchases from: Alpha (P12M – 1.2M) x 12% (1,296,000) Bravo (non-vat reg.) -

Charlie (P4M – 1M) x 12% (360,000) Delta (P2M x 12%) (240,000)Vat Payable P1,704,00

0


P8.16Output vat ((P4M – 2.5M) x 12% P180,000Less: input vat (P800,000 x 12%) (96,000)Vat Payable P84,000

P8.17Ratio of Initial Payment over Selling Price:Lot A = 50/250 = 20% ; Installment SaleLot B = 70/200 = 35%; Deferred Sale; Treated as Cash SaleLot C = 60/300 = 20%; Installment Sale

Nov. 2015 Dec. 2015Lot A: P25,000 x 12%; P25,000 x 12% P3,000 P3,000Lot B: P200,000 x 12% 24,000 -Lot C: P40,000 x 12%; P20,000 x 12% 4,800 2,400Vat Payable P31,800 P5,400

P8.18a) Output vat September 2015 = P3M x 12% = P360,000

The sale is a Deferred sale. Ratio of initial payments over SP is 30%.b) Output vat January 2016 = P0

P8.19Room charges P1,000,000Laundry services 25,000Food and beverages 1,500,000Corkage 15,000Handling charges for providing telephone, telex, cable or fax services

4,500

Cake shop sales 80,000Total P2,624,500Vat rate 12%Output Vat for the month P314,940

TRUE OR FALSESET A

1. T 6. F 11. F 16. T 21. F2. F 7. F 12. F 17. F 22. F3. F 8. F 13. F 18. F 23. T4. T 9. T 14. F 19. T 24. F5. T 10. T 15. F 20. T 25 F

SET B1. T 6. F 11. F 16. T 21. T2. T 7. F 12. F 17. T 22. T3. T 8. F 13. T 18. T 23. T4. F 9. T 14. F 19. F 24. T5. F 10. F 15. T 20. F 25 F

MULTIPLE CHOICE1. D 21. C 41. B 61. B 81. D2. C 22. A 42. C 62. B 82. A3. A 23. C 43. D 63. C 83. B4. D 24. C 44. D 64. D 84. D5. D 25. D 45. B 65. A 85. D


6. D 26. C 46. D 66. C 86. B7. D 27. D 47. D 67. B 87. C8. D 28. B 48. C 68. D 88. D9. A 29. C 49. C 69. A 89. C

10. C 30. B 50. D 70. D 90. D11. C 31. A 51. B 71. D12. A 32. D 52. C 72. A13. A 33. A 53. B 73. D14. D 34. B 54. D 74. B15. C 35. B 55. D 75. C16. C 36. B 56. C 76. D17. A 37. B 57. A 77. C18. D 38. B 58. B 78. D19. D 39. C 59. C 79. C20. D 40. A 60. A 80. B

Supporting Computations/explanations:No. 12 “III” is exempt only if contribution per member is not more than P15,000.No. 20

Output Vat (P2,805,500 +P1,524,000) x 12% P519,540Input vat (P1,102,200+P1,012,500) x 12% (253,746)Vat Payable P265,780

No. 21Output Vat, 3rd quarter (P150,000 x 12%) P18,000Input vat, 3rd quarter (P120,000 x 12%) (14,400)Deferred input vat – previous quarter (6,000)Vat Payable (Carry-over) (P2,400)

No. 37AR, July 1 P180,000Billings, July-Sept. 850,000AR, Sept. 30 (120,000)Collections P910,000Output vat @ 12% 109,200Input vat on purchases @ 12% (57,600)Vat Payable P51,600

No. 38Output vat (P5.5M x 12%) P660,000Input vat on materials (180,000)Vat Payable September 2014 P480,000

No. 39Output vat (P10M x 12%) P1,200,000Input vat on materials (480,000)Input vat on capital goods(P3Mx12%) /60 mos.

(36,000)

Vat Payable June 30, 2014 P684,000

No. 41Sales, shares held as inventory P5,000,000Cos of shares, held as inventory (2,000,000)


Gross income 3,000,000Vat rate 12%Output vat P360,000Les: Input vat

Supplies expense 12,000Rent expense 24,000 (36,000)

Vat payable P324,000

No. 49Domestic sales (P600,000 x 12%) P72,000Add: Transaction deemed sales Jan. 4 consignment (P200,000 x 12%) 24,000 Goods consumed on Fe. 27 (P50,000 x 12%) 6,000 Property dividends (P150,000 x 12%) 18,000Total Output Vat P120,000

No. 66 & 67Output vat (P592,480 x 3/28) P63,480Less: Input Vat Purchases of goods (P100,000 x 12%) P12,000 Purchases of services (P20,000 x 12%) 2,400 Transitional input vat 4,800 (19,200)VAT Payable P44,280

No. 72Output Vat for October 2014 = P3M x 12 = P360,000 Ratio of Initial Pay’t over Gross S.P. = P900,000/P3,000,000 = 30% If initial payment is more than 25% of Selling Price, the sale is classified as Deferred Sale which is treated as

Cash Sale. Therefore, the entire output vat is due on the month of sale.No. 73

Output Vat for 2015 = P0; The entire output vat was paid in 2014

No. 74Downpayment P112,0001st installment payment 112,000Total (vat inclusive) 224,000Less: VAT (P224,000 x 3/28) (24,000)Initial Payment (exclusive of vat) P200,000Divide by contract Price (P1,120,000 x 3/28) 1,000,000Ratio of Initial Payment over SP 20%Output vat for 2014 (P200,000 x 12%) P24,000

No. 75VAT ON CASH SALE: P72,000 (ZV is higher than SP) (P600,000 x 12%)VAT ON DEFERRED SALE: 36,000 (Ratio of Initial payment over SP 25% (Not qualifying under installment method) (Treated as cash sale; SP is higher than FMV) [(P336,000/1.12) x 12%]TOTAL OUTPUT VAT P108,000


No. 78 and 79Output vat (P336,000 x 3/28) P36,000Input vat (56,000 + 11,200) x 3/28 x 300/500 (4,320)Vat Payable P31,680

No. 80OUTPUT VAT (P896,000 x 3/28) P96,000INPUT VAT Purchases of goods, vat business, vat included (P224,000 x 3/28)

(24,000)

MIXED Transactions: Purchases of supplies, for vat & non vat business [(112,000 x 3/28) x (800,000/1,000,000)] (9,792) Purchase of depreciable asset, for use in vat and non vat business [(P2,240 x 3/28) x (800,000/1,000,000)]VAT PAYABLE P62,208

No. 81 and 82OUTPUT VAT

Domestic sales (P330,000 + P274,996) x 3/28 P64,821Export sales (zero rated) 0

INPUT VATPurchases of goods, supplies and services for domestic sales and for export (374,000 + 69,848 + 154,000 + 55,000) x 3/28 (69,948)

Vat Payable (P5,127)

No. 83Raw Materials (P560,000 x 3/28) x 400,000/1M P24,000Supplies (P448,000 x 3/28) x 400,000/1M 19,200Equipment (P300,000 x 12% x 400,000/1M) 14,400INPUT VAT ATTRIBUTED TO EXPORT SALES P57,600


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