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SOLUTIONS MANUAL

TRANSFER & BUSINESS TAXATION, 3rd Edition


By: TABAG & GARCIA

CHAPTER 1 SUCCESSION & TRANSFER TAXES


TRUE OR FALSE
1. T 6. T 11. T
2. T 7. F 12. T
3. T 8. T 13. T
4. T 9. T 14. T
5. F 10. T 15. F
MULTIPLE CHOICE
1. D 12. C 23. D 34. D 45. B
2. A 13. C 24. B 35. B 46. C
3. D 14. B 25. D 36. B 47. D
4. C 15. D 26. D 37. D 48. D
5. C 16. C 27. B 38. B 49. A
6. A 17. B 28. D 39. D 50. B
7. B 18. D 29. A 40. D 51. A
8. 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. D
11. D 22. B 33. D 44. B 55. B

CHAPTER 2 GROSS ESTATE


TRUE OR FALSE SET A
1. T 6. T 11. T 16. F
2. T 7. T 12. F 17. T
3. F 8. T 13. F 18. T
4. T 9. T 14. T 19. T
5. T 10. T 15. T 20. T
TRUE OR FALSE SET B
1. T 6. F 11. T 16. T
2. F 7. T 12. F 17. T
3. F 8. T 13. F 18. T
4. T 9. T 14. T 19. F
5. T 10. F 15. F 20. T
MULTIPLE CHOICE
1. A 16. D 31. C 46. C 61. A
2. B 17. C 32. B 47. D 62. A
3. D 18. B 33. B 48. C 63. A
4. B 19. D 34. A 49. C 64. C
5. C 20. A 35. B 50. C 65. D
6. C 21. D 36. B 51. D 66. B
7. A 22. A 37. D 52. D 67. A
8. B 23. B 38. C 53. C 68. C
9. A 24. A 39. B 54. C 69. C
10. A 25. C 40. D 55. C 70. D
11. C 26. C 41. C 56. B
12. B 27. C 42. C 57. D

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13. D 28. D 43. B 58. C
14. A 29. B 44. C 59. C
15. C 30. D 45. B 60. A

Supporting Computations:
23.
Bank deposit in the foreign branch of a domestic bank P500,000
Bank deposit in Makati branch of a foreign bank 300,000
Shares of stock issued by a domestic corporation 1,000,000
(certificate kept in Canada)
Franchise exercised in Manila 800,000
Receivable, debtor from Mindanao 200,000
Total Exclusion from the gross estate P2,800,000
23.
House and lot, family home in Quezon City P1,500,000
Bank deposit in Makati branch of a foreign bank 300,000
Shares of stock issued by a domestic corporation 1,000,000
(certificate kept in Canada)
Franchise exercised in Manila 800,000
Receivable, debtor from Mindanao 200,000
Total Inclusion from the gross estate P3,800,000
25.
Shares of stocks, domestic corp. P250,000
(certificate kept in UK)
Shares of stocks, domestic corp. 100,000
(certificate kept in Phils.)
Franchise exercised in the Phils. 200,000
Receivables, debtor is from Phils. 50,000
Intangibles subject to reciprocity P600,000
26.
Land & building, Philippines P2,000,000
House and lot, Philippines 3,500,000
Shares of stocks, domestic corp. (certificate kept in UK) 250,000
Shares of stocks, domestic corp. (certificate kept in Phils.) 100,000
Franchise exercised in the Phils. 200,000
Receivables, debtor is from Phils. 50,000
Gross Estate P6,100,000

33. (P12M/100,000) x 1,000 shares = P120,000


34. (P10M/100,000) x 1,000 shares = P100,000
35. P110 x 1,000 shares = P120,000
36. (P140 + P80/2) x 1,000 shares = P110,000
44.
Consideration FMV upon FMV upon Gross Estate
received transfer death
Land P1,500,000 P1,500,000 P2,000,000 None. Valid sale
Shares of stock 100,000 50,000 150,000 None. Valid sale
Vintage car 50,000 80,000 100,000 P50,000
Painting 250,000 400,000 500,000 250,000

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INCLUSION IN THE GROSS ESTATE P300,000

44. Bequests to charitable institutions are considered exclusions from the gross estate only if the
problem clearly states that not more than 30% were used for administrative purposes.

PROBLEM SOLVING:
PROBLEM 1
(1) P19,300,000 (2) P19,300,000 (3) P11,800,000 (4) P14,300,000
Citizen/ NRA with R NRA w/o R
Resident
(# 1 & 2) (# 3) (# 4)
Family home in the Philippines P8,000,000 P8,000,000 P8,000,000
Parcel land of with vacation house in Malaysia 5,000,000
Farm land in the Philippines 3,000,000 3,000,000 3,000,000
Shares of stock of a domestic corporation deposited in a 2,000,000 2,000,000
bank safety deposit box in Malaysia
Shares of stock of a foreign corporation the entire business 500,000 500,000
of which is in the Philippines, deposited in a bank safety
deposit box in Malaysia
Receivable from a friend who has no property whatsoever 300,000 300,000 300,000
Receivables under insurance policies:
Life insurance policy, taken by the decedent on his 200,000 200,000 200,000
own life, with his estate as revocable beneficiary
Life insurance policy, taken by the decedent, with 300,000 300,000 300,000
his daughter as revocable beneficiary
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

PROBLEM 2
To Juan P25,000,000
To Pedro 18,000,000
To Maria 15,000,000
To Sisa 20,000,000
Total Gross Estate P78,000,000

PROBLEM 3

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

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MODIFIED IDENTIFICATION
EXERCISE A
1. Included 11. Included***
2. Included 12. Excluded**
3. Excluded 13. Excluded**
4. Included 14. Included
5. Excluded 15. Included
6. Excluded 16. Included
7. Included * 17. Excluded
8. Excluded 18. Excluded**
9. Excluded** 19. Excluded
10. Excluded 20. Included

*Included in the gross estate if the beneficiary is the estate, administrator or executor. In case of doubt,
the item should be taxable.
**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 states that not more than 30% were used for administrative purposes.

EXERCISE B EXERCISE C
1. P0; valid sale 1. P10M
2. P0; valid sale 2. P20M
3. P0; valid sale 3. P5M
4. P4,000,000 4. P10M
5. P6,000,000 5. P0

CHAPTER 3 DEDUCTIONS FROM THE GROSS ESTATE


TRUE OR FALSE
1. T 7. T 13. F 19. T 25. T
2. T 8. T 14. F 20. T 26. T
3. T 9. T 15. T 21. T 27. F
4. T 10. F 16. F 22. F 28. T
5. T 11. F 17. T 23. T 29. F
6. F 12. F 18. T 24. T 30. T
MULTIPLE CHOICE
1. C 12. C 23. A 34. C 45. C
2. D 13. B 24. A 35. A 46. B
3. D 14. A 25. A 36. C 47. A
4. C 15. A 26. B 37. B 48. A
5. C 16. A 27. B 38. B 49. C
6. B 17. D 28. B 39. C 50. C
7. B 18. D 29. C 40. D 51. A
8. D 19. D 30. A 41. A 52. A
9. C 20. D 31. C 42. D 53. A

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10. A 21. C 32. D 43. D 54. B
11. B 22. D 33. C 44. D 55. D
Supporting Computations:
7.
Mourning clothing of the decedents surviving spouse P1,500
Mourning clothing of the decedents dependent children 3,200
Expenses of the wake preceding the burial 40,000
Publication charges for death notices 5,000
Telecommunication expenses incurred in informing relatives 3,000
of the deceased
Cost of burial plot 20,000
Interment fees and charges 12,000
Expenses for the performance of the rites & ceremonies 5,000
incident to interment
Actual Funeral Expenses P89,700
Limit: 5% of Gross Estate (P2M x 5%) P100,000
ALLOWED (Lower Amount) P89,700
15.
Real property tax for the year 2013 P100,000
Notarized interest bearing promissory note 100,000
Accrued interest on the promissory note at the time of 20,000
death
Income tax due for 2013 200,000
Allowable deductions P420,000
(Disregard standard deduction)

23.
Income tax from practice of profession - 2013 P300,000
Income tax from practice of profession for Jan.-June 13 100,000
Real property taxes for 2013 150,000
Deductible taxes P550,000
35.
ERRATUM: Pedro died leaving a car acquired by purchase from Pedro JUAN

41.
Value to take/Initial Basis P900,000
Mortgage paid (50,000)
Initial basis 850,000
2nd Deduction:
(850/1,000 x P100,000**) (85,000)
Final Basis P765,000
X Vanishing rate 40%
VANISHING DEDUCTION P306,000

** Mortgage P150,000 50,000

54.
Shares, domestic corporation P500,000
Tangible personal property 1,500,000
Gross Estate 2,000,000
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ELIT (500,000 x 2,000/2,500) (400,000)
Taxable Estate P1,600,000
TAX DUE
1st P500,000 P15,000
In excess of P500,000 = (1,100,00 x 8%) 88,000
Estate Tax Due P103,000

55.
Gross Estate (Tangible property Phils.) P6,000,000
ELIT (1,200,000 x 6,000/10,000,000) (720,000)
Taxable Estate P5,280,000

PROBLEM SOLVING
Problem 1
Case A: P150,000
Case B: P200,000
Case C: P150,000
Case D: P150,000
Case E: P0

Problem 2
ASSUME GROSS ESTATE OF P2,000,000
Embalming charges P15,000
Burial apparel of the decedent 3,500
Cost of coffin 125,000
Mourning apparel of the surviving spouse during the burial 5,000
Mourning apparel of the minor child 2,000
Snacks and drinks during the wake 12,500
Honoraria of priest for daily masses before burial 2,000
Telecommunication charges to inform relatives 1,000
Charges for death notice published in a newspaper 8,000
Cost of video footage of the burial and interment 12,000
Funeral car service during interment 4,000
Honorarium of priest who celebrated the mass during interment 2,000
Cost of tombstone 30,000
ACTUAL FUNERAL EXPENSE P232,000
Vs. Limit (P5% of P2M) 100,000
ALLOWABLE FUNERAL EXPENSE P100,000
NOTE: Hospital bills for two months of confinement before decedents death should be charged to
medical expenses

Problem 3
Case A: P100,000
Case B: P333,333 computed as follows:
Receivable P500,000
Collectible portion (400/1,200) x (166,667)
500,000
Uncollectible portion of the claim P333,33

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3
Case C: P0. Debtor is not insolvent

Problem 4
DUE FROM PEDRO P200,000
Assets of Pedro P400,000
Less: Due to the BIR for unpaid taxes (200,000)
Balance 200,000
Collectible by Juan X 200/600 (66,667)
UNCOLLECTIBLE PORTION
(Deductible from Juans Gross Estate) P133,333
Problem 5
Question 1: P550,000 computed as follows:
Unpaid taxes on the estate before death P150,000
Unpaid mortgage on the estate 200,000
Unpaid loans arising from debt instruments 125,000
(notarized)
Unpaid loans arising from debt instruments (not 75,000
notarized). The debt instrument was issued by
a financial institution not requiring notarizations
for debt instruments issued
Total Deductible Claim Against the Estate P550,00
0

Question 2: P2,097,000 computed as follows


Ordinary Deductions:
Claim against insolvent person P100,000
Unpaid taxes on the estate before death 150,000
Unpaid mortgage on the estate 200,000
Funeral expenses 200,000
Actual = P182,000 + 37,500 = P219,500
Limit = P5M x 5% = P250,000
Maximum = P200,000
Judicial expenses 100,000
Unpaid loans arising from debt instruments 125,000
(notarized)
Unpaid loans arising from debt instruments (not 75,000
notarized). The debt instrument was issued by
a financial institution not requiring notarizations
for debt instruments issued
Casualty loss 65,000
Special Deductions:
Standard deduction 1,000,000
Medical expenses 82,000
Total Allowable deduction from the gross P2,097,00
estate 0

Problem 6
Question 1: P217,500
Question 2: P217,500

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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 P100,000
and payment of debts
Attorneys fees (1/2 were incurred after six 20,000
months)
P40,000 x 1/2
Accountants fees 25,000
Executors commission 15,000
Appraisers fees 2,500
Court fees 18,000
Cost of preserving and distributing the estate 15,000
Cost of storing or maintaining the property of the 12,000
estate
Brokerage fees for selling property of the estate 10,000
Total allowable judicial expenses P217,50
0

Problem 7
Loss due to shipwreck, two (2) months after the decedents death. P500,000
Robbery loss, seven (7) months after the decedents death. The 2,000,000
decedents executor was allowed by the Bureau of Internal Revenue
to extend the filing (within the period allowed by the Tax Code) of
estate tax return due to a meritorious reason
Allowable Deduction P2,500,000

Problem 8
Value to take P937,500
1st Deduction: Mortgage paid (187,500)
Initial basis P750,000
2nd Deduction: Proportionate deduction
(750/4,500) x 562,500 (93,750)
Final Basis P656,250
x Vanishing rate 40%
Vanishing Deduction P262,500

Problem 9
Value to take P1,500,000
1st Deduction: Mortgage paid ------
Initial basis P1,500,000
2nd Deduction: Proportionate deduction
(1,500/1,980) x 170,000 (128,788)
Final Basis P1,371,212
x Vanishing rate 80%
Vanishing Deduction P1,096,970

Problem 10
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Case A: P1,000,000
Case B: P1,000,000
Case C: P1,000,000
Case D: P0
Case E: P0

Problem 11
Case A: P500,000
Case B: P500,000
Case C: P150,000
Case D: P500,000
Case E: P0

Problem 12
Case A: P1,000,000
Case B: P500,000
Case C: P0
Case D: P500,000
Case E: P600,000
Case F: P750,000; [ (1M/2) + (500,000/2)]

Problem 13
Gross Estate P3,000,000
Funeral expenses (150,000)
Actual P300,000 120,000 = P180,000
Limit = P3M x 5% = P150,000
Standard deduction (1,000,000)
Medical expenses (400,000)
Taxable Estate P1,450,000

CHAPTER 4 PROPERTY RELATIONS


TRUE OR FALSE
1. T 6. F 11. T 16. F
2. T 7. F 12. F 17. T
3. T 8. T 13. T 18. T
4. T 9. F 14. T 19. T
5. T 10. F 15. F 20. T
MULTIPLE CHOICE
1. A 7. D 13. B 19. C 25. C
2. B 8. D 14. D** 20. C 26. D
3. B* 9. B 15. A 21. A 27. C
4. C 10. C 16. D 22. A 28. A ***
5. C 11. D 17. D 23. D 29. D
6. D 12. C 18. C 24. B 30. D

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*Change Aug. 3, 1998 TO August 3, 1988
** Under conjugal partnership of gains, fruits earned during marriage, regardless of source, are
common properties

Supporting Computations
No. 22 and 23
Gross Estate: Exclusive Conjugal
Rest House in Batangas P2,500,000
Car 1,000,000
Commercial land 5,000,000
Income from the commercial land 500,000
Income from exclusive property of the 200,000
spouse
Jewelry owned before the marriage 300,000
Other properties at the time of her death 1,000,000
Gross Estate P8,800,000 P1,700,000

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

No. 26
Conjugal properties P200,000
Conjugal Deductions:
Funeral expenses (35,000)
Actual = P45,000
Limit = (P500,000 + 200,000) x 5% = 35,000
Judicial expenses (20,000)
Claim against the estate (45,000)
Net Conjugal properties P100,000
Divide 2
Share of the Surviving Spouse P50,000

No. 27
Real property, Philippines P4,000,000
Real property, USA 5,000,000
Funeral expenses (200,000)
Judicial expenses (200,000 50,000) (150,000

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Claim against insolvent persons (50,000)
Unpaid taxes (50,000)
Balance P8,550,000
Standard 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 P5,000,000
Conjugal family home 1,500,000
Exclusive properties P2,500,000
Total P2,500,000 P6,500,000 P9,000,000
Ordinary Deductions:
Funeral expenses (75,000)
Actual P300,000 x 25% = P75,000
Limit = 5% x P9M = P450,000
Casualty losses*** (100,000)
Miscellaneous deductions (P1M x 75%) (750,000) (825,000)
Net P2,400,000 P5,675,000 P8,075,000
Special 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
ERRATUM: DISREGARD .Exclusive Properties are NET of Casualty Losses***

No. 29 ABSOLUTE COMMUNITY OF PROPERTY


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

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No. 30 CONJUGAL PARTNERSHIP OF GAINS
Exclusive Common Total
Properties-Land P2,400,000
Other personal property owned before marriage 1,600,000
Other personal property acquired during marriage**** P500,000
Gross Estate P4,000,000 P500,000 P4,500,000
Ordinary Deductions
Funeral expenses (200,000)
Judicial expenses (100,000)
Vanishing Deductions***** (1,120,000)
Net Estate Before Special Deductions P2,880,000 200,000 P3,080,000
Standard 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 00


1st Deduction: Mortgage paid -
Initial basis P1,500,000
2nd Deduction: Proportionate deduction
(1,500/4,500) x 300,000 (100,000)
Final Basis P1,400,000
x Vanishing rate 80%
Vanishing Deduction P262,500 *****

PROBLEM SOLVING
PROBLEM 1:
(a)P1,624,773 (b)P4,132,955 (c)P3,691,250 (d)P321,038

Exclusive Common Total


Exclusive properties P2,000,000
Conjugal properties* P5,000,000 P7,000,000
ELIT** (867,045)
Vanishing Deductions *** (175,227)
Transfer for Public Use **** (200,000)
Net Estate P1,624,773 P4,132,955 P5,757,728
Share of the Surviving Spouse (4,132,955/2) (2,066,478)
Net Taxable Estate P3,691,250
1st P2,000,000 P135,000
In excess of P2,000,000 @ 11% 186,038
ESTATE 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 P200,000
Judicial expenses 800,000
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Claim against the estate 1,725,000
TOTAL ELIT P2,725,000
X 7,000/22,000
ALLOWABLE ELIT P867,045

**VANISHING DEDUCTIONS:
Value to take P500,0 00
1st Deduction: Mortgage paid -
Initial basis P500,000
2nd Deduction: Proportionate deduction
(500/7,000) x 867,045 (61,932)
Final Basis P438,068
x 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.

PROBLEM 2:
(Decedent: Resident Citizen)
a) Vanishing deduction = P1,676,200
b) Net exclusive property of the decedent = P7,923,800
c) Net community property = P17,800,000
d) Net Taxable estate = P15,323,800
e) Estate tax due = P2,279,760
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 against exclusive properties ** - - -
VANISHING DEDUCTION*** (1,676,200) (1,676,200)
Amount received under RA4917 (1,500,000) (1,500,000)
Net exclusive/conjugal P7,923,800 P17,800,000 P25,723,800
Special Deductions:
Standard deduction (1,000,000)
Medical expenses (500,000)
Share of the surviving spouse (8,900,000)
NET TAXABLE ESTATE P15,323,800
ESTATE TAX DUE P2,279,760

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

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Transfer for public use (Rule: Include both in the Gross Estate as well as in the Deductions
from the Gross Estate) ; and
Bequests to charitable institutions wherein not more than 30% of the bequest was used for
administrative purposes (Rule: Same as transfer for public use)

From the information provided above, the problem was silent as to the type of the legacy. In case of
doubt, the two types of transfers enumerated above should not be assumed. Therefore, the item should
be treated as a simple legacy or transfer in contemplation of death which is added only in the gross
estate.

Value to take P3,000,000


Mortgage Paid (refer to explanation above) (100,000)
Initial basis P2,900,000
2nd Deduction: 2,900/30,000 x P1.1M (106,333)
Final Basis P2,793,667
x rate 60%
Vanishing Deduction*** P1,676,200

PROBLEM 3:
(Decedent: Resident Alien) (a) Net Taxable estate = P3,570,000; (b)Estate tax due = P307,700
House and lot, USA * P2,000,000
Investment in stock, Philippines 800,000
Investment in stock, USA 1,000 000
Investment in bonds, USA 700,000
Cash in bank, Philippines 300,000
Cash on hand, Philippines 50,000
Accounts receivable 200.000
Car, Philippines 800,000
Legacy in favor of Philippine National Red Cross** 50,000
Devise to Quezon City for childrens playground** 70,000
Total Gross Estate P5,970,000
Ordinary Deductions:
Funeral expenses P150,000
Judicial expenses 300,000
Unpaid Philippine income tax for income in 2011 120,000
Loss on December 31, 2012 due to theft 10,000
Legacy in favor of Philippine National Red Cross 50,000
Devise to Quezon City for childrens playground 70,000
Accounts receivable (fully uncollectible) *** 200,000 (900,000)
Special Deductions:
Standard deduction (1,000,000)
Medical expenses (500,000)
Net Taxable Estate P3,570,000
Estate Tax Due P307,700

NOTE (Problem 3)
*Family home is not allowed as a deduction for single decedent
**To be deductible, the legacy/devise should be included first in the decedents gross estate
***Assume the debtor is an insolvent person.

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PROBLEM 4 (Decedent: Resident Alien)
a) Vanishing deduction = P441,463
b) Net Taxable estate = P3,200,000
c) Estate tax due = P386,739
Exclusive Conjugal Total
Land P3,000,000
House and Lot, furniture and appliances P5,000,000
Other tangible personal properties 1,200,000
Amount received under RA4917 1,000,000
Claims against insolvent persons 50,000 P10,250,000
Ordinary 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 P8,608,537
Special deductions:
Standard deduction (1,000,000)
Medical expenses (120,000)
Share of the surviving spouse (3,200,000)
TAXABLE ESTATE P4,288,537
Estate Tax Due P386,739

Value to take/Initial Basis*** P2,500,000


2nd Deduction: 2,500/10,250 x 1,200,000 (292,683)
Final Basis P2,207,317
x 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 the amount pertains to a mortgage entered into by Pedro during his lifetime. To be deductible,
the mortgage should have been assumed on the property at the time of inheritance.

PROBLEM 5
Conjugal Absolute
Partnership Community
1. Real Property inherited by the decedent during the E E
marriage.
2. Income earned during marriage from the property in the C E
preceding number.
3. Property acquired by the decedent with cash owned before E C
the marriage
4. Personal belongings used exclusively by the decedent E E

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5. Jewelry for the exclusive use of one of the spouses C C
6. Property unidentified when and by whom acquired C C
7. Lot acquired before the marriage by the surviving spouse E E
(surviving spouse had a previous marriage and legitimate
children in that previous marriage)
8. Income from the lot above E E
9. Cash income during marriage C C
10. Exclusive property was sold, and was repurchased using C C
conjugal property

CHAPTER 5 ESTATE TAX CREDIT AND ESTATE TAX DISTRIBUTABLE


MULTIPLE CHOICE
1. B 8. A 15. A 22. C 29. C
2. C 9. D 16. C 23. A 30. D
3. D 10. A 17. C 24. C 31. A
4. C 11. D 18. A 25. D 32. B
5. C 12. D 19. D 26. C
6. C 13. A 20. A 27. A
7. C 14. D 21. C 28. B

Supporting Computations:
No.5
Estate tax due (for P4M) P355,000
Estate tax credit (3/4 x P355,000) vs P80,000 (80,000)
Estate tax payable P275,000

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

Limit 1: Limit Actual Allowed


Singapore: 300/1,000 x P55,000 P16,500 P30,000 P16,500
USA: 100/1,000 x P55,000 5,500 4,000 4,000
P20,500
Limit 2:
400/1,000 x P55,000 P22,000 34,000 22,000
ALLOWED TAX CREDIT (LOWER AMOUNT) P20,500

No. 7
Gross Estate P10,000,000
Deductions (5,000,000)
Share of the surviving spouse (5,000,000 x 60% x 50%) (1,500,000)
Net taxable estate P3,500,000
Tax Due P300,000

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

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

Limit 1: Limit Actual Allowed


Japan: 300/1,200 x P71,000 P17,750 P20,000 P17,750
USA: Exclude for purposes of computing Limit 1 - - -
HK: 450/1,200 x P71,000 26,625 45,000 26,625
P44,375
Limit 2: (Include USA)
700/1,200 x P71,000 P41,417 65,000 41,417
ALLOWED TAX CREDIT (LOWER AMOUNT) P41,417

No. 9 and 10
Net Taxable Net Distributable
Property inherited P1,400,000 P1,400,000
Property acquired through own labor 3,600,000 3,600,000
Funeral expenses (200,000) (240,000)
Judicial expenses (200,000) (200,000)
Claims against the estate
Notarized (40,000) (40,000)
Not notarized - (20,000)
Standard deduction (1,000,000) -
Net Taxable/Distributable estate P3,560,000 P4,500,000
No. 28
Letter a .The Bureau of Internal Revenue can ask payment from the heirs to whom the estate has
been disturbed .. change to Distributed

PROBLEM SOLVING
Problem I:
(1)P200,000 (2)P0; not allowed
Net Taxable Estate P10,000,000

Estate Tax Due [P465,000 + (5M x 15%)] P1,215,000


Estate tax credit (4/10 x P1,215,000) vs P200,000 (200,000)
Estate tax payable P1,015,000

Problem II:
Net Taxable Estate P2,000,000

Estate Tax Due P135,000


Estate tax credit (67,500)

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Estate tax payable after tax credit P67,500

Net Taxable Estate P2,000,000

Limit 1: Limit Actual Allowed


Canada: 500/2,000 x P135,000 P33,750 P150,000 P33,750
USA: 500/2,000 x P135,000 33,750 110,000 33,750
P67,500
Limit 2:
1,000/2,000 x P135,000 P67,500 260,000 67,500
ALLOWED TAX CREDIT P67,500

Problem III:
(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 * P2,000,000
Investment in stock, Philippines 800,000
Investment in stock, USA 1,000 000
Investment in bonds, USA*** 700,000
Cash in bank, Philippines 300,000
Cash on hand, Philippines 50,000
Accounts receivable 200.000
Car, Philippines 800,000
Legacy in favor of Philippine National Red Cross** 50,000
Devise to Quezon City for childrens playground** 70,000
Total Gross Estate P5,970,000

Ordinary Deductions:
Funeral expenses P150,000
Judicial expenses 300,000
Unpaid Philippine income tax for income in 2011 120,000
Loss on December 31, 2012 due to theft 10,000
Legacy in favor of Philippine National Red Cross 50,000
Devise to Quezon City for childrens playground 70,000
Accounts receivable (fully uncollectible) 200,000 (900,000)
Special Deductions:
Standard deduction (1,000,000)
Medical expenses (500,000)
NET TAXABLE ESTATE P3,570,000
Estate Tax Due P307,700
Estate Tax Credit (164,930)
Limit: [(3,200/5,970) x 307,700 = P164,930
Actual: P250,000
ESTATE TAX DUE AFTER ESTATE TAX CREDIT P142,770

NOTE:
*Family home is not allowed as a deduction for single decedent
**To be deductible, the legacy/devise should be included first in the decedents gross estate
*** Considered as Estate within

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TOTAL GROSS ESTATE (Refer above) P5,970,000
Ordinary Deductions:
Funeral expenses P150,000
Judicial expenses 300,000
Unpaid Philippine income tax for income in 2011 120,000
Loss on December 31, 2012 due to theft 10,000
Legacy in favor of Philippine National Red Cross 50,000
Devise to Quezon City for childrens playground 70,000
Accounts 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

Problem IV:
Real property, Philippines P4,000,000
Claim Against Insolvent Persons 50,000
Real property, USA 3,000,000
Real property, Japan 2,000,000
Net estate, Malaysia (1,000,000)
Total Gross Estate (common) P8,050,000
Funeral 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 P7,650,000
X (Share of the surviving spouse) 1/2
Net estate of the decedent in the conjugal properties P3,825,000
Standard 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% 66,000
ESTATE TAX DUE P81,000
Estate Tax Credit (None; No Estate Tax Payments abroad) ----
ESTATE TAX PAYABLE P81,000

Total Gross Estate (common; as computed above) P8,050,000


Funeral expenses (actual) (300,000)

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

CHAPTER 6 DONORS TAX


TRUE OR FALSE
1. T 7. F 13. F 19. F 25. T
2. T 8. T 14. F 20. F 26. T
3. F 9. F 15. F 21. F 27. F
4. T 10. F 16. F 22. F 28. T
5. T 11. T 17. F 23. F 29. F
6. T 12. F 18. F 24. T 30. F
MULTIPLE CHOICE
1. A 11. D 21. D 31. B 41. A
2. A 12. B 22. C 32. C 42. B
3. C 13. C 23. A 33. D 43. A
4. C 14. D 24. D 34. A 44. A
5. B 15. D 25. C 35. B 45. C
6. D 16. B 26. C 36. D 46. B
7. D 17. D* 27. D 37. C 47. B
8. D 18. A 28. C 38. B 48. D
9. D 19. B 29. D 39. D** 49. D
10. C 20. C 30. B 40. D 50. A

Supporting computation:
No. 17.
ERRATUM: Letter C: A gift to the International Rice Research Institute is exempt from gift *

No. 19. If the sale is considered fictitious, the entire value at the date of sale is subject to donors tax.
No. 22.
Letter a onerous transfer
Letter 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 donors tax

No. 25.
Donation to Pedro Clara

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Edition) by Tabag and Garcia
Gross Gifts (2M/2) /2 P500,000 P500,000
Less Dowry (10,000) -
Net taxable gift P490,000 P500,000

No. 28.
DONEE
Son D. in Law
Gross Gifts (5M/2) P2,500,000 -
Less Dowry (10,000) -
Net taxable gift P2,490,000 -

No. 32-34.
Husband Wife
NG (3/1) 125,000 125,000
Tax Due (P25,000 x 2%) P500 P500

GG (5/1) P100,000 P100,000


Dowry (10,000) (10,000)
PNG 3/1 125,000 125,000
TNG P215,000 P215,000

Tax Due P2,600 P2,600


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

GG (7/1) 100,000 100,000


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

No. 39.
Taxable gift P300,000
Tax Due P6,000
Tax Credit P4,500 vs. (200/300 x P6,000=P4,000) (4,000)
D.T.Pyable P2,000** **Change Choice d from P2,200 to P2,000

PROBLEM SOLVING
Problem I:
ITEM Q#1 Q#2 Q#3 Q#4 Q#5
A P800,000 P800,000 P800,000 P800,000 P800,000
B 3,000,000 3,000,000 3,000,000
C 250,000 250,000 250,000 250,000
D 100,000 100,000 100,000 - 100,000
E* 5,000,000 5,000,000 5,000,000
F 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000
G 100,000 100,000 100,000 - 100,000
H 100,000 100,000 100,000 - -
I 500,000 500,000 500,000 500,000 500,000
Land 1** - - - - -

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Land 2*** - - - - -
Land 3**** 5,000,000 5,000,000 5,000,000 - -
Car 200,000 200,000 200,000 200,000 200,000
GROSS 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 donors 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 donors 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.

Problem II:
ITEM Q#1 Q#2
A P4,500,00 P4,500,00
B 1,000,000 -
C 1,500,000 -
D 2,000,000 -
E 3,000,000 3,000,000
F 500,000 -
Car, Alabang 200,000 200,000
Car, Malaysia 200,000 -
Land Cebu - -
GROSS GIFT P12,900,000 P7,700,000

Problem III:
1.P0 2.P5,000 3.P10,000 43,000

Problem IV:
Donation-Red Cross (exempt under a special law)* P100,000
Donation to Manila City Hall * 300,000
Mortgage on the land (400,000 x ) 100,000
Total deductions from the gross gifts P500,000
*Exempt donations which partake the nature of deductions and are, therefore , deductible from
the gross gifts to arrive at taxable net gifts.

Problem V (Donations to Relatives and Strangers)


Relative Stranger
Cash to his son on account of marriage P50,000
Cash to PPCRV for 2013 election - -
Jewelry to his auntie 46,000
Shoes and bags to his girlfriend 30,000
Books to the City of Makati 20,000
Second hand car to his first cousin 500,000
22 | Transfer & Business Taxation(3 r d
Edition) by Tabag and Garcia
Brand new SUV to his second cousin (subject to revocation) - -
Shares of stocks of a domestic corp. to his best friend 150,000
Car to his daughter (a donation mortis causa) - -
Forgiven a loan due from his brother(50,000-25,000) 25,000
Sports equipment to his brother in law 75,000
Parcel of land to the Philippine government for public use 1,000,000
Gross 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.
City of Makati AND Land for Public Use. Although the donation is exempt, it shall 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 donors tax.

Problem VI
Tax payable on:
1) March 1 = P2,000
2) May 30 = P18,000
3) June 30 = P90,000
4) July 31 = P0
5) September 30 = P447,200

Solution
Gross Gifts P200,000
Dowry - 1 year after celebration
Net taxable gift P200,000
Donors Tax Due/ Payable March 1 P2,000

Gross gift P500,000


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

Donors Tax Due P20,000


Less: Tax paid (2,000)
Donors tax payable-May 30 P18,000

Donors tax payable-June 30 P90,000


(P300,000 x 30%)

Donors tax payable-July 31 (Bantay Bata) P0

September 30
Relative Stranger Total
23 | Transfer & Business Taxation(3 r d
Edition) by Tabag and Garcia
Gross Gift P1,500,000 P1,500,000
Dowry (10,000) -
Mortgage assumed (300,000) (300,000)
Prior net gift 600,000
Taxable gift P1,790,000 P1,200,000
@30%
Tax Due P107,200 P360,000
Less: Tax Payments (20,000)
Tax Payable P87,200 360,000 P447,200

Problem VII
1) January 15, 2012 = P32,000
2) April 1, 2012 = P6,000
3) December 25, 2012 = P0
4) March 30, 2013 = P30,000
5) May 25, 2013 = P0

Solution
Gross Gifts-Jan. 1, 2012 P1,000,000
Less: Encumbrance (200,000)
Taxable gift P800,000
Donors tax due/payable-Jan. 1, 2012 P32,000

Gross gift April 1, 2012 P100,000


Add: Prior net gift 800,000
Taxable gift P900,000
Donors Tax Due P38,000
Less: Tax paid (32,000)
Donors tax payable-Apr. 1, 2012 P6,000

December 25, 2012 P0

March 30, 2013 The rule that gift of not more than
P100,000 x 30% P30,000 P100,000 is exempt is applicable only to
donations made to relatives.
May 25, 2013
Gross gift P200,000
Deductions (200,000)
Taxable gift P0
Tax Due P0

Problem VIII
1) October 8, 2014 = P9,800
2) November 4, 2014 = P1,200

June 6, 2014
Husband Wife Total
Gross Gift P240,000 P240,000

24 | Transfer & Business Taxation(3 r d


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Dowry (10,000) (10,000)
Mortgage assumed (2,000) (2,000)
Taxable gift P228,000 P228,000

Donors Tax Payable P3,120 P3,120 P6,240

October 8, 2014
Husband Wife Total
Gross Gift P30,000 P30,000
Dowry --- (10,000)
Prior Net Gift 228,000
Taxable gift P228,000 P248,000
@30
Donors Tax (Tax Table) P3,920
Tax Paid-June 6 (3,120)
Donors Tax Payable P9,0000 P800 P9,800

November 4, 2014
Husband Wife Total
Gross Gifts (strangers) P7,000 P7,000
Exempt (5,000) (5,000)
Prior Net Gift - -
Taxable gift P2,000 P2,000
@30 @30
Donors Tax Payable P600 P600 P1,200

Problem IX
1) October 10, 2013 = P3,140
2) April 4, 2014 = P13,500

June 6, 2013
Mr.Ramos Mrs.Ramos Total
Gross Gifts (strangers) P115,000 P115,000
Exempt (90,000) (90,000)
Taxable gift P25,000 P25,000
@30 @30
Donors Tax Payable P7,500 P7,500 P15,000

October 10, 2013


Mr.Ramos Mrs.Ramos Total
Gross Gifts P191,000 P191,000
Dowry (10,000) (10,000)
Mortgage assumed (2,500) (2,500)
Prior net gifts - -
Taxable gift P178,500 P178,500

Donors Tax P1,570 P1,570


Tax paid - -
Donors Tax Payable P1,570 P1,570 P3,140

April 4, 2014

25 | Transfer & Business Taxation(3 r d


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Mr.Ramos Mrs.Ramos Total
Gross Gifts P45,000 P45,000
Dowry - (10,000)
Prior net gifts - -
(none; different year)
Taxable gift P45,000 P35,000
@30
Donors Tax Payable P13,500 Exempt P13,500

Problem X
(1)P7,000 (2)P2,600 (3)P69,800 (4)P30,000
Feb. 15, 2014
Mr.Macariola Mrs.Macariola Total
Gross Gifts P200,000 P200,000
Dowry (beyond 1 year) - -
Mortgage assumed (50,000) (50,000)
Taxable gift P150,000 P150,000
Donors Tax Payable P1,000 P1,000 P2,000

March 30, 2014


Mr.Macariola Mrs.Macariola Total
Gross Gifts P200,000 P-
Dowry - -
Prior net gift 150,000
Taxable gift P350,000
Donors Tax 8,000
Donors tax paid (1,000)
Donors Tax Payable P7,000 P7,000

June 1, 2014
Mr.Macariola Mrs.Macariola Total
Gross Gifts P- P100,000
Dowry - (10,000)
Prior net gift 150,000
Taxable gift 240,000
Donors Tax P3,600
Donors tax paid (1,000)
Donors Tax Payable 2,600 P2,600

October 12, 2014

Mr.Macariola Mrs.Macariola Total


Donation to Donation to a Donation to a
Stranger Relative Relative
Gross Gifts P200,000 P200,000 P400,000
Dowry (claimed June 1) - - -
Mortgage assumed (50,000) (50,000)
Prior net gift 350,000 240,000

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Taxable gift 150,000 550,000 590,000
@30%
Donors Tax P17,000 P19,400
Donors tax paid (8,000) (3,600)
Donors Tax Payable P45,000 P9,000
Total P54,000 P15,800 P69,800
Donation by Clifford:

Gross Gifts P100,000

@30%

Donors Tax P30,000

ERRATUM: Ronald Change to Clifford

CHAPTER 7 BUSINESS TAXES


MULTIPLE CHOICE
1. A 7. B 13. D 19. C 25. A*
2. D 8. C 14. C 20. D 26. D
3. D 9. D 15. B 21. D 27. C**
4. D 10. C 16. C 22. A 28. A
5. D 11. A 17. A 23. D 29. A
6. C 12. C 18. D 24. C 30. C

* The end-use (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


TRUE OR FALSE-PART A
1. T 6. F 11. F 16. T 21. F
2. F 7. F 12. F 17. F 22. F
3. F 8. F 13. F 18. F 23. T
4. T 9. T 14. F 19. T 24. F
5. T 10. T 15. F 20. T 25 F
TRUE OR FALSE-PART B
1. T 6. F 11. F 16. T
2. T 7. F 12. F 17. T
3. T 8. F 13. T 18. T
4. F 9. T 14. F 19. F
5. F 10. F 15. T 20. F
MULTIPLE CHOICE
1. D 21. A 41. B 61. B 81. D
2. C 22. B 42. C 62. C 82. C
3. A 23. D 43. A 63. A 83. D
4. D 24. C 44. B 64. C 84. C
5. D 25. A 45. C 65. A 85. B
6. D 26. C 46. D 66. B 86. D

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7. D 27. C 47. D 67. B 87. A
8. D 28. D 48. B 68. C 88. B
9. D 29. C 49. D 69. D 89. D
10. B 30. D 50. D 70. A 90. D
11. A 31. B 51. C 71. C 91. B
12. C 32. C 52. C 72. B 92. C
13. C 33. B 53. D 73. D 93. D
14. A 34. A 54. B 74. A 94. C
15. A 35. D 55. C 75. D 95. D
16. D 36. A 56. B 76. D
17. C 37. B 57. D 77. A
18. C 38. B 58. D 78. D
19. A 39. B 59. C 79. B
20. D 40. B 60. A 80. C

ERRATUM:
Illustration #6 . Medical fees (included in the hospital bills)

Supporting Computations:
No. 14 To be exempt, the contributions from each member in item III should not exceed P15,000.
No. 21 Item a is composed of selling price and the applicable output vat

No. 23
Output Vat (P280,550 +P152,400) x 12% P51,954
Input vat (P110,220+P101,250) x 12% (25,374.6)
Vat Payable P26,578

No. 24
Output Vat, 3rd quarter (P150,000 x 12%) P18,000
Input vat, 3rd quarter (P120,000 x 12%) (14,400)
Deferred input vat previous quarter (6,000)
Vat Payable (Carry-over) (P2,400)
No. 40
AR, July 1 P180,000
Billings, July-Sept. 850,000
AR, Sept. 30 (120,000)
Collections P910,000
Output vat @ 12% 109,200
Input vat on purchases @ 12% (57,600)
Vat Payable P51,600

No. 42
Output vat (P10M x 12%) P1,200,000
Input vat on materials (480,000)
Input vat on capital goods (36,000)
(P3Mx12%) /60 mos.
Vat Payable June 30, 2014 P684,000

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No. 44
Sales, shares held as inventory P5,000,000
Cos of shares, held as inventory (2,000,000)
Gross income 3,000,000
Vat rate 12%
Output vat P360,000
Les: Input vat
Supplies expense 12,000
Rent expense 24,000 (36,000)
Vat payable P324,000

No. 52
Domestic sales (P600,000 x 12%) P72,000
Add: 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%) 18,000
Total Output Vat P120,000

No. 63
Output tax (1,500,00 x 12%) P180,000
Less: Input taxes
Purchases (800,000 x 12%) 96,000
Machinery (240,000/60 x 3mos.) 12,000
Carry-over 97,000 205,000
Excess input vat (P25,000)

No. 64
Output tax on sale (2,000,000x 12%) P240,000
Output tax on sale of machinery (2,000,000x 12%) 240,000
Less: Input taxes
Purchases 1,000,000x 12%) 120,000
Unamortized input tax on machinery 25,000
(240,000- 12,000)
Carry-over 228,000 (373,000)
VAT Payable P107,000

No. 71 & 72
Output vat (P592,480 x 3/28) P63,480
Less: 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. 77
Change the year from 2010 to 2012
Output Vat for October 2012 = P3M x 12 = P360,000
Ratio of Initial Payt over Gross S.P. = P900,000/P3,000,000 = 30%

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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. 78
Output Vat for 2013 = P0; The entire output vat was paid in 2012

No. 80
Downpayment P112,000
1st installment payment 112,000
Total (vat inclusive) 224,000
Less: VAT (P224,000 x 3/28) (24,000)
Initial Payment (exclusive of vat) P200,000
Divide by contract Price (P1,120,000 x 3/28) 1,000,000
Ratio of Initial Payment over SP 20%
Output vat for 2012 (P200,000 x 12%) P24,000

No. 80
VAT ON CASH SALE: P72,000
(FMV 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. 83 and 84
Output vat (P336,000 x 3/28) P36,000
Input vat (56,000 + 11,200) x 3/28 x 300/500 (4,320)
Vat Payable P31,680

No. 85
OUTPUT VAT (P896,000 x 3/28) P96,000
INPUT VAT
Purchases of goods, vat business, vat included (24,000)
(P224,000 x 3/28)
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. 86 and 87
OUTPUT VAT
Domestic sales (P330,000 + P274,996) x 3/28 P64,821
Export sales (zero rated) 0
INPUT VAT
Purchases of goods, supplies and services for domestic sales and for export

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(374,000 + 69,848 + 154,000 + 55,000) x 3/28 (69,948)
Vat Payable (P5,127)

No. 88
Raw Materials (P560,000 x 3/28) x 400,000/1M P24,000
Supplies (P448,000 x 3/28) x 400,000/1M 19,200
Equipment (P300,000 x 12% x 400,000/1M) 14,400
INPUT VAT ATTRIBUTED TO EXPORT SALES P57,600

PROBLEM SOLVING
Problem 1:
a) P0
b) P134,400 x 3/28 = P14,400
c) PP201,600 x 3/28 = P201,600 (regardless of whether or not Abi is a vat registered exporter)
Not zero rated. To be zero rated, the problem should provide that Abi exported more than 70%
of its annual production
d) Vat exempt

Problem 2:
Cash sales (P660,800 x 3/28) P70,800
Sales on account (P246,400 x 3/28) 26,400
Transaction deemed sales:
(P22,400 + 16,800 + 19,040 + 8,960) x 3/28 7,200
Total output vat P104,400
Input vat (P291,200 x 3/28) (31,200)
Vat Payable P73,200

Problem 3:
OUTPUT:
Sales (P8M 400,000) x 12% P912,000
Sales from consignment (March and Feb.) 36,000
(20+10) x P10,000 x 12%
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 P981,600
INPUT VAT
Purchase of goods, supplies, freight/insurance) 82,080
Capital goods (ASSUME USEFUL LIFE OF 4 YEARS) 2,750 (84,830)
(P1,100,000 x 12%) / 48 mos.
VAT PAYABLE P896,770

Problem 4:
Business tax VAT OPT
Gross receipts (collections) from:

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Hotel rooms P1,800,000
Dining hall 3,150,000
Other revenues 700,000
Total P5,650,000
VAT 12% P678,000
Gross receipts (collections) from disco operations @18% P504,000
TOTAL Business Taxes P1,182,000

Problem 5:
Output vat on gross receipts (collections) from
construction contracts with:
Bobads, City Condo & Urban Devt.
(P30M x 12%) P3,600,000
Less: Input vat on payments/advances made to:
Alpha (P12M x 90% x 12%) (1,296,000)
Charlie (P4M-P1M) x 12% (360,000)
Delta (P2M x 12%) (240,000)
VAT PAYABLE, 1st Quarter 2014 P1,704,000

Problem 6:
Ratio of Initial Payment over Selling Price:
Lot A = 50/250 = 20% ; Installment Sale
Lot B = 70/200 = 35%; Deferred Sale; Treated as Cash Sale
Lot C = 60/300 = 20%; Installment Sale

No. 2013 Dec. 2013


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

Problem 7:
Output vat: school supplies and gift items (P560,000 + 336,000) x 3/28 P96,000
Input vat:
Directly attributable to vatable sales (P406,000 x 3/28) (43,500)
Not directly attributable to vatable sales (P21,112 x 3/28 x 800*/1,000**) (1,809.60)
VAT PAYABLE P50,690.40

*(560,000/1.12) + (P336,000/1.12) = P800,000 vatable sales


**vatable sales + vat exempt sales (sale of books) = P1,000,000

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CHAPTER 9 OTHER PERCENTAGE TAXES
TRUE OR FALSE-SET A
1. F 6. F 11. T 16. T
2. T 7. F 12. F 17. F (False, should be 20 days)
3. T 8. T 13. F 18. F
4. F 9. T 14. T 19. T
5. F 10. F 15. T 20. F
TRUE OR FALSE-SET B
1. T 6. F 11. T 16. T
2. T 7. F 12. F 17. T
3. F 8. T 13. F 18. T
4. T 9. F 14. T 19. T
5. T 10. F 15. T 20. T
MODIFIED IDENTIFICATION
1. A 6. C 11. C 16. A 21. C
2. A 7. A 12. A 17. C 22. A
3. E 8. A 13. A 18. C 23. A
4. C 9. C 14. A 19. C 24. A
5. C 10. C 15. A 20. C 25. B
MULTIPLE CHOICE
1. C 21. ------ 41. D 61. A 81. C
2. D 22. A 42. C 62. D 82. B
3. D 23. B 43. A 63. D 83. D
4. C 24. D 44. D 64. B 84. D
5. A 25. B 45. D 65. C 85. B
6. A 26. C 46. C 66. D 86. B
7. D 27. B 47. B 67. A 87. A
8. A 28. C 48. C 68. A 88. D
9. A 29. C 49. B 69. B 89. D
10. C 30. A 50. B 70. C** 90. D
11. D 31. B 51. A 71. A
12. A 32. D 52. C 72. C
13. B 33. D 53. C 73. C
14. C 34. D 54. C 74. C
15. D 35. D 55. A 75. C
16. B 36. A 56. A 76. D
17. B 37. A 57. ----- 77. D
18. D 38. A 58. C 78. D
19. A 39. D 59. C 79. C
20. B 40. A 60. A 80. A

Supporting Computations:

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No. 5 (P280,000 + P220,000) x 3% = P15,000
No. 6 (P50,000 + 100,000 75,000) x 3% = P2,250
No. 7
Gross receipts (refer to #6) P75,000
x vat rate 12%
Output vat P9,000
Input vat (P11,200 x 3/28) (1,200)
Vat Payable P7,800

No. 16 P6.5M x 12% = P780,000


No. 17 P660,00 x 3% = P19,800
No. 18 (P400,000 + P100,000) x 12% = P60,000
No. 22 P10M x 2.5% = P250,000
No. 22 P10M x 1.5% = P150,000
No. 26 (P10M x 40%) 3% = P120,000
No. 27 (P10M P6M) X 30% = P1,800,000
No. 30 Subject to vat, not franchise tax
No. 34
AR, beg. P600,000
Revenues (P4M + P1M) 5,000,000
AR, end (960,000)
Gross receipts P4,640,000
Vat rate 12%
Business tax due P556,800

No. 35
Covered by the Franchise NOT Covered by the Franchise
AR, beg. P600,000 AR, beg. P----
Revenues 4,000,000 Revenues 1,000,000
AR, end (800,000) AR, end (160,000)
Gross receipts P3,800,000 Gross receipts P840,000
Franchise tax rate 2% Franchise tax rate 12%
Business tax due P76,000 Business tax due P100,800
Total Business Taxes P176,800

No. 42 P3M x 10% = P300,000

No. 34
Output vat (P5M x 12%) P600,000
Input Vat
P300,000 x 12% (36,000)
P800,000 x 12% x 5/8 (60,000)
Vat Payable P504,000

No. 48
OPT% GRT
Interest income from lending activities from
inst1uments with remaining terms of:
Five years and less 5,000,000 5% P250,000

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More than five years 3,000,000 1% 30,000
Dividends & equity shares from subsidiaries 1,000,000 0% 0
Rental income 500,000 7% 35,000
Net trading gains 300,000 7% 21,000
Total Gross Receipts Tax P336,000

No. 49
OPT% GRT
Rentals from safety deposit boxes P880,000 7% P61,600
Net foreign exchange gains 220,000 7% 15,400
Net trading gains from trading of securities 660,000 7% 46,200
Trust fees 110,000 7% 7,700
Dividends from domestic corporations 30,000 0% 0
Other service fees 220,000 7% 15,400
Interest income from lending activities from
inst1uments with remaining terms of:
Five years and less 700,000 5% 35,000
More than five years 800,000 1% 8,000
Total Gross Receipts Tax P189,300

No. 50
Interest income with maturity of less than 5 years (P500,000 x 5%) P25,000
Rentals (P500,000 x 7%) 35,000
Net trading loss = none; if net trading gain, tax is 7%
Gross receipt tax (GRT) P60,000

No. 51
Interest income with maturity of less than 5 years (P1M x 5%) P50,000
Rentals (P500,000 x 7%) 35,000
Net trading gain
[200,000 (100,000 net trading loss previous month) x 7%] 7,000
Gross receipt tax (GRT) P92,000

No. 52
Interest withheld and paid (P100,000 x 5 years x 1%) P5,000
Adjusted amount of tax due to pretermination (P100,000 x 5 years x 5%) 25,000
Tax Payable P20,000

No. 55 P2M x 10% = P200,000


No. 56 [(P500,000 x 12%)-(300,000x12%)] = P24,000
No. 58 P2M x 2% = P40,000
No. 64 P7.5M x 18% = P1,350,000
No. 65 P5M x 18% = P900,000
No. 66 Not subject to OPT. Gross Receipts > 1,919,500, therefore, JC is subject to vat, not OPT
No. 70**
ERRATUM: CHANGE THE QUESTION TO : WHICH OF THE FOLLOWING IS SUBJECT TO PERCENTAGE TAX?
a - not subject to percentage tax or any business tax Overseas communication into the Philippines.

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b and d - subject to vat
c not world or oriental championship. Subject to 10% OPT

No. 75 P350,000 x .005 = P1,750


No. 77 [(P1,500,000 - P1,000,000) x 12] = P60,000
No. 79 (120,000 30,000) x x P30 x 1% = P13,500; Ratio = 45/75 = 60%; IPO rate = 1%
No. 80 (2,000 x P25 x 4% = P2,000; Ratio = 2/75 = 2.67%; IPO rate = 4%
No. 81 (6,000 x P40 x .005% = P1,200

PROBLEM SOLVING
Problem I:
Gross receipts-passenger operations P240,000
(P8,000,000 x 3% CCT)
Gross receipts cargo operations 450,000
(P5M x 75% x 12%vat)
Rentals (P2M x 12%vat) 240,000
Total business taxes P930,000

Problem II:
1) 3% OPT on vat exempt sales (GR<1,919,500 & non-vat registered) =P1.4M x 3% = P42,000
2) VAT = P1,400,000 x 12% = P168,000

Problem III:
1) Income tax due = P625,000
Subject to 2.5% GPB:
GR Passenger operations-Phils. P10,000,000
GR cargo operations-Phils. 6,000,000
Total 16,000,000
GPB rate 2.5% P400,000
Subject o NCIT (RR 15-2013):
Demurrage, detention and Other fees 1,000,000
Expenses on demurrage fees (250,000)
Income subject to NCIT 750,000
NCIT rate 30% 225,000
Total income tax due P625,000

EXCLUDED FROM GPB: RR15-2003 provides that demurrage fees, detention fees, and other
charges relating to inbound and outbound cargoes are considered as income derived from
sources within the Philippines subject to regular tax rates.

2) Income tax due = P545,000


Subject to 2% GPB (Under a tax treaty):
GR Passenger operations-Phils. P10,000,000
GR cargo operations-Phils. 6,000,000
Total 16,000,000
GPB rate 2% P320,000
Subject o NCIT (RR 15-2013):
Demurrage, detention and Other fees 1,000,000

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Expenses on demurrage fees (250,000)
Income subject to NCIT 750,000
NCIT rate 30% 225,000
Total income tax due P545,000

3) Business tax due = 3% CCT on cargo operations originating in the Philippines


= 3% x P6M = P180,000

4) Income tax due = P3,225,000


An offline carrier is not an international carrier. Assume therefore that the income provided
were in the nature of commission income from international carriers.
***An offline carrier may be a domestic or resident foreign corporation. Since the original
problem pertains to an international carrier (resident foreign corporation), the offline carrier
provided in the problem should be treated as a resident foreign corporation taxable only on
its income from sources within the Philippines.
Solution:
Net income subject to NCIT:
GR Passenger operations-Phils. P10,000,000
GR cargo operations-Phils. 6,000,000
Demurrage, detention and Other fees 1,000,000
Expenses-passenger operations-Phils. (4,000,000)
Expenses-cargo operations-Phils. (2,000,000)
Expenses on demurrage fees (250,000) P10,750,000***
NCIT rate 30%
Income tax due P3,225,000

5) Business tax due (offline carrier) = P2,040,000


GR from Passenger operations-Phils. P10,000,000
GR from cargo operations-Phils. 6,000,000
Demurrage, detention and Other fees 1,000,000 P17,000,000
Vat rate 12%
Business tax due P2,040,000

Problem IV:
1. P0. Not subject to business tax but subject to a capital gains tax of P2,500.
[(5,000 sh. X P50) P200,000 = P50,000 capital gain x 5%CGT = P2,500 CGT

2. P0. Not subject to business tax as well as income tax (CGT). The transaction resulted to a loss
amounting to P75,000, hence, not subject to CGT.
Purchase Price = P50/share; S.P.=P35/share; Loss = P15/share

3. Subject to P6,000 value added tax


[(5,000 sh. X P50) P200,000 = P50,000 capital gain x 12% = P6,000

4. Subject to OPT (stock transaction tax) of P600 computed as follows:


P120,000 x .005 = P600

5. OPT = 5,000 shares x P18 x .005 = P450

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Problem V:
1. P3,000 OPT. ratio=10/35=28.5%; IPO rate= 2%; Tax due on=P150,000 x 2% = P3,000
2. P100 OPT. P20,000 x .005

Problem VI:
1. P1,053,000 OPT (amusement tax). P5,850,000 x 18%
2. P1,053,000 OPT. Subject only to a business tax due of 18% OPT.
3. P720,000 OPT P4,000,000 x 18%
4. P55,500 OPT. P1,850,000 x 3%
5. P108,000 Vat. (P1850,000 x 12%) [P750,000 x 12% + (P224,000 x 3/28)]

Problem VII:
1. P651,250
(P4M + 3.5M + 775,000) x 7% = P579,250
(P6M + 1.2M) x 1% = P72,000

2. P578,500
[(P2.8M + 3.3M + 825,000) + (325,000 150,000)] x 7% = P497,000
(P7.2M + 950,000) x 1% = P81,500

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