Business and Transfer Taxation 6th Edition by Valencia Roxas Suggested Answer

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 1
SUGGESTED ANSWERS
Chapter 1: INTRODUCTION TO
INTERNAL REVENUE TAXES
CHAPTER 1
INTRO. TO INTERNAL REVENUE TAXES
Problem 1-1
1. False – National Internal Revenue Taxes are collected by the BIR.
2. False – professional tax is collected by the local government.
3. True
4. False – Only sales within are subject to business tax in the Philippines.
5. False – business tax is another Internal Revenue Tax distinct from income tax.
6. False – When there is loss, business tax is paid but no income tax.
7. True
8. False – it is the other way around.
9. True
10. True
11. True
12. True
13. False – citizens whether resident or nonresident are subject to transfer tax within..
14. False – on the 20th of the month following the taxable month.
15. True
Problem 1-2
1. True
2. False – there is no double taxation because income tax is different from business tax.
3. True
4. True
5. False – Donation is without consideration; hence, not onerous transfer.
6. False – Sale of family home is not subject to business tax because a family home is not
business asset.
7. True – one for the first quarter and the other is the annual ITR.
8. False – monthly payment is both on the 20th of the next month.
9. True
10. False – the requirement is P100,000 in any quarter of the preceding year.
11. False – electronic filing and payment is required only to large taxpayers.
12. False – It is the BIR Commissioner that should recommend.
13. True
14. False – only income earned within will be taxable against resident alien
15. False – should be at least P1,000,000 per year.
Problem 1-3 Problem 1-4 Problem 1-5

1. B 1. C 1. C
2. C 2. C 2. B
3. B 3. A 3. D
4. D 4. D 4. A
5. C 5. D 5. A
6. B 6. A 6. C
7. D 7. C 7. C
8. D 8. A 8. D
9. C 9. C 9. A
10. B 10. A 10. B
SUGGESTED ANSWERS
Problem 1–6 A
Income tax due P270,000
Divided by normal corporate income tax rate 30%
Amount subject to income tax per ITR P900,000
Problem 1–7 B
Gross income from ordinary operation P3,300,000
Add: Cost of sales P2,170,000
Sale of scrap materials 30,000 2,200,000
Total amount subject to business tax P5,500,000
Problem 1–8 C
Cancellation of indebtedness from:
Abun Daboy, a friend P 50,000
Grace, current girlfriend 10,000
Kristita, his sister 5,000
Hacienda Luisita 100,000
Inheritance from Coritita, his mother 1,000,000
Amount included for transfer tax reporting P1,165,000
Problem 1–9 D
Fair market value, higher amount
Capital gains tax (P4,000,000 x 6%) P240,000
Add: Documentary stamp tax (P4,000,000 x 1.5%) 60,000
Total amount of taxes paid to the BIR P300,000
Problem 1–10 C
VAT (P10,000,000 x 12%) P1,200,000
Income tax:
Gross income (P10,000,000 – P6,000,000) P4,000,000
Less: OSD (P4,000,000 x 40%) – tax minimization 1,600,000
Net taxable income P2,400,000
Multiplied by normal corporate income tax 30% 720,000
DST (P10,000,000 x 1.5%) 150,000
Total national tax P2,070,000
Problem 1–11
1. Letter A
Subject to business tax is P6,000,000. Only sales within are subject to business tax.
Subject to income tax:

Total sales (P6,000,000 + P4,000,000) P10,000,000
Total cost of sales (P2,000,000 + P1,500,000) ( 3,500,000)
Gross taxable income P 6,500,000
Subject to transfer tax (P3,000,000 + P2,000,000) P 5,000,000
Since the donor is a citizen, all of his properties donated within and without is subject to
donor’s tax.
2. Letter B
Subject to business tax is P6,000,000. Only sales within are subject to business tax.
SUGGESTED ANSWERS
Subject to income tax:
Sales – within P6,000,000
Cost of sales – within (2,000,000)
Gross income P4,000,000
Subject to transfer tax (P3,000,000 + P2,000,000) P5,000,000
Since the donor is a citizen, all of his properties donated within and without is subject to
donor’s tax.
Problem 1–12 A
a. The administrator of JC does not need to file and pay the Philippine estate tax because his
properties are not situated in the Philippines.
This is incorrect because the all properties of a Filipino citizen situated within and outside
the Philippines are object of Philippine estate tax.
Problem 1–13
1. B 6. B
2. O 7. B
3. O 8. O
4. O 9. T
5. O 10. T
Problem 1–14
Taxable Amount
Within Without Res. Citizen Res. Alien Non-Res.
Alien
Sales 3,000,000 2,000,000 3,000,000 3,000,000 3,000,000
Gross income 600,000 400,000 1,000,000 600,000 600,000
1. Taxpayer is a resident citizen

a. P1,000,000 = [P5,000,000 – (P5,000,000/1.25)]
b. P3,000,000
2. Taxpayer is a resident alien

a. P600,000 = [P3,000,000 – (P3,000,000/1.25)]
b. P3,000,000
3. Taxpayer is nonresident alien

a. P600,000 = [P3,000,000 – (P3,000,000/1.25)]
b. P3,000,000
Problem 1–15
1. P720,000 = (P600,000 x 1.2)
2. P180,000 = (P720,000 – P600,000) + (P660,000 – P600,000)
Problem 1–16
1. Tax returns:
a. BIR Form 2551 – for business tax
b. BIR Form 1701Q – for quarterly income tax return
c. BIR Form 1701 – for annual income tax return
SUGGESTED ANSWERS
2. Dates of filing and payments:

a. On or before the 20th of each month (BIR Form 2551)
b. April 15, August 15, and November 15 for the first 3 quarters and April 15 of the
following year for the annual tax return.
Problem 1–17
1. a. Business tax (professional income-within) P500,000
b. Capital gains tax P3,000,000
c. Regular income tax (professional income – within) P500,000
d. Transfer tax (P500,000 + P400,000) P900,000
e. Documentary stamp tax P3,000,000
2. Sale of land (capital asset) - within

Capital gains tax (P3,000,000 x 6%) P180,000
Documentary stamp tax (P3,000,000 x 1.5%) 45,000
Donation to strangers – within and without
Donor’s tax (P500,000 + P400,000) x 30% 270,000
Professional income – within
Other percentage tax (P500,000 x 3%) 15,000
Income tax:
Professional income within P500,000
Less: OSD (P500,000 x 40%) 200,000
Net income P300,000
Less: Personal exemption 50,000
Net taxable income – within P250,000
Income tax on P250,000 50,000
Total amount of NIRT due in the Philippines P560,000
SUGGESTED ANSWERS
Chapter 2: TRANSFER TAXES AND
BASIC SUCCESSION
CHAPTER 2
TRANSFER TAXES AND BASIC SUCCESSION
Problem 2-1
1. False - gratuitous
2. False – donation mortis-causa is subject to estate tax.
3. False – Not all gratuitous transfer is subject to transfer tax. Example, the first P100,000 of
net gift is exempt. Also, gratuitous transfer to the government is not subject to business tax.
4. True
5. False – subject to business tax
6. True
7. False – the legitime is based on value of the estate, not on the form of the estate.
8. False – they are voluntary heirs.
9. True
10. False – fixed by law
11. False – executor
12. True
13. False – an income earned; therefore, onerous transfer (consideration for service rendered).
14. False – upon right to transfer
15. True
16. False – upon death of the decedent.
Problem 2-2
1. True
2. False – no oral will is valid. Will must be in writing to be valid.
3. False – legitimate parents succeed the rank, in the absence of the legitimate child.
4. False – relatives up to the 5th degree
5. True
6. True
7. True
8. False – equal rights
9. True
10. True
11. True
12. False – the 5th degree collateral line relative is the legitimate heir
13. False – If the surviving spouse is alone, his/her share is 100%. If no children, but
with parents of the decedents, he/she will receive ¼ only if there is will.
14. False – if the transfer is testamentary, the free portion can be given to legitimate parent
as provided in the will.
15. False – one for the legitimate child and half for the illegitimate child
SUGGESTED ANSWERS
BASIC SUCCESSION

1. A 1. A 1. D
2. B 2. D 2. C
3. B 3. C 3. B
4. C 4. D 4. D
5. D 5. C 5. D
6. C 6. C 6. C
7. D 7. D 7. A
8. A 8. B 8. B
9. C 9. C 9. A
10. B 10. B 10. A
11. A 11. A 11. B & D
12. B 12. D 12. A
13. D 13. B 13. D
14. C 14. A
Problem 2-6 A
Zero. Except for the prize for winning the tournament which is subject to final income tax of
20%, all properties received are subject to transfer tax which will be paid by the donor or the
estate of the decedent.
Problem 2-7
1. Letter D
Business liabilities P 500,000
Car – first prize 1,000,000
Amount of mortgage assumed 1,500,000
Salary 300,000
Amount of onerous transfer P3,300,000
2. Letter B
Business, net of liabilities (P2,000,000 – P500,000) P1,500,000
House and lot as donation, net of mortgage (P2,000,000 – P1,500,000) 500,000
Farm as inheritance 500,000
Amount of gratuitous transfer P2,500,000
Problem 2-8
1. Letter A
Car (P800,000 – P300,000) P 500,000
2. Letter D
House and lot – mortis causa P1,000,000
Every donation between the spouses during the marriage shall be void. This prohibition does not
apply when the donation takes effect after the death of the donor. Neither does this prohibition
apply to moderate gifts which the spouses may give each other on the occasion of any family
rejoicing. (Art. 133, Civil Code)
Gifts in favor of an educational and/or charitable, religious, cultural or social welfare

corporation, institution, accredited nongovernment organization, trust or philanthrophic
organization or research institution or organization are tax-exempt. (Sec. 101, NIRC)
.
SUGGESTED ANSWERS
BASIC SUCCESSION
Problem 2-9 A
Property left by the decedent P 5,000,000
Less: Charges against the estate 1,000,000
Hereditary estate P 4,000,000
Problem 2-10 D
Distributable estate P12,000,000
Less: Share of 3 children (P12,000,000 x 50%) P6,000,000
Share of surviving spouse (P6,000,000/3) 2,000,000 8,000,000
Free portion P4,000,000
Less: Share of illegitimate child per Will 3,000,000
Free portion for the church P1,000,000
The share of the illegitimate child must be taken from the free portion. The Will is valid
because the 50% of the hereditary estate intended to legitimate children is not impaired.
Problem 2-11 B
Increase in the share of C (P1,500,000 x 3/5) P900,000
Problem 2-12 C
Net hereditary estate P5,000,000
Legitime of children (P5,000,000 x ½) ( 2,500,000)
Portion for the surviving spouse (P5,000,000 x ¼) ( 1,250,000)
Free portion – may be distributed to strangers P1,250,000
Problem 2-13 B
Inheritance of the spouse (P5,000,000/5) P1,000,000
Problem 2-14 A
Share of Abu = share of Surot (P12,000,000/3) P4,000,000
Add: Share inheritance repudiated by Cuto (P4,000,000/2) 2,000,000
Share of Surot P6,000,000
Problem 2-15 A
Hereditary estate P3,000,000
Legitime of children (P3,000,000 x ½) ( 1,500,000)
Portion for the spouse (P1,500,000/4) ( 375,000)
Free portion P1,125,000
Multiplied by 20%
Legacy to the sister-in-law P 225,000
Problem 2-16 NOT IN THE CHOICES

Less: Share of parents (P3,000,000 x1/2) P1,500,000
Share of illegitimate child (P3,000,000 x 1/4) 750,000
Share of surviving spouse (P3,000,000 x 1/8) 375,000 2,625,000
Free portion P 375,000
Share of the surviving spouse P375,000

Add: Share from free portion (P375,000/3) 125,000
Total share of the surviving spouse P500,000
SUGGESTED ANSWERS
BASIC SUCCESSION
Problem 2-17 D
Share of Anac (P12,000,000/3) P4,000,000
Divided by number of children of Anac 2
Share of Cute P2,000,000
Problem 2-18 A
Zero, because Lolo and Lola are excluded by Tatay and Nanay who are nearer to the testator.
The nearer excludes the farther.
Problem 2-19 D
Hereditary estate, net of charges (P7,000,000 – P1,000,000) P 6,000,000
Legitime of legitimate children (P6,000,000 x ½) ( 3,000,000)
Portion for the acknowledge natural child (P3,000,000/3) x 50% ( 500,000)
Portion for the surviving spouse (P3,000,000/3) ( 1,000,000)
Free portion – could be disposed of as legacy to the nanny P 1,500,000
Note: The testator is still intending to give 1/4 of the free portion to the nanny, but he can
give the entire amount of free portion to the nanny.
Problem 2-20 C
Inheritance of each child (P5,000,000/6) P 833,333
Problem 2-21
Gross taxable value for:
1. Capital gain tax P 300,000
2. Donor’s tax P 500,000
3. Business tax P - 0 -
4. Estate tax (P1,500,000 + P300,000) P1,800,000
Problem 2-22
Cash in bank P 100,000
House and lot 5,000,000
Investments in securities 400,000
Total gross estate P5,500,000
Less: Unpaid mortgage P 200,000
Existing loan 100,000
Funeral expense 100,000
Estate tax 100,000 500,000
Problem 2-23
Legitimate child – Mario (P1,200,000 x ½) P 600,000
Illegitimate child – Maria (P600,000 x ½) 300,000
Surviving spouse (P600,000 x ½) 300,000
P1,200,000
SUGGESTED ANSWERS
BASIC SUCCESSION
Problem 2-24
With respect to legitime: Son Wife
Legitimate child (P4,200,000 – P200,000) x 50% P2,000,000
Surviving spouse (P2,000,000 x ½) P1,000,000
Remaining balance (divide based on the intention of the will)

Legitimate child (P1,000,000 x ½) 500,000
Surviving spouse (P1,000,000 x ½) . 500,000
P2,500,000 P1,500,000
Problem 2-25
Gross estate P2,000,000
Less: Deduction 1,000,000
Net estate before share of the surviving spouse P1,000,000
Less: Share of the surviving spouse (P1,000,000 x 50%) 500,000
Net estate before estate tax P 500,000
Less: Estate tax 15,000
Net distributable estate P 485,000
Estate Distribution – death of Sabel

Dorado (child) Maya (child) Jess (husband) Total
Fraction of share - intestate 1/3 1/3 1/3 1
Distribution of inheritance P161,667 P161,667 P161,667 P485,000
Death of Jess
Exclusive share when Sabel died P 500,000
Add: Share from distributable share 161,667
Distributable estate P 661,667
Dorado (child) Maya (child) Free Portion Total
Fraction of share - testate ¼ ¼ ½ 1
Distribution of inheritance P165,417 P165,417 P333,883 P 661,667
Problem 2-26
Legitimate child 1 Legitimate child 2 Surviving spouse Illegitimate child Total
Fraction of share 1 1 1 ½ 3.5
Amount of inheritance P2,857,143 P2,857,143 P2,857,143 P1,428,571 P10,000,000
Note: The last will and testament is void because the presence of legitimate child eliminates
the parents from the inheritance. In all cases, the legitime must not be impaired by the
disposition through will.
Problem 2-27
1. Computation of net distributable share
Total gross estate (P10,000,000 + P20,000,000 + P30,000,000) P60,000,000
Less: Ordinary deductions 2,500,000
Net estate before share of surviving spouse P57,500,000
Less: Share of surviving spouse (P57,500,000 x 50%) 28,750,000
Net estate before standard deduction P28,750,000
Less: Standard deduction 1,000,000
Net taxable estate P27,750,000
Multiplied by assumed estate tax rate 15%
Estate tax P 4,162,500
Net estate before standard deduction P28,750,000

Less: Estate tax 4,162,500
Net distributable estate P24,587,500
SUGGESTED ANSWERS
BASIC SUCCESSION
2. Computation of the shares of the heirs

Share of legitimate son (P24,587,500 x ½) P12,293,750
Share of surviving spouse (P24,587,500 x ½) P12,293,750
Note: His mother and brother, as secondary heirs, are disqualified to share from the portion of
the legitime due to the presence of a legitimate child. Hence, the will becomes void.
Problem 2-28
1. Computation of net distributable estate:
Gross estate (P4,000,000 + P1,000,000 + P200,000 + P5,000,000 + P3,000,000) P13,200,000
Less: Ordinary deductions:
Funeral expense P 100,000
Unpaid mortgage 200,000 P 300,000
Allowable deduction - Standard deduction 1,000,000 1,300,000
Less: Estate tax (P11,900,000 x 15%) 1,785,000
Net estate after tax P10,115,000
Add: Standard deduction 1,000,000
2. Distribution of net distributable estate:

Christopher Cristeta Crisistomo
(son) (daughter) (driver) Total
Testate succession P4,000,000 P1,000,000 P 200,000 P 5,200,000
Intestate succession 2,957,500 2,957,500 . 5,915,000
Mixed succession P6,957,500 P3,957,500 P 200,000 P 11,115,000
.
SUGGESTED ANSWERS
Chapter 3: GROSS ESTATE
CHAPTER 3
GROSS ESTATE
Problem 3-1
1. True
2. False – include all properties within and outside the Philippines.
3. True
4. False – intangible personal properties
5. False – properties of nonresident aliens. The properties within and outside the Philippines
of a resident alien is subject to Philippine estate tax.
6. True
7. False – common stock only; preferred stock is measured at its par value.
8. True
9. True
10. False – This is a donation mortis causa which is subject to estate tax.
11. True
12. False – only proceeds of life insurance with revocable beneficiary is included for estate
tax purposes.
Problem 3-2
1. True
2. False – amount receivable under R.A. 4917 shall be included as part of the gross
estate subject to deduction of its entire amount reported.
3. False – only intangible properties are exempted from estate tax.
4. True
5. False – the reciprocity exemption is granted only to nonresident alien.
6. True
7. True
8. True
9. False – exclusive property.
10. True
11. True
12. True
Problem 3-3 Problem 3-4

1. D 1. B
2. C 2. C
3. B 3. A
4. D 4. A
5. A 5. B
6. C 6. C
7. D 7. A
8. B 8. B
9. A 9. A
10. C 10. D
11. D 11. C
12. A 12. A
SUGGESTED ANSWERS
Problem 3-5
1. The reportable gross estate is P3,000,000 or (P2,500,000 + P500,000)
2. P25,000,000. The properties left by a resident alien which are located within and outside
the Philippines are required to be reported for Philippine estate tax purposes.
3. A has 20% in the book value of U Corporation. The book value of U Corp. is P2,000,000.
Therefore, the reportable gross estate of A would be P400,000 or (P2,000,000 x 20%).
4. Zero. The beneficiary is irrevocable. Therefore, the P5,000,000 proceeds of life insurance
should be excluded from the gross estate.
5. Since M is a resident alien, all of his properties within and outside the Philippines should
be reported as part of the gross estate for Philippine estate tax purposes. The reportable
gross estate should be P11,000,000.
6. Zero. No amount is allowed as exemption because the rule of reciprocity is applied only
on the intangibles of nonresident alien.
7. P10,000,000. Since Mr. T is a nonresident alien in this case, the gross estate is zero because
the rule of reciprocity can now be applied.
8. None. The rule is to report the market value of the property at the time of the decedent’s
death. The compensatory damages of P900,000 are excluded since the accrued is made to the
decedent’s heirs after death. Payments for medical and funeral expenses are nontaxable
because they are considered contributions from symphatizers.
9. Excluded from the gross estate is P3,000,000 or (P5,000,000 x 60%). As a rule, property
donated by the decedent to a nonprofit and nonstock educational institution is excluded
from the gross estate. Donations to the Philippine government is included as part of the gross
estate, but deductible in its full amount.
Problem 3 – 6 B
At market value of P750,000. The law provides that the valuation should be at the market value
of the property at the time of the owner’s death. The book value is irrelevant because the
properties left by the decedent are considered under liquidating concern.
Problem 3 – 7 C
Business, Daly City P30,000,000
Cars, Philippines 1,000,000
Condominium, Philippines 3,000,000
Mansion, Boracay, Philippines 20,000,000
Shares of stock, Hongkong 4,000,000
Accounts receivable 2,000,000
Gross estate of Molina P60,000,000
Problem 3-8 B
Real property in the Philippines P1,600,000
Personal properties in foreign country 600,000
Personal properties in foreign country 800,000
Amount to be included in the gross estate P3,000,000
SUGGESTED ANSWERS
Problem 3-9 A
P500,000. Since the alien is nonresident all of his properties outside the Philippines are
reportable for Philippine estate tax purposes. The investment in shares of stock of a resident
foreign corporation with 85% business situs in the Philippines is a property within the
Philippines.
Problem 3-10
1. Letter A
Real properties – Philippines P1,000,000
Car – Philippines 800,000
Collectibles – Philippines 500,000
Franchise – Taiwan 200,000
Taxable gross estate P2,500,000
2. Letter C
Real properties – Philippines P1,000,000
Car – Philippines 800,000
Taxable gross estate P1,800,000
Problem 3-11 A
P500,000. The gross estate shall be valued at its fair market value at the time of death.
Problem 3-12 C
Amount to be included in the gross estate [(P120+P150)/2] x 1,000 P135,000
Problem 3-13 D
Equity in SMC book value (P100,000,000 x 40%) P40,000,000
Investment income (P20,000,000 x 40%) 8,000,000
Amount to be included in the gross estate P48,000,000
Note: Investment income is considered because there is significant controlling interest.
Problem 3-14 B
Business establishments P10,000,000
Accrued income (P200,000 x 5 months) 1,000,000
Time deposit for 10 years 30,000,000
Accrued interest (P30,000,000 x 12% x 10/12) 3,000,000
5% equity in Jollibee Corporation 5,000,000
Car and mansion donated mortis causa to his son 20,000,000
The dividend is excluded because the declaration was made after death.
Problem 3-15 A
Commercial building P10,000,000
Rental income earned (P200,000 x 5 months) 1,000,000
Common shares (P120 + P130)/2 = P125 x 200,000 shares 25,000,000
Cash dividend (P20,000,000/200,000) = P100 x 10% x 200,000 2,000,000
Reportable gross estate P38,000,000
Problem 3-16 B
Revocable donation to the Ramon Magsaysay Foundation P1,000,000
Family home 1,000,000
Nontaxable benefits under R.A. 4917 500,000
Transfers in contemplation of death 2,000,000
SUGGESTED ANSWERS
Donation to the government 1,000,000
Total reportable gross estate P5,500,000
Problem 3-17 D
Zero, because the proceeds of life insurance is designated to an irrevocable beneficiary. The
P200,000 is also excluded because such amount in on account of physical injury and accrued
after death.
Problem 3-18 A
P500,000. The proceeds of life insurance are reportable because the beneficiary is revocable.
Problem 3-19 D
There is no inadequate consideration because the sale of real property classified as capital
asset is subject to a final capital gains tax of 6% based on the selling price or fair market
value, whichever is higher.
Note: If the cash P100,000 cash payment made by the son is available at the time of death;
then the amount should be included as part of the gross estate.
Problem 3-20 C
Fair market value – date of death P2,000,000
Less: Selling price received by Singsong 1,300,000
Amount included in the gross estate P 700,000
Problem 3-21 C
P160,000. The entire amount of receivable, irrespective whether collectible or not, shall be
included as part of the gross estate.
Problem 3-22 B
Family home to Cell, his daughter
(Cancer used the house until his death) P 4,000,000
Commercial building to Cyst, his son
(Cancer received the rental income) 6,000,000
Shares of stock to Aids, his wife
(Evidenced by oral donation) 3,000,000
Amount reportable for estate tax purposes P13,000,000
Problem 3-23 D
The reportable estate of A in the Philippines is P10,000,000. Even if A is a nonresident
Filipino, his properties located outside the Philippines are reportable in the Philippines
because he is a Filipino citizen.
Problem 3-24 B
Condominium in Makati as a fiduciary heir P5,000,000
Cash as bequest to the University of the Philippines 2,000,000
Amount to be excluded from reportable gross estate P7,000,000
Problem 3-25 A
Zero. Only nonresident alien shall be subject to reciprocity.
Problem 3-26 B
P4,000,000 value of condominium located in the Philippines. Intangible properties are not
subject to estate tax in the Philippines when there is reciprocity and the decedent who owns
them is a nonresident alien.
SUGGESTED ANSWERS
Problem 3-27 D
P2,000,000. Properties acquired and brought into marriage on or after August 3, 1988 are
governed by absolute community property relation; hence, to be included as part of the gross
estate.
Problem 3-28
1. Letter C
Property brought into marriage before August 3, 1988 shall be classified as an exclusive
property but its fruits shall be classified as part of the conjugal property. The exclusive
gross estate is P12,000,000.
2. Letter A
Marriage on or after August 3, 1988 shall be governed by the absolute community regime of
property relation. Therefore, the exclusive gross estate of Mr. X is zero because his property
brought into marriage including its fruits shall be classified as part of the absolute
community property.
Problem 3-29
1. Conjugal partnership of gains = A
Conjugal properties:
Accum. income from boarding house P3,000,000
Personal properties acquired during marriage 5,000,000 P 8,000,000
Exclusive property – boarding house inherited from his parents during marriage 4,000,000
2. Absolute community of property = C

Absolute community properties:
Personal properties acquired during marriage P5,000,000
Farm land brought into marriage by his wife 6,000,000 P11,000,000
Exclusive properties
Boarding house inherited from his parents during marriage P4,000,000
Accum. income from boarding house 3,000,000 7,000,000
Problem 3-30
Case 1 – Include. The donation is conditional. The donor reserved the power to own the car
until the latter passes the CPA exam.
Case 2 – Include. The donation is revocable because the donor controls and enjoys the
property for himself until his death.
Case 3 – Exclude. The donation is complete because control over the property by the donor
ended after 3 years.
Case 4 - Include. The donor predeceased the donee. Absolute control is transferred to the donee
upon the death of the donor.
Case 5 – Exclude. The P60,000 (P80,000 – P20,000) is subject to donor’s tax at the time of sale.
Case 6 – Include. The sale is in contemplation of death. The P900,000 is subject to income tax.
Case 7 – Exclude. The sale of real property is subject to a final tax of 6% based on the
selling price or fair market value, whichever is higher.
Case 8 – Include. The transfer is an inheritance to be received at the time of death as

evidenced by a Will.
\
SUGGESTED ANSWERS
Case 9 – Exclude. No transfer tax is to be paid because the property was transferred at the desire
of the predecessor, H. S has no power or control to appoint other successor.
Case 10 – Include. The transfer is a general power of appointment.
Case 11 – Exclude. Subject to donor’s tax because the actual transfer is inter vivos. The
transfer of proceeds of life insurance is deemed complete at during the life-time of the donor.
Case 12 – Incude. Include as part of the gross estate if the beneficiary is revocable or the
decedent’s estate, his administrator or his executor.
Problem 3-31
Real properties in the Philippines P2,000,000
Car in the Philippines 800,000
Accounts receivable 500,000
Time deposit 300,000
Accrued interest on time deposit (P300,000 x 12% x 5/12) 15,000
Claims against insolvent person 35,000
Problem 3-32
Shares of stock – Japanese Corporation – 85% of business in the Philippines P120,000,000
Time deposit in Equitable-PCI Bank 500,000,000
Investments in bonds in Jollibee Corporation 4,000,000
Problem 3-33
House and lot P6,000,000
Investment in property 2,000,000
Car 600,000
Furniture 300,000
Problem 3-34
1. Listed in the local exchange
Common (P190/2) x 10,000 shares P 950,000
2. Not listed in the local exchange
Total stockholders’ equity P15,000,000
Less: Liquidating value of preferred stock
(P110 x 60,000 shares) 6,600,000
Revaluation surplus 200,000
Total book value to common shares P 8,200,000
Divided by outstanding common shares 100,000
Book value per share P 82
Multiplied by number of Mr. Tulog’s
investment in common shares 10,000
Value of securities as part of gross estate P 820,000
Problem 3-35
Real estate properties P 3,000,000
Time deposit – principal amount 2,000,000
Accrued interest on time deposit (P2,000,000 x 12% x 8/12) 160,000
Tangible personal properties 1,000,000
Other intangible properties 500,000
Gross estate P 6,660,000
\
SUGGESTED ANSWERS
Problem 3-36
1. Accrued interest (P1,000,000 x 6% x 9/12) P 45,000
Transfers in contemplation of death – car 1,500,000
Additions to the reportable gross estate P1,545,000
2. Family home P2,000,000

Time deposit 1,000,000
Proceeds of life insurance received by his wife 500,000
Additions to the reportable gross estate (see 1) 1,545,000
Problem 3-37
Conjugal Absolute
Partnership Community
Properties:
Acquired by decedent prior to marriage P600,000 P600,000
Acquired by surviving spouse prior to marriage 700,000
Inherited by decedent during the marriage 800,000 800,000
Acquired during the marriage 1,000,000 1,000,000
Income derived from property inherited by surviving
spouse during the marriage 450,000
Time deposit 850,000 850,000
Accrued interest 90,000 90,000
Total gross estate of the decedent P3,790,000 P4,040,000
Problem 3-38
1. Filipino or resident alien
Within Outside Total
Condominium P5,000,000 P5,000,000
Commercial building P10,000,000 10,000,000
Shares of stock – nonresident foreign corp. 3,000,000 3,000,000
Business transferred to his son, the decedent
enjoys the income until his death 8,000,000 8,000,000
Investments in lands:
Fair market value at time of death 5,000,000 2,000,000 7,000,000
Proceeds of life insurance, estate irrevocable beneficiary 2,000,000 2,000,000
Proceeds of property insurance 3,000,000 7,000,000 10,000,000
Cash in bank 2,500,000 4,000,000 6,500,000
Franchises 1,500,000 2,000,000 3,500,000
Total gross estate P27,000,000 P28,000,000 P55,000,000
2. Nonresident alien without reciprocity

Within
Condominium P5,000,000
enjoys the income until his death 8,000,000
Fair market value at time of death 5,000,000
Proceeds of life insurance, estate irrevocable beneficiary 2,000,000
Proceeds of property insurance 3,000,000
Cash in bank 2,500,000
Franchises 1,500,000
‘
SUGGESTED ANSWERS
3. Nonresident alien with reciprocity

Within
Condominium P5,000,000
enjoys the income until his death 8,000,000
Fair market value at time of death 5,000,000
SUGGESTED ANSWERS
Chapter 4: DEDUCTIONS FROM GROSS ESTATE
CHAPTER 4
DEDUCTIONS FROM GROSS ESTATE
Problem 4–1
1. False – could not be claimed as claim against the estate.
2. True
3. False – indebtedness is not transferrable to the heirs.
4. True
5. False – bank loan is the exception for notarization requirement.
6. True
7. True
8. False – unpaid taxes accrued before death only.
9. False – not deductible because the loss has been claimed by gross income. No double
deduction is allowed.
10. False – not deductible. Donation is deductible if given for Philippine Government and
exclusively for public purposes.
11. True
12. False – special deductions are not allowed to nonresident alien decedent.
13. True
Problem 4–2
1. False – value of deduction at the time of death.
2. False – not terminated upon the decedent’s death but shall be paid by the remaining estate.
3. True
4. False – judicial expense incurred after death but before the estate tax settlement date is still
deductible from gross estate.
5. False – losses that are deductible must have been sustained after death but before the
settlement date of estate tax.
6. True
7. True
8. False – not deductible. Only those expenses actually taken from the gross estate are
deductible.
9. False – actual or 5% of the gross not exceeding P200,000
10. False – this threshold is applicable to funeral expense.
11. False – Only those expenses actually taken from the gross estate.
12. True
13. True
Problem 4–3
1. False – special deduction.
2. False – neither special nor ordinary deduction.
3. True
4. True
5. True
6. False – deductible only if included in the gross estate. The amount deductible from the gross
estate is limited to the amount that cannot be recovered.
7. False – either against the gross estate or against gross income. There is no double deduction.
8. False – Estate tax is not deductible from gross estate. (Sec. 86, NIRC)
9. True
10. False – not deductible because not yet accrued expense.
11. True
12. False – Nondeductible because only those related to gathering, preservation and settlement of
the estate is allowed as deductible judicial expense from the gross estate.
13. True
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This solution manual is not for sale. Any person who sells it in photocopy, mechanical or
electronically is unauthorized and shall be prosecuted in accordance with law.
SUGGESTED ANSWERS
Problem 4–4
1. False – ordinary deduction.
2. True
3. False – ½ of net conjugal estate, after ordinary deductions
4. False – no funeral deduction expense is allowed.
5. False – funeral expense is deducted first from common property
6. True
7. True
8. True
9. False – deductible whether paid or unpaid, the maximum deductible medical expense is
P500,000.
10. False – not allowed as deduction is in excess of P500,000
11. False – this is in addition to other allowable deductions. Standard deduction is not in lieu of
ordinary deduction.
12. False – no receipt is necessary for standard deduction.
13. True
Problem 4–5 Problem 4–6 Problem 4–7 Problem 4–8

1. C 1. D 1. C 1. D
2. B 2. C 2. A 2. B
3. C 3. D 3. B 3. C
4. D 4. A 4. D 4. A
5. A 5. B 5. D 5. A
6. D 6. A 6. C 6. B
7. C 7. C 7. A 7. A
8. A 8. B 8. B 8. D
9. B 9. A 9. D 9. D
10. A 10. D 10. C 10. C
Problem 4–9
1. P – 0 -. The funeral expenses should first be substantiated with documentary evidences that
they actually incurred before the 5% of the gross estate or the P200,000 whichever is the
lowest of the three is made. If the funeral expenses are not substantiated, such become the
lowest among the three choices.
2. P375,000. D’s administrator could still collect 25% or (P600,000/P2,400,000) of B’s asset.
The remaining uncollectible would be 75% of P500,000 = P375,000.
3. P - 0 -. No vanishing deduction is allowed when the property subjected to previous transfer

taxes is located outside the Philippines.
4. P - 0 -. No deduction is allowed if the estate tax return of a nonresident alien does not
contain properties located outside the Philippines.
5. P - 0 -. Special deductions are not allowed to nonresident alien.
6. P100,000. The excess of unpaid funeral expense shall not be deducted as claimed against the
estate.
7. P1,840,000. The special deduction within is computed as follows:

Family home P1,000,000
Standard deduction (P1,000,000 x 3/5) 600,000
Medical expense (P400,000 x 3/5) 240,000
Total special deduction within P1,840,000

SUGGESTED ANSWERS
8. P1,000,000. Only donation to the Philippine Government and nay of its political subdivisions
are allowed to be deducted from the decedent’s gross estate for Philippine estate tax
purposes.
9. P - 0 -. Losses could only be claimed within 6 months from the date of death.
Problem 4–10 C
Proportionate ELIT (P500,000 x 3/5) P 300,000
Add: Donation to Philippine government 100,000
Allowable deduction within P400,000
Problem 4–11 C
Funeral expense (P3,500,000 x 5%) P175,000
Whether paid or unpaid, actual funeral expense is deductible subject to limit.
Problem 4–12 B
Gross estate (P3,150,000 + P175,000) P3,325,000
Multiplied by funeral rate 5%
Deductible funeral expense P 166,250
Problem 4–13 A
Gross estate (P2,000,000 + P1,000,000) P3,000,000
Multiplied by funeral rate 5%
Deductible funeral expense P 150,000
Problem 4–14 NOT IN THE CHOICES

Real property P1,560,000
Cash paid for medical expense from decedent’s estate 45,000
Cash used for wake expenses from decedent’s estate 85,000
Memorial plan already paid 40,000
Multiplied by percent of funeral expense 5%
Funeral expense allowed P 91,500
The actual funeral expense is P125,000; the total of P85,000 wake expenses, and P40,000
memorial plan already paid.
Problem 4–15 D
Funeral expense, lowest amount P130,000
Claims against the estate P - 0 -
The entire amount of P90,000 in excess of P130,000 limit can no longer be deducted as funeral
expense not it can be deducted as judicial expense.
Problem 4–16 D
Capital gains tax (P1,780,000/89%) x 6% P120,000
Judicial expense (P1,900,000/95%) – P1,900,000 100,000
Total judicial expense P220,000
The capital gains tax is considered judicial expense because it is a legitimate and necessary
charge in disposing the property for the settlement of estate.

SUGGESTED ANSWERS
Problem 4–17 C
Agreed contract price (P10M x 10%) P1,000,000
Extra-judicial settlement of the estate 500,000
Total deductible judicial expenses P1,500,000
Problem 4–18 C
Deductible loss (P48,000/40%) P120,000
Problem 4–19 A
There is no deductible loss from the gross estate because the car is not anymore available at the
time of death. To be deductible, the loss must be sustained after death but before the filing and
payment of the estate tax.
Problem 4–20 D
Value of apartment raged by fire P3,000,000
Less: Insurance recovery (P3,000,000 x 60%) P1,800,000
Scrap value 100,000 1,900,000
Deductible loss P1,100,000
Problem 4–21 A
Unpaid mortgage on the real property included in the gross estate P500,000
Problem 4–22 D
Loans from Metro Bank (not notarized per bank’s policy) P500,000
Interest on loans payable in the bank 30,000
Loans from Metro Bank (not notarized per bank’s policy) P530,000
Problem 4–23 D
Accounts receivable P500,000
Multiplied by percent of uncollectible (100% - 66.67%) 33.33%
Bad debts deductible P166,667
Percent of collectible is computed as follows:

Assets, net of unpaid taxes (P1,500,000 – P500,000) P1,000,000
Divided by liabilities, net of taxes payable (P2,000,000 – P500,000) P1,500,000 66.67%
Problem 4–24 B
Uncollectible amount (P160,000 x 87.50%) P140,000
Percent of the entire amount 100.00%
Less: percent of collectible amount (P50,000/P400,000) 12.50%
Percent of uncollectible 87.50%
Problem 4–25 B
Exclusive Conjugal
Properties P2,800,000 P3,500,000
Ordinary deductions:
Transfer for public use (400,000)
Unpaid mortgage loan used to finance family business ( 800,000)
Funeral expense . ( 180,000)
Properties after ordinary deductions P2,400,000 P2,520,000
Problem 4–26 D
Unpaid real property tax incurred prior to date of death P100,000
Donor’s tax prior to date of death 80,000
Deductible unpaid taxes from gross estate P180,000

SUGGESTED ANSWERS
Problem 4–27 A
Zero. No vanishing deduction is allowed for properties located outside the Philippines.
Problem 4–28 A
Value taken (lower) P1,000,000
Proportionate ordinary deduction (P1,000,000/P3,000,000) x P150,000 50,000
Final basis P 950,000
Multiplied by percent of vanishing deduction 60%
Amount of vanishing deduction P 570,000
Problem 4–29 D
Value taken (lower) P2,100,000
Less: Mortgage paid 400,000
Initial basis P1,700,000
Less: Proportionate deduction (P1,700,000/P5,000,000) x P400,000 136,000
Final basis P1,564,000
Multiplied by percent of vanishing deduction 40%
Amount of vanishing deduction P 625,600
Computation of ELIT:
Funeral expense, limit P200,000
Judicial expense 100,000
Unpaid mortgage 100,000
Total ELIT P400,000
Problem 4–30 B
Unpaid mortgage (P300,000 – P200,000) P100,000
Funeral expense (P3,000,000 x 5%) 150,000
Ordinary deduction subject to proportionate computation P250,000
Problem 4–31 D
Deductible transfer for public use (P2,000,000/1,000) x 200 P400,000
Problem 4–32 C
Donation to the City of Manila P200,000
Transfer for public use (Philippine Government) is the only donation allowed deductible from
gross estate.
Problem 4–33 C
Funeral expense (P3,000,000 x 5%) P150,000
Judicial expense (P250,000 x 60%) 150,000
Bad debts (P150,000/3) 50,000
Ordinary deductions P350,000
Problem 4–34 B
Funeral expenses P200,000
Add: Medical expenses 650,000
Total P850,000
Less: Limit amounts:
Funeral (P3,000,000 x 5%) P150,000
Medical expenses 500,000 650,000
Nondeductible amount of expenses P200,000

SUGGESTED ANSWERS
Problem 4–35 C
Standard deduction to Filipino and resident alien P1,000,000
Problem 4–36 D
Nonresident alien does not have standard deduction
Problem 4–37 D
Maximum amount of family home deductible P1,000,000
The family home is an exclusive property of the decedent.
Problem 4–38 C
Building – conjugal (P1,000,000/2) P500,000
Land – exclusive 400,000
Family home - deductible P900,000
Problem 4–39 D
Exclusive portion of family home P 800,000
Add: Share in the conjugal home
(P2,000,000-P800,000)/2 600,000
Total P1,400,000
Less: Maximum family home 1,000,000
Family home subject to tax P 400,000
Problem 4–40 C
Deductible medical expense (paid or unpaid) within one year prior to death P300,000
Problem 4–41 A
The unpaid medical expense in excess of the maximum P500,000 is nondeductible as
claims against the estate.
Problem 4–42 D
Medical expenses incurred from October 2013 to December 2013 P100,000
Problem 4–43 A
Exclusive Conjugal
Properties P1,000,000 P2,000,000
Transfer for public use ( 500,000)
Share of surviving spouse (P2,000,000 x 50%) . (1,000,000)
Net estate P 500,000 P1,000,000
Problem 4–44 B
Conjugal estate P5,000,000
Deductible funeral expense ( 200,000)
Multiplied by share of surviving spouse 50%
Share of surviving spouse P2,400,000
Problem 4–45 D
Standard deduction P1,000,000
Family home (P1,000,000/2) 500,000
Amount received under R.A. 4917 500,000
Special deductions P2,000,000

SUGGESTED ANSWERS
Problem 4–46
1. Letter C
Donation to the government P1,000,000
Total ordinary deductions P1,100,000
2. Letter D
Amount receivable R.A. 4917 500,000
Medical expense 400,000
Total special deductions P2,900,000
Problem 4–47
1. Letter D
Claims against the estate (P3M + P1M) P4,000,000
Transfer for public use (P500k + P200k) 700,000
Medical expenses 500,000
Standard deduction 1,000,000
Total deductions from gross estate P7,200,000
2. Letter C
Claims against the estate (P4,000,000 x 5/8) P2,500,000
Transfer for public use (P500k + P200k) 700,000
Total deductions allowed from gross estate P3,200,000
Problem 4–48 B
Japan Philippines
Funeral: (P200,000 x 2/5) & (3/5) P 80,000 P 120,000
Unpaid loans 300,000 700,000
Donations to government – Philippines 400,000
Judicial expenses (P600,000 x 2/10) & (8/10) 120,000 480,000
Total ordinary deductions P500,000 P1,700,000
Special deductions:
Standard (P1,000,000 x 2/10) & (8/10) P 200,000 P 800,000
Medical (P500,000 x 5/8) & (3/8) 312,500 187,500
Total special deduction P 512,500 P1,987,500
Total deductions P1,012,500 P3,687,500
Problem 4–49 A
P5,000,000. No deduction shall be allowed in the case of a nonresident decedent alien if his
properties outside the Philippines are not reported in the Philippine estate tax return. [Sec. 86
(D), NIRC]
Problem 4–50 NOT IN THE CHOICES

Add: Standard deduction P1,000,000
Ordinary deductions 1,500,000 4,000,000
SUGGESTED ANSWERS
Problem 4–51 C
Add: Share of surviving spouse 2,000,000
Net estate after special deductions P6,000,000
Add: Special deductions
Amount received under R.A. 4917 250,000 2,750,000
Total net estate before ordinary deductions P8,750,000
Less: Net exclusive estate
Family home P1,500,000
Amount received under R.A. 4917 250,000
Gross exclusive estate P1,750,000
Less: Exclusive ordinary deduction 750,000 1,000,000
Net conjugal estate P7,750,000
Problem 4–52
Burial lot (P50,000 x 80%) P40,000
Expenses for wake before burial 20,000
Telegrams and cable to relatives 1,000
Mourning apparel of the surviving spouse and children 3,000
Entertainment expenses during the rites and burial ceremonies 2,500
Allowable funeral expenses P66,500
Problem 4–53
January until November until
1. Ordinary deductions: October 200A December 200A Total
Unpaid taxes:
Income tax P200,000 P200,000
Donor’s tax 100,000 100,000
Funeral expenses:
Memorial plan 50,000 50,000
Wake expenses 100,000 100,000
Accrued expenses 80,000 80,000
Total ordinary deductions allowed P530,000
2. Special deductions:
Medical expenses:
Hospital bills 400,000 400,000
Total special deduction P2,400,000
Problem 4–54
Exclusive Conjugal
Real estate property P700,000 P2,200,000
Personal property . 400,000
Total P700,000 P2,600,000
Funeral expense (P700,000 + P2,600,000) x 5% ( 165,000)
Judicial expenses ( 50,000)
Mortgage payable to the bank ( 400,000)
Multiplied by percent share of surviving spouse 50%
Share of surviving spouse P 992,500
SUGGESTED ANSWERS
Problem 4–55
October 1 to 20, 2014 from Saint Luke’s Hospital:
Diagnostic fee P 60,000
Doctors’ fee 120,000
Hospital rooms 80,000
Operating costs 50,000
Medicines 90,000
Total medical expense deductible P400,000
Problem 4–56
Funeral expense, actual P 150,000
Medical expense, maximum allowed 500,000
Standard deductions 1,000,000
Total deductions P1,700,000
Problem 4–57
1. Gross estate P3,000,000
2. Actual deductions (P200,000 + 500,000) P700,000
3. Deductible allowance – standard deduction P1,000,000
4. Net taxable estate (P3,000,000 – P700,000 – P1,000,000) P1,300,000
Note: Since the funeral and judicial expense are combined, it is assumed that the limit for funeral
expense amounting to P150,000 or 5% of gross estate is complied and the remaining balance of
P50,000 is for the judicial expense.

SUGGESTED ANSWERS
Chapter 5: ESTATE TAX
CHAPTER 5
ESTATE TAX
Problem 5–1
1. True
2. False – 20% of the net taxable estate
3. False – intangible property of nonresident alien decedent.
4. False – Not any claims, but legal claims substantiated with supporting documents
5. False – Not allowed to nonresident alien decedent because they are taxed only on properties
situated within.
6. False – the first P200,000 is estate tax-exempt.
7. True
8. True
9. True
10. False – If the value of the gross estate exceeds P2,000,000.
11. True
12. True
Problem 5–2
1. False – This is also allowed to nonresident alien decedent for their ELITE.
2. True
3. True
4. True
5. False – deductible in full
6. False – standard deduction will not reduce the inheritance.
7. False – only 30 days.
8. True
9. True
10. True
11. True
12. True

1. A 1. C 1. C
2. C 2. B 2. A
3. D 3. B 3. D
4. A 4. D 4. A
5. C 5. A 5. B
6. A 6. D 6. D
7. D 7. D 7. A
8. B 8. C 8. C
9. A 9. A 9. A
10. C 10. D 10. D
11. D 11. D 11. D
12. D
SUGGESTED ANSWERS
Problem 5–6 B
Conjugal gross estate (P3,120,000 + P180,000) P3,300,000
Funeral expense allowed (P3,300,000 x 5%) ( 165,000)
Share of surviving spouse (P3,300,000 – P165,000) x 50% ( 1,567,500)
Standard deduction ( 1,000,000)
Net estate P 567,500
Problem 5–7 D
Funeral expense allowed (P3,000,000 x 5%) ( 150,000)
Net conjugal/community estate P2,850,000
Standard deduction (1,000,000)
Net estate P1,850,000
Share of surviving spouse (P2,850,000 x 50%) 1,425,000
Net taxable estate P 425,000
Problem 5–8 A
Estate after actual deductions P1,200,000
Add: Actual deductions (P150,000 + P50,000) 200,000
Less: Funeral expense allowed (P1,400,000 x 5%) P 70,000
Other deduction 50,000
Standard deduction 1,000,000 (1,120,000)
Problem 5–9 D
Exclusive Conjugal
Property – cash P1,000,000 P4,000,000
Family home 800,000
Transfer for public use (1,000,000)
Funeral expense allowed ( 200,000)
Family home (P800,000/2) (400,000)
Share of surviving spouse (P4,600,000 x 50%) (2,300,000)
Problem 5–10 A
Charges against the estate ( 200,000)
Family home (1,000,000)
Share of surviving spouse (P4,300,000 x 50%) (2,150,000)
Net estate taxable in the Philippines P 150,000
Problem 5–11 B
Conjugal
Properties P3,400,000
Funeral expense, limit ( 200,000)
SUGGESTED ANSWERS
Claims against properties ( 550,000)
Problem 5–12 C
Net estate of P500,000 has a estate tax amounting to P15,000
Problem 5–13 A
Estate tax of P5,000,000 P465,000
Problem 5–14 D
Net estate Estate tax
Amounts P2,000,000 P135,000
Nonresident alien decedent is not allowed to have standard deduction. The funeral expense is not
deductible because no part of gross estate located outside the Philippines is reported. (Sec. 86
(B), NIRC)
Problem 5–15 A
Add: Family home P1,000,000
Standard deduction 1,000,000 2,000,000
Distributable estate before estate tax P12,000,000
Less: Estate tax of P10,000,000 1,215,000
Problem 5–16
1. Letter B Exclusive Conjugal
Real estate P2,800,000 P1,600,000
Personal property 800,000
Funeral expense, limit ( 200,000)
Unpaid mortgage loan . ( 300,000)
Net exclusive/conjugal state P2,800,000 P1,800,000 P4,600,000
Family home (P1,600,000/2) ( 800,000)
Share of surviving spouse (P1,800,000 x 50%) ( 900,000)
2. Letter D
Estate tax on P500,000 P 15,000
Estate tax on excess (P1,600,000 x 8%) 128,000
Estate tax P143,000
3. Letter B Exclusive Conjugal

Real estate P2,800,000 P1,600,000
Personal property 800,000
Funeral expense, actual ( 245,000)
Unpaid mortgage loan . ( 300,000)
Net exclusive/conjugal estate P2,800,000 P1,755,000 P4,555,000
Share of surviving spouse (P1,755,000 x 50%) ( 877,500)
Estate tax ( 143,000)
SUGGESTED ANSWERS
Problem 5–17 C
Tax credit P100,000 x 2M/5M) P40,000
Problem 5–18 A
Total gross estate (P1,700,000 + P800,000) P2,500,000
Less: Deductions 1,500,000
Estate tax on P500,000 P15,000
Excess P500,000 x 8% 40,000
Total estate tax in the Philippines P55,000
Tax credit allowed (P800,000/P2,500,000) x P55,000 = P17,600 vs. P20,000 P17,600
Problem 5–19
Conjugal Exclusive Total
Real property P1,500,000
Inherited property P700,000
Other properties 500,000 .
Gross estate P2,000,000 P700,000 P2,700,000
Less: Deductions:
ELITE:
Funeral expenses P 100,000
Judicial expenses 80,000
Claims against the estate 300,000
Transfer for public use 20,000
Total deductions P 500,000 500,000
Net conjugal/exclusive estate P1,500,000 P700,000 P2,200,000
Less: Special deductions:
Medical expense 200,000
Less: Share of surviving spouse (P1,500,000 x 50%) 750,000
Estate tax:
Tax on P200,000 P - 0 -
Tax on excess (P50,000 x 5%) 2,500
Estate tax due P 2,500
Problem 5–20
Family home – Philippines P2,000,000
Family business – Philippines 2,000,000
Properties – USA . P1,000,000
Gross estate P4,000,000 P1,000,000 P5,000,000
Deductions:
ELITE – Funeral expense 200,000 . .
Net conjugal/exclusive P3,800,000 P1,000,000 P4,800,000
Less: Special deduction
Std. deduction 1,000,000
Estate tax:
SUGGESTED ANSWERS
Tax on P500,000 P15,000
Tax on excess (P400,000 x 8%) 32,000
Estate tax due P47,000
Less: Estate tax credit allowed (P47,000 x 8/28) – lower 13,429
Estate tax still due and payable P33,571
Supporting computation:
The computation of net estate per country is as follows:
Philippines U. S. A
Gross estate P4,000,000 P1,000,000 P5,000,000
Funeral expense (200,000) (200,000)
Family home (1,000,000) (1,000,000)
Allocation of std deduction
(P1,000,000 x 4/5): (1/4) (800,000) ( 200,000) (1,000,000)
Net estate P2,000,000 P 800,000 P2,800,000
Problem 5–21
Gross estate* P5,800,000 P4,200,000 P10,000,000
Less Deductions:
Funeral expenses (actual, P350,000;
5% limit, P500,000; statutory
Maximum allowed, P200,000) - lowest (200,000)
Judicial expenses (500,000)
Other deductions (100,000)
Vanishing deductions (note 1) . ( 92,000)
Net conjugal/exclusive estate P5,000,000 P4,108,000 9,108,000
Special deductions:
Family home (50% is P1,500,000) max. allowed (1,000,000)
Medical expenses (actual, P600,000) max. allowed (500,000)
Amount receivable under R.A. 4917 (200,000)
Less: Share of the surviving spouse (P5,000,000 x 50%) 2,500,000
*Note: The amount receivable under R.A. 4917 must be reclassified as exclusive property in order
not to increase the deduction by 50%.
Vanishing deduction:
Cash, initial value allowed to take P500,000

Less: Proportionate deductions:
Funeral expense P200,000
Other obligations 100,000
Total P800,000
(P800,000 x P500,000/P10,000,000) 40,000
Final basis P460,000
Multiplied by vanishing deduction rate 20%
Vanishing deduction P 92,000
SUGGESTED ANSWERS
Problem 5–22
Gross estate (P2,000,000 + P180,000) P2,180,000
Less: Deductions:
Unpaid mortgage P 480,000
Standard 1,000,000 1,560,000
Tax on P500,000 P15,000

Tax on excess P120,000 x 8% 9,600
Total estate tax P24,600

Less: Ordinary deductions (P480,000 + P80,000) P560,000
Estate tax 24,600 584,600
Problem 5–23
Cash P 400,000
Property 1,500,000
Deductions:
Promissory note ( 500,000)
Funeral expense ( 70,000)
Net taxable estate (P335,000)

Less: Promissory note P500,000
Funeral expense 70,000 570,000
Net distributable estate P 665,000
Problem 5–24
Gross estate (P1,000,000 + P9,000,000) P1,000,000 P9,000,000 P10,000,000
Funeral expense (limit) ( 200,000) ( 200,000)
Judicial expense ( 200,000) ( 200,000)
Claims against the estate ( 500,000) ( 500,000)
P 100,000
Special deductions:
SUGGESTED ANSWERS
Medical expense ( 500,000)
Less: Share of surviving spouse (P100,000 x 50%) 50,000
Tax on P5,000,000 P465,000

Tax on excess P2,550,000 x 15% 382,500
Estate tax P847,500
Conjugal estate P1,000,000

Less: Ordinary deductions (actual):
Claims against the estate 500,000 910,000
Net conjugal estate before share of surviving spouse P 90,000
Less: Share of surviving spouse (P90,000 x 50%) 45,000
Net share of the decedent P 45,000
Add: Exclusive property of the decedent 9,000,000
Net distributable estate before estate tax P9,045,000
Divide by number of heirs (12 + 1) 13
Share of each heir P 603,576.92
Note: The medical expense is assumed to have been paid.
Problem 5–25
Taxable Distributable
Conjugal property - real estate P2,000,000 P2,000,000
Funeral expenses, limit (P2M + P300,000) x 5% ( 115,000) ( 150,000)
Judicial expenses ( 5,000) ( 5,000)
Unpaid mortgage ( 500,000) ( 500,000)
Vanishing deduction* ( 175,304) .
Net conjugal estate P1,204,696 P1,345,000
Add: Exclusive property – personal property inherited 300,000 300,000
Net estate before special deduction P1,504,696 P1,645,000
Less: Standard deduction 1,000,000 .
Net estate before share of surviving spouse P 504,696 P1,645,000
(P1,345,000 x 50%) 672,500
Net taxable/distributable estate (P 97,652) P 972,500
Divide by number of compulsory heirs 3
Inheritance of each heir P 324,167
Vanishing deduction:
*Value taken P300,000
Less: Proportionate deductions (P620,000 x P300,000/ P2,300,000) 80,870
Final basis P219,130
Multiply by percentage of vanishing deduction – one year ago 80%
Vanishing deductions P175,304
SUGGESTED ANSWERS
Problem 5–26
The property relationship of Don and Dona Dinero shall be governed by the regime of absolute
community property ownership because they got married after August 3, 1988. Hence, the
computation would be:
1. Computation of net estate:

Communal Exclusive Total
Residential house and lot P 3,500,000
Building apartment 10,000,000
Income of apartment 3,000,000
Deposit in Equitable Bank 5,000,000
Agricultural land P 800,000
Family car 550,000
Other personal properties 1,000,000
Claim against insolvent person 100,000 .
Total gross estate P23,150,000 P 800,000 P23,950,000
Less: Ordinary deductions:
ELIT:
Funeral expenses – maximum 200,000
Claims against the estate 600,000
Transfer for public use . 200,000 2,000,000
Net estate before special deductions P21,650,000 P 300,000 P21,950,000
Less: Special deductions:
Family home – maximum 1,000,000
Medical expenses – maximum 500,000
Net taxable estate P 8,625,000
2. Computation of estate tax:

For the first P5,000,000 P 465,000
Excess (P3,625,000 x 15%) 543,750
Estate tax due P1,008,750
3. Computation of net distributable estate:

Communal Exclusive Total
Residential house and lot P 3,500,000
Building apartment 10,000,000
Income of apartment 3,000,000
Deposit in equitable bank 5,000,000
Agricultural land P 800,000
Family car 550,000
Other personal properties 1,000,000
Claims against insolvent person 100,000 .
SUGGESTED ANSWERS
Total gross estate P23,150,000 P 800,000 P23,950,000
Less: Actual deductions:
Funeral expense – actual 350,000
Claims against the estate – actual 800,000
Transfer for public use . 200,000 2,350,000
Net estate before share of surviving spouse P21,300,000 P300,000 P21,600,000
Net estate before estate tax P10,950,000
Less: Estate tax 1,008,750
Net distributable estate P 9,941,250
4. Distribution of the net distributable estate:
Following the assumptions given above, the computation of the share from the net
distributable estate of each heir would be:
Legitime:
To two legitimate children (P9,941,250 x 50%) P 4,970,625
To legally surviving spouse (P4,970,625/2) 2,485,313
To illegitimate child (P2,485,313 x 50%) 1,242,656
Free portion:
To church – based on Will 1,242,656
Total P 9,941,250
Problem 5-27
Estate tax:
Gross estate
House and lot, Baguio City P1,000,000
House and lot, Quezon City – family home* 1,500,000
Grocery store, Baclaran 300,000
Inventory (P700,000 – P300,000) x 450/300 600,000
Cash sales 450,000
Claims against insolvent persons 50,000 P3,900,000
Funeral (P3,900,000 x 5%) P 195,000
Claims against insolvent persons 50,000
Unpaid income taxes 20,000 ( 265,000)
Net estate before special deductions P3,635,000
Special deductions:
Family home (P1,500,000/2) P 750,000
Standard deductions 1,000,000 (2,250,000)
Net taxable estate (P 432,500)
Estate tax due P - 0 -
Note: The house and lot in New York, Quezon City is assumed family home because Don and
Dona Posamin reside in that place.
Net distributable estate:

SUGGESTED ANSWERS
Actual deductions:
Funeral P250,000
Claims against insolvent persons 50,000
Unpaid income taxes 20,000
Medical expense 550,000 870,000
Net estate before share of spouse P3,030,000
Problem 5–28
1. Estate tax
House and lot (family home) P3,000,000
Time deposit – principal amount 2,000,000
Accrued interest 2004: (P2,000,000 x 12% x 12/12) 240,000
2005: (P2,000,000 x 12% x 10/12) 200,000
Car 1,000,000
Funeral expense, limit P 200,000
Judicial 50,000
Claims against insolvent person 100,000 ( 350,000)
Net estate before special deductions P6,190,000
Special deductions:
Standard deductions P1,000,000
Medical expense, limit 500,000
Family home, limit 1,000,000 (2,500,000)
Tax on P500,000 P 15,000

Tax on excess (P95,000 x 8%) 7,600
Estate tax P 22,600
2. Net distributable estate

Actual deductions:
Claims against insolvent person 100,000 ( 400,000)
Net distributable estate before share of surviving spouse P6,140,000
Net actual estate P3,070,000
3. Distribution of inheritance
Divided by number of heirs (intestate succession) 4
Share of each heir P 761,850
SUGGESTED ANSWERS
Problem 5–29
1. Estate tax credit = P215,000
2. Estate tax payable = P222,500
Supporting computations:
a. Estate tax payable to the Philippines :
Country A Country B Philippines Entire
Gross estate P1,200,000 P2,500,000 P5,000,000 P8,700,000
Unpaid mortgages (200,000) (200,000)
Unpaid taxes (500,000) (500,000)
Transfer for public use . . (2,000,000) (2,000,000)
Net of identifiable deductions P1,000,000 P2,000,000 P3,000,000 P6,000,000
Allocated deductions** (172,500) (358,750) (718,750) (1,250,000)
Net estate P 827,500 P1,641,250 P2,281,250 P4,750,000
** Computation of allocated deductions:

Funeral expenses P 27,600 P 57,400 P115,000 P 200,000
Judicial expenses 6,900 14,350 28,750 50,000
Standard deduction allocated 138,000 287,000 575,000 1,000,000
Total allocated deductions P172,500 P358,750 P718,750 P1,250,000
Note: The above deductions are allocated because they are not specifically identified as
deductions from a specific country. The fraction per country is computed as follows:
Gross state per country P1,200,000 P2,500,000 P5,000,000 P8,700,000
Divide by entire gross estate P8,700,000 P8,700,000 P8,700,000 P8,700,000
Fraction 13.80% 28.70% 57.50% 100%
b. Computation of Philippines estate tax:

Tax on P2,000,000 P135,000
Tax on excess (P2,750,000 x 11%) 302,500
Total P437,500
Less: Tax credit allowed* 215,000
Estate tax payable to the Philippine Government P222,500
c. Computation of tax credit:

Limit A:
Country A: [P437,500 x (P827,500/P4,750,000)] P 76,217
Actual payment to country A – lower P 75,000 P 75,000
Country B: (P437,500 x P1,641,250/P4,750,000) P151,167

SUGGESTED ANSWERS
Actual payment to country B – lower P140,000 140,000
Tax credit – Limit A P215,000
Limit B:
Total net estate – foreign
[(P2,468,750)/P4,750,000] x P437,500 P227,385
Total actual estate tax payments – foreign
(P75,000 + P140,000) – lower P215,000
Tax credit – Limit B P215,000
*Tax credit allowed (the lower of limit A or B) P215,000
Problem 5–30
Cash P2,000,000
Shares of stock (P100 x 100,000 shares) P10,000,000
Insurance proceeds 1,000,000
Transfer in contemplation of death . 3,000,000
Total gross estate P2,000,000 P14,000,000 P16,000,000
Less: Ordinary deduction – Transfer for public use . 10,000,000 10,000,000
Net estate before special deduction P2,000,000 P 4,000,000 P 6,000,000
Net estate P 5,000,000
Net taxable estate P 4,000,000
Estate tax on P2,000,000 P135,000

Tax on excess (P2,000,000 x 11%) 220,000
Total estate tax P355,000
Less: Tax credits on tax previously paid (P34,840 + P204,000) 238,840
Transfer tax still due P116,160
Problem 5–31
Estate tax on P5,000,000 P 135,000
Estate tax on excess (P3,000,000 x 15%) 450,000
Estate tax P 585,000
Add: Surcharges – willful neglect (P585,000 x 50%) P292,500
Interest for 4 years (P585,000 x 20% x 4) 468,000 760,500
Total amount to be paid P1,345,500
SUGGESTED ANSWERS
Chapter 6: DONOR’S TAX
CHAPTER 6
DONOR’S TAX
Problem 6-1
1. False – during the lifetime of the donor.
2. True
3. True
4. False – there is no consideration in donation.
5. True
6. False – It is enough that the duly representative of the incapacitated donee to receive
the donation.
7. True
8. False – Real property donation must be put in writing regardless of value.
9. True
10. False – The value of donated personal property must exceed P5,000.
11. True
12. True
13. False – not gifts.
14. False – constitutes dividend income.
15. True
Problem 6-2
1. False – dowry is not allowed to nonresident alien donor.
2. False – the donee’s identity is not material to make the donation valid. The donor can
make donation to an unborn child.
3. True
4. True
5. False – If resident alien donates, he shall be subject to donor’s tax in the Philippines for his
properties within and outside the Philippines
6. True
7. True
8. True
9. False – only one-half of the share is donated.
10. False – only if the gift is on account of marriage.
11. False – only the first P100,000 is exempt.
12. False – may be subject to business tax such as VAT, custom duties, or excise tax.
13. False - When the donee is a stranger, the tax rate is 30%.
14. True
15. False - excise tax – the tax is imposed on the act to transfer property by way of gift inter vivos.

1. B 1. A 1. C
2. D 2. C 2. D
3. A 3. D 3. A
4. D 4. C & A 4. B
5. A 5. A 5. A
6. A 6. C 6. D
7. C 7. D 7. A
8. B 8. A 8. A
9. B 9. A 9. C
10. A 10. D 10. A
11. C 11. C 11. C
12. A 12. D 12. D
SUGGESTED ANSWERS
Problem 6-6 D
Donation to his unborn grandchild P200,000
Problem 6-7 A
Zero, because the renunciation is a general renunciation.
Problem 6-8 C
Father Mother
Gross estate P5,500,000 P5,500,000
Less: Standard deduction 1,000,000 1,000,000
Net estate P4,500,000 P4,500,000
Estate tax on P2,000,000 P 135,000 P 135,000

Excess (P2,500,000 x 11%) 275,000 275,000
Estate tax P 410,000 P 410,000
Distributable estate (P11,000,000 – P820,000) P10,180,000

Divided by number of heirs 4
Share of each heir P 2,545,000
Donor’s tax on P1,000,000 P 44,000

Donor’s tax on excess (P1,545,000 x 8%) 123,600
Donor’s tax P167,600
Note: There is donor’s tax on the renunciation of inheritance because the renunciation is not a
general renunciation.
Problem 6-9 B
Husband Wife
Gross gifts (P3,500,000/2) P1,750,000 P1,750,000
Less: Mortgage assumed by done (P1,000,000/2) (500,000) (500,000)
Dowry ( 10,000) ( 10,000)
Net gifts P1,240,000 P1,240,000
Problem 6–10 A
Wedding gift (P500,000 – P10,000) P490,000
Casual gift – car 500,000
Total gift subject to tax P990,000
Donor’s tax on P500,000 P14,000

Excess (P490,000 x 6%) 29,400
Total donor’s tax in the Philippines P43,400
Problem 6–11 A
Donations: Mr. Salonga Mrs. Salonga
Vacation house – conjugal (P500,000/2) P250,000 P250,000
Car – conjugal (P240,000/2) 120,000 120,000
Jewelry – exclusive of Mrs. Salonga 20,000
Dowry ( 10,000) ( 10,000)
Net gift P360,000 P380,000
Donor’s tax on P200,000 P2,000 P2,000

Excess (P160,000 x 4%) 6,400
(P180,000 x 4%) 7,200
Total donor’s taxes, respectively P8,400 P9,200
SUGGESTED ANSWERS
Problem 6–12 D
Donation to girlfriend is a donation to non-relative; hence subject to donor’s tax – the entire
amount of P250,000.
Problem 6–13 A
Donations made between a man and a woman living together as husband and wife are void, and
therefore, not subject to donor’s tax.
Problem 6–14 D
Donation between spouses during marriage time is void; hence, not subject to donor’s tax.
Problem 6–15 D
Wedding gift P110,000
Less: Dowry 10,000
Net gift – first P100,000 donor’s tax exempt P100,000
Net gift taxable is P - 0 -
Problem 6–16 D
2005 gift – house and lot P300,000
Less: Dowry (P10,000 – P6,000) 4,000
Net gift P296,000
Donor’s tax on P200,000 P2,000
Excess (P96,000 x 4%) 3,840
Donors tax – 2005 P5,840
Problem 6–17 C
Donor’s tax (P50,000 x 2%) P1,000
Problem 6–18 D
P60,000 or 30% of P200,000. A 2nd cousin is a stranger for donor’s tax purposes. It is the
6th degree of the collateral line.
Problem 6–19
1. Letter C
Gross gifts, as of August 15, 200A (P150,000 x 2 lots) P300,000
Less: Deductions 0
Net gifts, August 15, 200A P300,000
Donor’s tax on P200,000 P 2,000

Tax on excess (P300,000 – P200,000) x 4% 4,000
Total donor’s tax P 6,000
2. Letter D
Wedding gifts, as of November 15, 200A P150,000
Less: Deductions - dowry 10,000
Net gifts, November 15, 200A P140,000
Add: Previous, net gifts 300,000
Total net gifts P440,000

Tax on excess (P440,000 – P200,000) x 4% 9,600
Total donor’s tax P 11,600
Less: Donor’s tax – August 15, 200A 6,000
Donor’s tax payable – November 15, 200A P 5,600
SUGGESTED ANSWERS
Problem 6–20 C
P30,000 or P100,000 x 30%. Daughter-in-law is not a relative by blood within the 4th
collateral line for donor’s tax purposes.
Problem 6–21 D
Donor’s tax (P8,000,000 x 30%) P2,400,000
Problem 6-22 D
Value of
First donation: Donation Donor’s tax
Donated value of P200,000 P200,000 P 2,000
Excess donation (4% x P290,000) 290,000 11,600
Dowry deducted 10,000 .
Total value of first donation P500,000 P13,600
Second donation:
First donation – total value P500,000 P14,000
Excess donation (6% x 400,000) 400,000 24,000
Total after dowry deducted P900,000 P38,000
Add: Dowry deducted in two donations (P10,000 x 2) 20,000
Total P920,000
Less: First donation 500,000
Value of second donation P420,000
Problem 6–23 D
No deduction is allowed for donations on account of birthday.
Problem 6–24 B
Gross gift (FMV at time of donation) P200,000
Problem 6–25 B
Donor’s tax (P200,000 x 30%) P60,000
Problem 6–26 A
Donor’s tax (P10,000,000 x 30%) P3,000,000
The donation is taxable because more than 30% of it shall be used for administration purposes.
Problem 6–27 A
Surcharge (P100,000 x 25%) 25,000
Interest (P100,000 x 20% x 6/12) 10,000
Total amount due P135,000
Problem 6–28 D
No reciprocity With reciprocity
Taxable gift in the Philippines P3,000,000 P - 0-
Donor’s tax on P3,000,000 P 204,000 P - 0-
No dowry deduction is allowed for nonresident alien donor.

SUGGESTED ANSWERS
Problem 6–28
1. Letter C
Philippine donor’s tax P404,000
Actual donor’s tax - foreign P120,000
Tax credit, limit (P404,000 x 500,000/5,000,000) - lower P40,400 P40,400
2. Letter B
Philippine donor’s tax:
Relative (P500,000) P 14,000
Stranger (P5,000,000 – P500,000) x 30% 1,350,000 P1,364,000
Less: Tax credit
Actual donor’s tax – foreign (lower) P120,000 120,000
Tax credit, limit (P1,364,000 x 500,000/5,000,000) 136,400
Donor’s tax still due and payable P1,244,000
Problem 6–30 D
Estate tax Donor’s tax
Gross amount of asset P5,000,000 P5,000,000
Less: Standard deduction 1,000,000 .
Net amount subject to tax P4,000,000 P5,000,000
Estate tax on P2,000,000 P135,000

Excess (P2,000,000 x 11%) 220,000
Donor’s tax on P5,000,000 . P404,000
Total P355,000 P404,000
Tax savings if estate tax is paid (P404,000 – P355,000) P 49,000
Problem 6–31
Gross gifts made:
To L, on account of marriage P500,000
To M, on account of marriage 200,000
Total gross gifts P700,000
Less: Deductions:
Dowry for L, on account of marriage P10,000
Dowry for M, on account of marriage 10,000
Mortgage assumed by L on property donated 100,000 120,000
Net gifts P580,000
Problem 6–32
1. Donors tax for relatives:
Mar. 1 - To his son on account of marriage P 600,000
Oct. 1 - To his daughter on account of graduation 500,000
Total P1,100,000
Less: Dowry 10,000
Net taxable gifts P1,090,000
Donor’s tax on P1,000,000 P 44,000

Excess (P90,000 x 8%) 7,200
Total donor’s tax for donations to relatives P 51,200
SUGGESTED ANSWERS
2. Donors tax for strangers:

Dec. 25- To his god-children P400,000
Dec. 31- To his neighbor 100,000
Total P500,000
Multiplied by donor’s tax rate 30%
Donor’s tax for donations to strangers P150,000
Problem 6–33
Mr. Dinero Mrs. Dinero
March 30, 200B (P500,000/2) P250,000 P250,000
June 28, 200B (P2,000,000/2) – P10,000 990,000 990,000
Net taxable gifts P1,240,000 P1,240,000
Donor’s tax on P1,000,000 P44,000 P44,000

Excess (P240,000 x 8%) 19,200 19,200
Total P63,200 P63,200
Donor’s tax paid on March 30, 200B
Donor’s tax on P200,000 ( 2,000) ( 2,000)
Excess (P50,000 x 4%) ( 2,000) ( 2,000)
Donor’s tax for donation on June 28, 200B P59,200 P59,200
Problem 6–34
Cash his son for wedding held during the year P 200,000
Problem 6–35
To his son on account of marriage during the year P 500,000
To his daughter on account of her birthday 500,000
To Garci, his brother, as renunciation of inheritance 400,000
Net gift subject to donor’s tax P1,400,000
Note: No dowry is allowed for nonresident alien.
Problem 6–36
Taxable inadequate consideration - Personal properties (P500,000 – P50,000) P 450,000

Excess (P250,000 x 4%) 10,000
Donor’s tax for inadequate consideration P 12,000
The inadequate consideration in the sale of real property will not be subject to donor’s tax
because the sale is subject to 6% final tax based on the selling price or fair market value,
whichever is higher.
Problem 6–37
1. December 25, 200A:
Average value per share (P500 + P450)/ 2 P 475
Multiply by number of shares 1,000
Taxable base of the gift P475,000
2. The same answer with number 1.

SUGGESTED ANSWERS
Problem 6–38
There is no donor’s tax because the donations are donation mortis causa, void donation and
tax-exempt donation. Specific principles:
a. House and lot Subject to estate tax because the transfer shall take effect upon
death of the donor (included in the last will and testament).
b. Parejo car The value of property donated is P200,000 and it was made orally.
The donation is null and void because personal property donated
with value exceeding P5,000 should be put in writing to become a
valid donation.
c. Business Revocable donation is a revocable transfer, hence, subject to estate

tax.
d. Furniture and fixtures Donation mortis causa is subject to estate tax.
e. Time deposit The amount is P100,000 given to his illegitimate daughter. This
donation is tax exempt because the first P100,000 of donation to
relatives shall not be subjected to donor’s tax.
Problem 6–39
Car consequently destroyed after delivery to his son P 500,000
Problem 6–40
Donations to relatives:
200B:
January 31 Car to Uncle P300,000
Less: Encumbrances assumed by the donee 50,000
Net taxable gift – January 31, 2002 P250,000

Tax on excess (P250,000 – P200,000) x 4% 2,000
Donor’s tax for January 31 donation P 4,000
November 30 House and lot to his son on account of marriage P600,000

Less: Dowry exemption (weeding was held beyond one year) - 0 -
Net gifts P600,000
Add: Previous net gifts during the year 250,000
Aggregate taxable gift P850,000

Tax on excess (P840,000 – P500,000) x 6% 21,000
Total P 35,000
Less: Donor’s tax for previous gifts during the year 4,000
Donor’s tax for November 30 donation P 31,000
Donations to strangers:
200B:
June 30 Cash to Miss Rosal, a radio manager P100,000
Less: Diminution of gift (P100,000 x 60%) 60,000
Net taxable gift P 40,000
Donor’s tax for June 30 donation (P40,000 x 30%) P 12,000

SUGGESTED ANSWERS
August 31 Land to National Government P500,000

Less: Deduction (total amount) 500,000
Net taxable gift P - 0 -
Donor’s tax for August 31 donation None
October 31 Cash to non-profit organization – 40% Administrative P400,000

Less: Deduction - 0-
Net taxable gift P400,000
Donor’s tax for October 31 donation (P400,000 x 30%) P120,000
Total donor’s tax during 200B:
Total donor’s tax to relatives (P30,400 + P4,000) P 35,000

Total donor’s tax to stranger (P12,000 + P120,000) 132,000
Total donor’s tax for the year 200B P167,000
Problem 6–41
Donor’s tax on gift to stranger (P10,000 x 30%) P 3,000
Net gift to daughter on account of marriage (P50,000 – P10,000) P 40,000

Add: Previous net gifts:
April 1 – Gift to mother P50,000
June 10 – Wedding gift to son (P50,000 – P10,000) 40,000 90,000
Total net gift during the year P130,000
Donor’s tax on P100,000 Tax exempt

Donor’s tax on excess P30,000 x 2% = donor’s tax payable
Oct. 31, 200A P 600
Problem 6–42
1. January 29, 200B
2. June 1, 200A gift Nilo Co Nila Co

Gift on account of their daughter’s marriage P250,000 P250,000
Less: Dowry 10,000 10,000
Net gift P240,000 P240,000
Tax on P200,000 P 2,000 P 2,000

Tax on excess P40,000 x 4% 1,600 1,600
Total P 3,600 P 3,600 P 7,200
Surcharges (P7,200 x 50%) 3,600
Interest (P7,200 x 20% x 11/12) 1,320
P12,120
December 30, 200A gift Nilo Co Nila Co

Christmas gift to son P100,000 P100,000
Previous gift – June 1, 200A 240,000 240,000
Total net gift during 200A P340,000 P340,000
Tax on P200,000 P 2,000 P 2,000

Tax on excess P140,000 x 4% 5,600 5,600
Total P 7,600 P 7,600
Less: Tax on previous gift 3,600 3,600
SUGGESTED ANSWERS
Donor’s tax on current gift P 4,000 P 4,000 P 8,000
Surcharge (P8,000 x 50%) 4,000
Interest (P8,000 x 20% x 4/12) 533
P12,533
Total amount to be paid on June 1, 200B P24,120
Note: The surcharge is willful neglect (50%) because Mr and Mrs. Co donated twice already in
200A, yet they did not pay the donor’s tax within 30 days from the date of donation in both
occasion, hence, habitual and intentional neglect.
Problem 6–43
Relative Stranger Total
Donor’s tax on property located in Japan, P1,000,000 P44,000 P 44,000
Donor’s tax on property located in the Philippines
(P2,000,000 x 30%) P600,000 600,000
Computation of donor’s tax still due and payable:

Less: Allowable tax credit: - Actual lower than limit 70,000
Limit (P1,000,000/ P3,000,000) x P644,000 P214,667
Donor’s tax still due and payable P574,000
Problems 6–44
Gift to
Property donated: Relatives Strangers Total
To son - House and lot ($500,000 x P50) – P10,000 P24,990,000
Carabaw FX – to brother-in-law P 500,000
. .
Taxable base P24,990,000 P 500,000
Philippine donor’s tax:

First P10,000,000 P 1,004,000
Tax on excess (P14,990,000,000 x 15%) 2,248,500
Total P 3,252,500
Less: Tax credit allowed ($20,000 x P50/$1) 1,000,000
Donors tax rate for donation made to strangers . 30% .
Net donor's tax P 2,252,500 P 150,000 P 2,402,500
Note: Donation to common-law-wife is void. Hence, no donor’s tax.
Computation of tax credit allowed:

Limit 1: (P24.990M/ P25.490M) x P2,402,500 P2,335,373
Allowed: Actual, lower amount ($20,000 x P50/$1) P1,000,000

SUGGESTED ANSWERS
Problems 6–45
Assume donations are made to strangers:
Total net gifts P10,000,000
Philippine donor’s tax (P10,000,000 x 30%) P3,000,000

Tax credit:
Limit (P3,000,000 x 5/10) P1,500,000
Actual – lower ( 400,000)
Donor’s tax payable P2,600,000
Assume donations are made to relatives:

Philippine donor’s tax P1,004,000
Tax credit:
Limit (P1,004,000 x 5/10) P502,000
Actual – lower ( 400,000)
Donor’s tax payable P 604,000
Problems 6–46
1. Gross gifts subject to donor’s tax Don Dona
a. No donation
b. Donation to stranger – daughter-in-law (P2,000,000/2) P1,000,000 P1,000,000
c. Donation to son on account of marriage – relative

(P5,000,000/2) 2,500,000 2,500,000
d. Donation to Philippine government – not subject to

Donor’s tax
e. Donation to religious group – considered stranger

(P1,000,000/2) 500,000 500,000
f. Donation mortis causa – not subject to donor’s tax
g. Donation to NGOs – generally not subject to donor’s tax
h. Donation to political party – not subject to donor’s tax
Exclusive donations by Don:

a. Donation to secretary – stranger 100,000
b. Donation to wife – null and void
c. Donation to relative – father 200,000 .
Total amount of gross gifts subject to donor’s tax P4,300,000 P4,000,000
2. Donor’s tax
Donation to relatives:
Donation to son on account of marriage – relative
(P5,000,000/2) – P10,000 P2,490,000 P2,490,000
Donation to relative – father 200,000
Total net gifts P2,690,000
Tax on P1,000,000 P 44,000 P 44,000

Tax on excess (P1,690,000 x 8%): (P1,490,000 x 8%) 135,200 119,200
Total donor’s tax due – donation to relatives P179,200 P163,200
SUGGESTED ANSWERS
Donation to strangers:
Donation to stranger – daughter-in-law (P2,000,000/2) P1,000,000 P1,000,000
Donation to religious group – considered stranger
(P1,000,000/2) 500,000 500,000
Donation to secretary – stranger 100,000 .
Total amount – donation to strangers P1,600,000 P1,500,000
Multiplied by donor’s tax rate to strangers 30% 30%
Total donor’s tax due – donation to strangers P 480,000 P 450,000
Total amount of donor’s tax P 659,200 P 613,200
Problems 6–47
Donor’s tax Don Dona
1. Dec. 30, 200A:
Relative - on account of son’s marriage
(P300,000/2) – P10,000) P140,000 P140,000
Tax on P100,000 Exempt Exempt
Tax on excess (P40,000 x 2%) – donor’s tax due P800 P800
Stranger – daughter-in-law (P100,000/2) P50,000 P50,000

Multiplied by applicable donor’s tax rate 30% 30%
Donor’s tax due P15,000 P15,000
2. Jan. 1, 200B:
Stranger – Chinese government (P200,000/2) P100,000 P100,000
Donor’s tax due P 30,000 P 30,000
3. March 31, 200B:

Relatives – nephew (P50,000/2) P25,000 P25,000
Donor’s tax Exempt Exempt
Stranger – god son (P100,000/2) P 50,000 P 50,000

Church (P200,000/2) 100,000 100,000
Total P150,000 P150,000
4. June 30, 200B:

Relative – son on account of marriage (dowry already taken)
(P2,000,000 – P400,000)/2 P800,000 P800,000
Add: Previous net gifts to relatives – Mar. 31, 200B 25,000 25,000
Total net gifts P825,000 P825,000
Tax on P500,000 P14,000 P14,000

Tax on excess (P325,000 x 6%) 19,500 19,500
Total donor’s tax payable – June 30, 200B P33,500 P33,500
5. Oct. 30, 200B:

Void donation – husband and wife
6. Dec. 30, 200B:

Relatives:
Son (P500,000/2) P250,000 P250,000
Daughter (P500,000/2) 250,000 250,000
Total net gifts to relatives – Dec. 30, 200B P500,000 P500,000
Add: Previous net gifts to relatives during 200B:
SUGGESTED ANSWERS
March 31, 200B: Relatives – nephew (P50,000/2) 25,000 25,000
June 30, 200B:
Relative – son on account of marriage (dowry already taken)
(P2,000,000 – P400,000)/2 800,000 800,000
Total net gifts to relatives as of Dec. 30, 200B P1,325,000 P1,325,000
Tax on P1,000,000 P44,000 P44,000

Tax on excess (P325,000 x 8%) 26,000 26,000
Total P70,000 P70,000
Less: Donor’s tax previously paid 200B (Relatives)-June 30, 200B P33,500 P33,500
Donor’s tax payable as of Dec. 30, 200B – relatives P36,500 P36,500
Stranger – daughter-in-law (P100,000/2) P50,000 P50,000

SUGGESTED ANSWERS
Chapter 7: BUSINESS TAXES
CHAPTER 7
BUSINESS TAXES
Problem 7-1
1. True
2. False – this is a casual sale not a business.
3. True
4. True
5. False – not business because contrary to law.
6. False – employment is not business.
7. False – importation for personal use is subject to VAT, which is a business tax.
8. True
9. False – NonVAT business is subject to VAT if its annual gross sales or receipts
exceeds P1,919,500.
10. False – Only one TIN is issued to every taxpayer regardless of the number of his business.
11. True
12. False – the registration is after the end of the year on or before January 31.
Problem 7-2
1. False – the surcharge is 50%.
2. True
3. True
4. False – irrevocable for a period of 3 years.
5. True
6. True
7. False – Input VAT is charged as cost of purchases which is a product cost.
8. True
9. False – treated as tax credit as Input VAT.
10. True
11. False – This is a description of official receipt.
12. True
Problem 7-3
1. False – shown as a separate item, not time.
2. False – Still need to acquire approval from BIR to become non-VAT.
3. True
4. False – Commercial activity is business.
5. False – Nonresident alien/foreign person is not subject to the rule of regularity, hence,
considered engaged in business.
6. False – liable to VAT without the benefit of creditable input VAT.
7. False – Compensation from employment is not subject to VAT.
8. False – now more than P1,919,500 per year.
9. False – Not in the case of VAT person. VAT paid on purchases can be claimed as
creditable input VAT.
10. False – employees are also required to register to BIR by obtaining their TIN.
11. True
12. False – only one TIN per person.
SUGGESTED ANSWERS
Problem 7-4
1. True
2. False – P500 for each establishment
3. False – Cooperatives are also exempt from P500 registration fee
4. True
5. True
6. False – Required to become VAT if total gross sales/receipts exceed P1,919,500 a year.
7. True
8. True
9. False – should issue official receipt for the amount received. Commercial invoice is
sales invoice.
10. False – the 3 year period is applicable only to those who registered first as VAT. A non-VAT
person can shift anytime to VAT system.
11. True
12. True

1. D 1. B 1. A
2. C 2. D 2. D
3. B 3. C 3. A
4. A 4. A 4. D
5. C 5. B 5. C
6. A 6. D 6. D
7. A,B,C & D 7. A 7. D
8. B 8. A 8. A
9. C 9. B 9. D
10. C 10. D 10. B
Problem 7-8 C
Annual registration fee = P500
Problem 7-9 B
Registration fee of:
Au Chemical Supplies P 500
Gusto Eatery 500
Total annual registration fee P1,000
Problem 7-10 A
Nonresident foreign persons are not required to register to the BIR. It is the obligation of the
entity obtaining their services to pay the VAT and withhold the related income tax.
Problem 7-11 A
Cooperatives are exempt from registration fee.
Problem 7-12 C
Total amount in the invoice [P50,000 + (P12% of P50,000)] P56,000
Problem 7-13 B
Cost (P84,000/1.12) P 75,000
Add: Profit margin (P75,000 x 20%) 15,000
Sales price (120% of cost) P 90,000
Add: VAT (P90,000 x 12%) 10,800
Total VAT sales invoice amount P100,800
SUGGESTED ANSWERS
Problem 7-14 A
Business tax payable (P2,000,000 x 12%) P240,000
Problem 7-15 D
Business tax payable (P200,000 x 3%) P6,000
Problem 7-16 A
Output VAT (P300,000 x 12%) P36,000
Less: Input VAT (P200,000 + P100,000) x 12% 36,000
VAT payable P - 0 -
Problem 7 – 17 D
Zero. M is merely a collecting agent of the BIR, not a direct payee of the VAT. VAT is an
indirect tax.
Problem 7 – 18 D
Business tax (P1,500,000 x 3%) P45,000
Problem 7-19 C
Equity shares (P100,000 x 0.005) P 500
Long distance (P10,000 x 10%) 1,000
Total business tax P1,500
Problem 7-20 C
Output VAT (P1,000,000 x 12%) P120,000
Less: Input VAT – purchases from VAT supplier (P800,000 x 12%) 96,000
Net business tax payable or net VAT payable P 24,000
Problem 7-21 B
Output VAT (P300,000 x 12%) P 36,000
Less: Input VAT (P268,800/9.3333) 28,800
Net business tax payable or net VAT payable P 7,200
Problem 7-22 B
b. Purchases 150,000
Input VAT 18,000
Cash 168,000
Problem 7-23 A
a. Purchases 112,000
Cash 112,000
Problem 7-24 D
Surcharge (P120,000 x 50%) P60,000
Problem 7-25 A
Sales invoice 0024:
OPT (P100,000 x 3%) P 3,000
Sales invoice 0025:

OPT (P200,000 x 3%) P 6,000
Add: VAT P24,000
Surcharge (P24,000 x 50%) 12,000 36,000 42,000
Total amount to be paid to the BIR P45,000
SUGGESTED ANSWERS
Problem 7-26 C
Output VAT (P2,500,000 x 12%) P300,000
Less: Input VAT on purchases from:
VAT supplier inclusive of VAT (P1,120,000/9.333) P120,000
Non-VAT supplier inclusive of VAT (P560,000/9.333) 60,000 180,000
Net VAT payable P120,000
Problem 7-27
1. Letter C
Purchases, excluding VAT [P1,680,000 - (P1,680,000/9.333)] P1,500,000
Add: Beginning inventory 200,000
Total P1,700,000
Less: Ending inventory, excluding VAT
Beginning inventory P200,000
Increase in inventory, excluding VAT [P112,000 – (P112,000/9.333)] 100,000 300,000
Cost of sales P1,400,000
2. Letter A
Sales P2,000,000
Less: Cost of sales 1,400,000
Gross income P 600,000
Less: Operating expenses (P268,000 – P18,000) 250,000
Net taxable income P 350,000
Multiplied by normal corporate income tax rate 30%
Income tax due P 105,000
3. Letter D
Output VAT (P2,000,000 x 12%) P240,000
Less: Input VAT on purchases (P1,680,000/9.333) P180,000
Input VAT on expenses 18,000 198,000
Net VAT payable P 42,000
Note: The input VAT on the increase in inventory is already included in the total
input VAT per purchases. Hence, not to be used again as input tax credit.
Problem 7-28
1. Letter A
Purchases from nonVAT supplier P600,000
Add: Purchases from VAT supplier, including VAT P224,000
Decrease in inventory 150,000 374,000
Cost of sales P974,000
2. Letter B
Sales, excluding VAT [P1,344,000 – (P1,344,000/9.333) P1,200,000
Less: Cost of sales 974,000
Gross income P 226,000
Less: Operating expenses 76,000
Net income P 150,000
Less: Basic personal exemption 50,000
3. Letter D
OPT (P1,200,000 x 3%) P 36,000
Add: VAT collected (P1,344,000 – P1,200,000) P144,000
Surcharge (P144,000 x 50%) 72,000 216,000
Total amount of business taxes including surcharges P252,000
SUGGESTED ANSWERS
Problem 7-29
1. Annual registration fee for main store (P500) + (P500) for sales outlet P 1,000
2. No, because the total sales during the year do not exceed P1,919,500.
Problem 7-30
Yes, the cooperative is required to register to the BIR. No registration fee or annual
registration fee shall be collected from cooperatives.
Problem 7-31
Annual registration fee (1 + 50 + 10) x P500 P 30,500
Add: Interest (P30,500 x 20% x 8/12) P4,067
Surcharge (P30,500 x 25%) 7,625 11,692
Total amount to be paid to the BIR P 42,192
Note: Registration shall be made on or before the last day of January of the following year
Problem 7-32
1. The business should be registered as nonVAT because the sales do not exceed P1,919,500
in a year.
2. Sales invoice because official receipts are issued only when there are collections.
3. Official receipts.
Problem 7-33
Add: Input VAT (P5,040,000 x 12%) 604,800
Output VAT P 784,800 (1)
Divide by 12%
Sales P6,540,000 (2)
Problem 7-34
1. Satur Nino is not subject to VAT because the sale is a casual sale of personal property.
2. Assuming that the FMV remains the same, the VAT of ROX Realty would be twelve
percent (12%) of the FMV (higher value), hence, P4,200,000 or (P35,000,000 x 12%).
Problem 7-35
1. Percentage tax (P1,680,000/1.12) x 3% P 45,000
Add: VAT (P1,680,000/9.333) P180,000
Surcharge (P180,000 x 50%) 90,000 270,000
Total business tax and surcharges P315,000
2. Percentage tax (P2,800,000/1.12) x 3% P 75,000

Add: VAT (P2,800,000/9.333) P300,000
Surcharge (P300,000 x 50%) 150,000 450,000
Total business tax and surcharges P525,000
Problem 7-36
Input VAT from VAT supplier (P280,000/9.333) P30,000
Input VAT from non-VAT supplier (P56,000/9.333) 6,000
Creditable input VAT P36,000
Note: A VAT-registered buyer is allowed to report input VAT on purchases from a non-VAT
supplier collecting VAT.
SUGGESTED ANSWERS
Problem 7-37
1. As depreciable capital goods.
Capital gain (P4,424,000 – P2,700,000) P1,724,000
Multiplied by corporate tax rate 30%
Add: Other taxes paid:
Custom duties (P1,500,000 x 50%) P 750,000
Excise tax (P2,250,000 x 20%) 450,000
Input VAT (P2,700,000 x 12%) 324,000 1,524,000
Total revenue contributed to government P2,041,200
Supporting Computation:
Purchase value P1,500,000

Add: Custom duties (P1,500,000 x 50%) P 750,000
Excise tax (P2,250,000 x 20%) 450,000 1,200,000
Total landed cost – if capital asset P2,700,000
Note: The input VAT of depreciable capital goods used in business (not as inventory) shall be
amortized within 60 months or the estimated useful life of the asset, whichever is lower.
2. As ordinary asset
Gross income (P4,424,000 – P2,700,000) P1,724,,000
Less: OSD (P1,724,000 x 40%) 689,600
Net income P1,034,400
Normal tax P 310,320
Add: Other taxes paid
Custom duties (P1,500,000 x 50%) P 750,000
Excise tax (P2,250,000 x 20%) 450,000
Input VAT (P2,700,000 x 12%) 324,000 1,524,000
Total revenue contributed to government P1,834,320
Supporting Computation:
Purchase value P1,500,000
Add: Custom duties (P1,500,000 x 50%) P 750,000
Excise tax (P2,250,000 x 20%) 450,000 1,200,000
Total landed cost – if ordinary asset P2,700,000
Note: The input VAT of ordinary asset (inventory) shall be allowed as input tax credit against
the output VAT during the taxable quarter.
Problem 7-38
1. VAT-registered business
a. Inventory, beginning 300,000
Input VAT 36,000
Cash 336,000
Inventory, beginning 200,000

Cash 200,000
SUGGESTED ANSWERS
Input VAT 60,000
Cash 560,000
Purchases 300,000
Cash 300,000
c. Cash 56,000
Purchase returns 50,000
Input VAT 6,000
Cash 20,000
d. Cash 1,680,000
Sales 1,500,000
Output VAT 180,000
e. Sales returns 150,000

Output VAT 18,000
Cash 168,000
f. Output VAT 162,000

Input VAT 90,000
VAT payable/cash 72,000
2. Non-VAT business
a. Inventory, beginning 336,000
Cash 336,000
Inventory, beginning 200,000

Cash 200,000
Cash 560,000
Purchases 300,000
Cash 300,000
c. Cash 56,000
Cash 20,000
d. Cash 1,500,000
Sales 1,500,000
e. Sales returns 150,000

Cash 150,000
f. Business tax expense (P1,350,000 x 3%) 40,500

Business tax payable/cash 40,500
SUGGESTED ANSWERS
Chapter 8: BUSINESS TRANSACTIONS
CHAPTER 8
BUSINESS TRANSACTIONS
Problem 8–1
1. False – Vatable transactions of non-VAT business is not allowed to deduct input VAT.
2. True
3. False – Some business transactions are VAT-exempt.
4. True
5. False – subject to OPT.
6. True
7. True
8. False – not allowed for TCC and tax refund, but allowed only for tax credit.
9. True
10. False – Zero rated sales are applicable only to VAT-registered business/person. This is a VAT-
exempt and OPT-exempt transactions.
11. True
12. False – It can be claimed as a deduction from sale as part of cost of product sold.
13. True
14. False – Sales of non-VAT person, exceeding P1,919,500 per year is also subject to VAT.
15. False – Only those agricultural and marine food products.
Problem 8–2
1. False – Publication of newspaper is VAT-exempt and also OPT-exempt.
2. True
3. False – The exemption pertains only to Output VAT.
4. True
5. False – Zero VAT transactions are applicable only to VAT-registered persons.
6. False – Some VAT taxable transactions have not allowed to have Input VAT particularly if the
business is a non-VAT.
7. False – Exempt from business tax because it is considered as a subsistence livelihood.
8. True
9. False – Exempt from VAT.
10. False – zero VAT.
11. False – VAT-exempt.
12. True
13. False – VAT-exempt and OPT-exempt.
14. False – more than P3,199,200.
15. True
Problem 8 – 3 Problem 8 – 4 Problem 8 – 5

1. B 1. A 1. D
2. B 2. C 2. B
3. C 3. D 3. A
4. D 4. B 4. C
5. B 5. A 5. C
6. C 6. B 6. B
7. D 7. A 7. A
8. B 8. D 8. A
9. C 9. C 9. C
10. A 10. D 10. C
SUGGESTED ANSWERS
Problem 8 – 6
1. A 11. C
2. D 12. E
3. D 13. D
4. A 14. C
5. A 15. C
6. D 16. A
7. A 17. C
8. C 18. D
9. A 19. D
10. C 20. E
Problem 8 – 7 A
Business tax payable (P2,500,000 x 12%) P300,000
Note: The gross sales exceeds P1,919,500; hence, subject to 12% even if the taxpayer is non-VAT.
Problem 8 – 8 C
Domestic sales P1,000,000
Importation of goods 500,000
Transaction deemed sales 100,000
Total amount subject to VAT P1,600,000
In general, importations are subject to 12% VAT regardless of the business tax registration of the
taxpayer. The VAT on importation, however, is an input tax.
Problem 8 – 9 D
Output VAT from collections (P4,480,000/9.3333) P480.000
Less: Input VAT from supplies used (P560,000/9.3333) P60,000
Input VAT from importation (P112,000/9.3333) 12,000 72,000
VAT payable P408,000
Problem 8 – 10 B
Export sales (P2,000,000 + P1,000,000) P3,000,000
Problem 8 – 11 B
Business tax payable (P2,000,000 + P7,000,000) x 3% P270,000
The annual gross receipts from business does not exceed P10,000,000; hence, subject to 3% OPT.
Problem 8 – 12 C
P600,000, only input VAT due or paid from purchases is allowed to apply for TCC.
Transitional input VAT and presumptive Input VAT are not allowed.
Problem 8 – 13 D
Zero-rated VAT. Sale of power or fuel generated through renewable sources of energy such as
biomass, solar, wind, hydropower, geothermal ocean energy, and other emerging energy sources
using technologies such as fuel cells and hydrogen fuels
Problem 8 – 14 D
Multi-purpose cooperative registered with CDA are exempt from business tax.
SUGGESTED ANSWERS
Problem 8 – 15 A
Passenger by sea 1,500,000
Cargo by land 500,000
Cargo by sea 500,000
Total VAT taxable transactions P2,500,000
Problem 8 – 16 B
Export sales P10,000,000
Sales of agricultural food products – original state 6,000,000
Gross receipts derived from millings of palay 2,000,000
VAT-exempt transactions P18,000,000
Problem 8 – 17 D
5 commercial lots at P1,000,000 each P5,000,000
The sales of residential house and lots or residential lots are all VAT-exempt and OPT-exempt.
Problem 8 – 18 C
4 residential lots at P2,000,000 each P 8,000,000
1 commercial lots at P3,000,000 each 3,000,000
Amount subject to business tax P11,000,000
The sale of residential house and lot at P3,000,000 each is exempt from business tax.
Problem 8 – 19 B
Gross receipts exempt from business tax (P2,000 x 50) P100,000
Problem 8 – 20
1. Output VAT (P134,400/9.3333) P14,400
Input VAT (P112,000/9.3333) (12,000)
Business tax liability of X P 2,400
2. Percentage tax (P112,000/1.12) x 3% P 3,000

Output VAT (P112,000/9.333) 12,000
Surcharge (P12,000 x 50%) 6,000
Business tax liability of Y P21,000
Problem 8 – 21
1. Sales from:
Local government units (P940,000/1.06) P886,792
University of the Philippines (P564,000/1.06) 532,075
Department of Tourism (P282,000/1.06) 266,038
Total sales P1,684,905
Note: The total withholding per sales was 6% comprising 5% final withholding VAT
and 1% creditable withholding income tax.
2. Total income tax withheld (P1,684,905 x 1%) P16,849
3. Total final VAT withheld (P1,684,905 x 5%) P84,245

SUGGESTED ANSWERS
Problem 8 – 22
1. VAT-registered
Transport of passengers by sea P2,000,000
Transport of cargoes by:
Land 500,000
Sea 1,000,000
VAT taxable transactions P3,500,000
2. Non-VAT registered
Transport of passengers by sea P2,000,000
Transport of cargoes by:
Land 500,000
Sea 1,000,000
Note: The said non-VAT registered business shall now be subject to VAT because its total gross
receipts exceed P1,500,000. The gross receipts from transport of passengers, however, shall
remain subject to percentage tax.
Problem 8 – 23
1. VAT-registered
From radio ads P5,000,000
From TV ads 4,000,000
Multiplied by VAT rate 12%
Value-added tax P1,080,000
From radio ads P5,000,000
From TV ads 4,000,000
Amount subject to OPT P9,000,000
Multiplied by applicable OPT rate 3%
Other percentage tax P 270,000
Note: A non-VAT registered franchise grantees of radio and television broadcasting with annual
gross receipts of P10,000,000 or less is not subject to VAT, unless VAT-registered.
Problem 8 – 24
Output VAT – Zero rated because foreign denominated sales P - 0 -
Input VAT (P336,000/9.3333) ( 36,000)
VAT refund (P 36,000)
Problem 8 – 25
On purchases:
Local purchases from VAT-registered person P600,000
On sales:
Domestic sales to various VAT person P 800,000
Domestic sales to various non-VAT person 600,000
VAT taxable transactions against X P1,400,000
SUGGESTED ANSWERS
Problem 8 – 26
1. P - 0 -
The business is non-VAT and total sales do not exceed P1,500,000/year
2. P -0-
No zero-VAT sale is allowed for a non-VAT business.
3. Domestic sales to various VAT persons P 50,000

Domestic sales to various non-VAT persons 100,000
Export sales denominated in foreign currency 200,000
Total VAT-exempt sales P350,000
Problem 8 – 27
1. VAT-registered
Domestic sales P 2,000,000
Export sales 3,000,000
Total value of sales allowed with creditable Input VAT P 5,000,000
a. Domestic sales – VAT taxable sales P 2,000,000
b. Zero-rated sales P - 0 -
c. Export sales – VAT-exempt sales of a non-VAT business P 3,000,000

SUGGESTED ANSWERS
Chapter 9: VALUE-ADDED TAX
CHAPTER 9
VALUE-ADDED TAX
Problem 9–1
1. True
2. False – the buyer is legally liable for the payment of VAT on importation of goods or services.
3. True
4. True
5. False – Some sales are VAT-exempt.
6. False – Goods and services sold outside the Philippines are either zero-rated or VAT-exempt.
7. False – VAT is not a specific tax, but an ad valorem tax because its computation is based
on the value of goods or services sold.
8. True
9. False – zero-rated VAT transaction is subject to a 0% VAT rate.
10. False – 4%.
11. True
12. True
13. False – includes the excise tax.
14. True
15. False – Performance sales discount is based on the happening of future event; hence,
not allowed as deductible item from sales.
Problem 9–2
1. True
2. False – More than P1,919,500.
3. False – If VAT-registered, subject to VAT regardless of amount of sales.
4. False – All non-VAT registered persons are not allowed to deduct input VAT.
5. False – Annual gross receipts exceed P10,000,000.
6. False – Subject to VAT whether for business or not.
7. False – To be treated separately.
8. True
9. False – Liable to pay VAT on their purchases from VAT-registered suppliers.
10. True
11. False – inventors are VAT-exempt.
12. False – subject to VAT on purchases from VAT-registered person.
13. True
14. True
15. False – only those exempted by law.
Problem 9–3 Problem 9–4

1. A 1. C
2. B 2. B
3. C 3. D
4. C 4. A
5. A 5. C
6. C 6. D
7. A 7. A
8. B 8. D
9. D 9. B
10. B 10. C
SUGGESTED ANSWERS
Problem 9 – 5 C
Sales to: Within
Regular customers P2,000,000
Government 500,000
Employees 300,000
Total amount of sale subject to VAT P2,800,000
Problem 9 – 6 D
The ultimate consumer is not VAT-registered and does not sale the products. Therefore, no output
VAT. If the consumer is VAT-registred still there is no output VAT, but instead input VAT.
Problem 9 – 7 A
Output VAT (P5,000,000 + P5,000,000) x 12% P1,200,000
Less: Input VAT (P6,720,000/9.333) 720,000
Problem 9 – 8 C
Sales per VAT invoice, no output VAT is shown (P224,000/9.333) P24,000
Sales per VAT invoice, output VAT shown separately
amounted to P30,000 inclusive in the invoice (P330,000/9.333) 35,358
Sales per purchase order – delivered (P100,000 x 12%) 12,000
Amount of output VAT P71,358
Problem 9 – 9 D
Total manufacturing costs P1,000,000
Delivery and insurance 200,000
Excise tax (P1,000,000 x 10%) 100,000
Gross margin (P1,000,000 x 70%) 700,000
Total sales price P2,000,000
Output VAT P 240,000
Problem 9 – 10 B
Fair market value of machine P1,500,000
Freight charges 100,000
Insurance charges 50,000
Duty tax 150,000
Excise tax 75,000
Total Vatable amount P1,875,000
VAT on importation P 225,000
Problem 9 – 11 C
Cash sales P1,000,000
Credit sales 2,000,000
Sales returns – defective products ( 200,000)
Net sales subject to VAT P2,800,000
Output VAT for the quarter P 336,000
Problem 9 – 12 B
Sales P500,000
Less: Trade discounts per invoice 100,000
Net sales subject to VAT P400,000
SUGGESTED ANSWERS
Output VAT P 48,000
Less: Creditable input VAT P 32,000
VAT payment 10,000 42,000
Remaining unpaid VAT P 6,000
Note: The sales commission is an operating expense and should not be an item to compute for
the net sales subject to VAT.
Problem 9 – 13 D
The sale of Y is not subject to VAT because its registration is nonVAT and its sales do not
exceed P1,919,500.
Problem 9 – 14 B
Correction: Income tax due during the quarter is P1,800,000.
Output VAT [(P1,800,000/30%)/40%] x 12% P1,800,000

Less: Input VAT (P8,960,000/9.333 960,000
Problem 9 – 15 D
Total sales (P2,000,000 + P800,000) P2,800,000
VAT payable P 336,000
Problem 9 – 16 D
Cash sales to non-VAT customers P600,000
Credit sales to VAT-registered customers 200,000
Sales of obsolete merchandise (at 75% discount) 100,000
Taxable sales not subject to standard input VAT P900,000
Output VAT P108,000
Less: Allocated input VAT (P48,000 x 9/10) 43,200
Note: Although subject to regular VAT, the sale to the government does not result to VAT
payable due to the application of final VAT and standard input VAT. Hence,
Output VAT - Sales to government (P100,000 x 12%) P12,000

Less: Input VAT
Actual input VAT (P48,000 x 1/10) P 4,800
Less: Standard input VAT (P100,000 x 7%) 7,000 7,000
Other income (P2,200)
VAT payable P 5,000
Less: Final VAT (P100,000 x 5%) 5,000

Net VAT payable P -0 -
Problem 9 – 17 A
NonVAT-registered:
Output VAT (P20,000,000 + P5,000,000) x 12% P3,000,000
VAT-registered:
Output VAT (P20,000,000 + P5,000,000) x 12% P3,000,000
Less: Input VAT (P7,840,000/9.333) 840,000 2,160,000
Business tax advantage P 840,000
SUGGESTED ANSWERS
Problem 9 – 18 B
Output VAT (P40M x 4 x 12%) P19,200,000
Less: Ouput VAT (P180M /5) x 4 x 12%) 17,280,000
Net VAT payable P 1,920,000
Purchase price P100,000,000
Excise taxes 40,000,000
Duty taxes 30,000,000
Insurance 5,000,000
Freight 5,000,000
Total landed cost P180,000,000
Problem 9 – 19 NOT IN THE CHOICES

Total business taxes (P264,000 + P27,000) P291,000
Mr. Educado Mrs. Educado

Professional income P1,200,000
Gross sales/receipts 1,000,000 P 900,000
Taxable amount P2,200,000 P 900,000
Multiplied by applicable business tax rate 12% 3%
Individual business tax P 264,000 P 27,000
Problem 9 – 20 D
Gross receipts – sale of electricity P 5,000,000
Sale of assets:
Power general assets 30,000,000
Other real properties 20,000,000
Total P55,000,000
Output VAT P 6,600,000
Problem 9 – 21 D
Total sales (P2,000 x 365 x 3) P2,190,000
Business tax = Output VAT P 262,800
Problem 9 – 22 A
Inventors are exempt from all kinds of taxes in the first ten (10) years from the date of
the first sale subject to the rules and regulations of the Department of Finance. (R.A.
7459; Rev. Reg. 19-93)
Problem 9 – 23 D
Gross selling price (P9,520/1.12) P8,500
Less: Senior citizen’s discount (P8,500 x 20%) 1,700
Net amount P6,800
Problem 9 – 24 C
Exclusive consumption of Lolo Sot
[(P1,120/1.12)/5] x 80% P 160
Consumption of non-eligible companions
(P1,120/5) x 4 896
Amount to be paid by Lolo Sot P1,056
SUGGESTED ANSWERS
Problem 9 – 25 D
Nonstock and nonprofit organizations are not taxable.
Problem 9 – 26
1. Total Output VAT (P1,344,000/9.333) P 144,000
2. Total Output VAT P144,000

Less: Input VAT
VAT purchase invoice amount (P840,000/9.333) 90,000
Problem 9 – 27
1. Output VAT (P880,000 + P720,000) x 12% P 192,000
2. Output VAT P 192,000

Less: Input VAT (P1,200,000 x 12%) 144,000
Problem 9 – 28
1. Output VAT (P125,000 x 12%) P 15,000
2. Input VAT (P84,000/9.3333) P 9,000
Note: The sales is multiplied by 12% because the term used is not per VAT invoice while
the purchase is divided by 9.333 because the purchase is inclusive of VAT.
Problem 9 – 29
Total sales price (P20 x 10) P 200
Add: VAT (P200 x 12%) 24
Total sales invoice amount P 224
Problem 9 – 30
1. No, because the purchases for sari-sari store is not for her personal consumption.
2. P21,900.
Percentage tax (P2,000 x 365) x 3% P21,900
3. P96,000
Gross profit (P2,000 x 365) x 20% P146,000
Less: Business tax expense 21,900
Net income P124,100
Less: Personal exemption – basic 50,000
Problem 9 – 31
1. None, because PEZA-registered entities are VAT-exempt.
2. Gross income tax (P50M – P30M) x 5% P1,000,000
In general, ECONZON Enterprises (PEZA-registered enterprises) pay 5% tax on gross income

which is in lieu of all national and local taxes.
SUGGESTED ANSWERS
Problem 9 – 32
1. Net income (P570,000/30%) P1,900,000
Less: Gain on sale of capital asset 50,000
Net operating income P1,850,000
Add: Cost of sales (P120,000/12%) P1,000,000
Sales discounts due to prompt payments 150,000
Operating expense before taxes 990,000
Community tax 10,000 2,150,000
Vatable base – Sales subject to VAT P4,000,000
2. Output VAT (P4,000,000 x 12%) P 480,000

Less: Input VAT 120,000
Problem 9 – 33
1. Net income (P600,000/30%) P2,000,000
Add: Cost of sales (P240,000/12%) – P400,000 P1,600,000
Operating expenses before taxes 1,000,000
Sales subject to VAT P4,500,000
Output VAT (P4,500,000 x 12%) P540,000

Less: Input VAT from purchases P240,000
Presumptive input VAT 60,000 300,000
Add: Surcharge (P240,000 x 25%) P60,000
Interest from Jan. 25 to Mar. 25 (P240,000 x 20% x 2/12) 8,000
Compromise for late payment 1,000 69,000
Total amount payable P309,000
2. None, because the payment of income tax is made on time – April 15, of
the succeeding year.
SUGGESTED ANSWERS
Chapter 10: VAT ON GOODS OR PROPERTIES
CHAPTER 10
VALUE-ADDED TAX
Problem 10–1
1. False – subject to VAT. This is considered as transaction deemed sale.
2. True
3. False – sale of real property classified as capital asset is not subject to VAT.
4. False – sale of real property classified as ordinary asset is exempt from VAT if the amount of
lot is P1,919,500 and below or house and lot if the price is P3,199,200 and below.
5. True
6. False – acquisition cost or current market price of goods whichever is lower.
7. True
8. False – the basis is the amount of debt cancelled.
9. True
10. False – subject to VAT.
11. True
12. True
13. True
14. False – not subject to output VAT. This is to be treated as operating expense.
15. False – not transactions deemed sale.
Problem 10–2
1. False – subject to VAT.
2. True
3. True
4. True
5. False – the exemption is applicable only to residential lot and the amount of selling price
should not exceed P1,919,500 per residential lot.
6. True
7. False – this would refer to gross selling price.
8. False – deemed inclusive of VAT.
9. True
10. True
11. False – disregarded as part of the initial payment.
12. True
13. True
14. True
15. False – original estate and not subject to VAT.

1. D 1. C
2. A 2. D
3. B 3. A
4. C 4. C
5. C 5. D
6. D 6. B
7. B 7. A & B
8. A 8. D
9. A 9. B
10. A 10. B
SUGGESTED ANSWERS
Problem 10 – 5 A
Warehouse P4,000,000
Business delivery trucks 500,000
Amount subject to VAT P4,500,000
Problem 10 – 6 B
Sale of furniture – within P1,800,000
Furniture taken from inventory for personal use 200,000
Amount subject to 12% VAT P2,000,000
Problem 10 – 7 D
Zero. The person responsible to pay the VAT is the buyer. Therefore, Kamukamo is not liable to
pay VAT to the Philippine Government. Corona Enterprise is responsible to remit to the BIR the
related VAT on the purchase transaction.
Problem 10 – 8 A
Raw materials used P400,000
Direct labor 200,000
Factory overhead 100,000
Excise tax 70,000
Mark-up 430,000
Total amount subject to VAT P1,200,000
Output VAT (P1,200,000 x 12%) P144,000

Less: Input VAT from purchases (P896,000/9.333) P96,000
Input VAT from factory overhead 4,000 100,000
Problem 10 – 9 B
Cash sales of goods to regular customers P1,500,000
Credit sales of goods to regular customers 500,000
Merchandise use by the owner for personal consumption (P200,000 x 70%) 140,000
Reasonable taxable base of sales for VAT purposes P2,140,000
Problem 10 – 10 D
Gross sales:
Cash sales P 500,000
Credit sales 800,000
Sales returns ( 100,000)
Sale of obsolete inventories 60,000
Consigned goods (unsold after 90 days) 100,000
Total P1,360,000
Problem 10 – 11 C
Consumption of inventory by the manager at cost P 100,000
Merchandise used to pay dividends at cost 600,000
Payment to creditors at the amount of debt cancelled 800,000
Sale of scrap materials at market price 40,000
Total unreported additional sales P1,740,000
SUGGESTED ANSWERS
Problem 10 – 12 A
Output VAT – January 1 to Sept. 30, 201A P144,000
Output VAT – October 1 to Dec. 31, 201A (P700,000/9.333) 75,000
Total output VAT P219,000
Less: Input VAT from:
Purchases (P1,120,000/9.333) P120,000
Operating expenses (P4,200 + P1,800) 6,000 126,000
Problem 10 – 13 C
Merchandise inventory P 80,000
Equipment 160,000
Furniture and fixtures 60,000
Total assets P300,000
Output VAT P 36,000
Problem 10 – 14 A
Zero. Transfers of assets as a result of merger or consolidation are not considered transactions
deemed sales. These are just transfers in form, not in substance. (RMC No. 47-99)

Sales (P1,500,000/60%) P2,500,000
Obsolete inventory sold at 80% discount, at cost (P100,000 x 20%) 20,000
Consigned goods beyond 60 days at cost 400,000
Total taxable base P2,920,000
Problem 10 – 16 C
Cash sales P135,000
Add: Net credit sales:
Gross amount, net of trade discount
(P365,000 x 90%) P328,500
Less: Sales return (P65,000 x 90%) 58,500 270,000
Taxable base P405,000
Output VAT P 48,600
Problem 10 – 17
1. Letter D
Sale of residential lot not exceeding P1,919,500 is VAT-exepmt.
2. Letter A
VAT (P2,000,000 x 12%) P240,000
Problem 10 – 18 D
1 lot – class A (P3,200,000 x 12%) P384,000
2 Commercial lots (P4,480,000/9.333) 480,000
Note: The basis of VAT for l lot – class A is the fair market value, which is higher than the selling price. If the
FMV is higher than the selling price, the FMV is VAT exclusive. (Rev. Regs. No. 4-2007)
SUGGESTED ANSWERS
Problem 10 – 19
1. Letter D
Zero, because the sale is not subject to VAT. Aside from the property is a capital asset, it is a
residential house and lot with a selling price not exceeding P3,199,200.
2. Letter A
Output VAT (P3,500,000 x 12%) P420,000
Problem 5 – 20 C
VAT on down payment – November 200A (P600,000 x 4M/3M) x 12% P96,000
Add: December 200A VAT on monthly collection (P20,000 x 4M/3M) x 12% 3,200
Output VAT on the year of sale P99,200
Problem 5 – 21 B
Second installment P3,750,000
Add: Surcharge (P3,750,000 x 5%) P187,500
Interest (P3,750,000 x 12% x 3/12) 112,500 300,000
Taxable base P4,050,000
Problem 10 – 22 A
Output VAT – year 3 (P2,940,000/9.333) P315,000
Less: Creditable input VAT – year 3 P200,000
Excess creditable input VAT – year 2 (P315,000 – P350,000) 35,000 235,000
Problem 10 – 23 A
Output VAT (P7,500,000 x 12%), higher amount P900,000
Less: Creditable input VAT – year 1 300,000
Net VAT payable (initial payment exceeds 25% = considered cash sales) P600,000
Problem 10 – 24 C
Output VAT – higher (P5,000,000 x 12%) P600,000
Less: Output VAT already paid (P3,360,000/4) x 3 270,000
Output VAT still to be paid P330,000
Problem 10 – 25 B
2,000 Sacks of cotton and cotton seedlings at P900 each P1,800,000
Sale of woods and charcoal 400,000
Total P2,200,000
Problem 10 – 26
Cost of goods manufactured (P200,000 + P100,000 + P100,000) P400,000
Less: Unsold goods manufactured 15,000
Total cost of goods sold P385,000
Add: Excise tax (P385,000 x 20%) P 77,000
Mark-up (P385,000 x 50%) 192,500 269,500
Total sales P654,500
Output VAT P 78,540
Raw materials purchase per invoice (P336,000/9.333) P 36,000
Repair of store office 450
Supplies purchase per invoice (P28,000/9.333) 3,000 39,450
SUGGESTED ANSWERS
Problem 10 – 27
Cash sales P 800,000
Add: Credit sales P200,000
Installment sales collected 100,000
Deemed sales (P20,000 + P180,000) x 60% 120,000 420,000
Total sales including deemed sales P1,220,000
Less: Input VAT:
Purchases including VAT (P448,000/9.333) P 48,000
Input VAT credit from previous month 36,400 84,400
Problem 10 – 28
Total domestic sales P1,000,000
Inventory consumed for personal use 100,000
Total sales subject to 12% VAT P1,100,000
Problem 10 – 29
Output VAT (P500,000 – P100,000) x 12% P48,000
Less: Input VAT per record P25,000
Business tax paid 10,000 35,000
Remaining unpaid VAT P13,000
Problem 10 – 30
1. Sales P5,000,000
Less: Sales returns 100,000
Vatable sales P4,900,000
Output VAT (P4,900,000 x 12%) P 588,000

Purchases/services (P1,120,000/9.333) P120,000
Importation (P600,000 x 12%) 72,000
Capital goods (P1,344,000/9.333)/ 5 years 28,800 220,800
2. Sales P5,000,000
Less: Sales returns P100,000
Sales discounts 200,000 300,000
Net sales P4,700,000
Less: Cost of sales (P1,000,000 + P600,000) 1,600,000
Less: OSD (P3,100,000 x 40%) 1,240,000
Multiplied by corporate income tax rate 30%
SUGGESTED ANSWERS
Problem 10 – 31
1. Sales P5,000,000
Consigned goods to Victoria’s (65 days) 500,000
Vatable sales P5,500,000
Note: The accounts receivable is assumed to have been included as part of sales.
Raw materials used (P1,880,000 x 60%) P1,128,000

Increase in inventory – raw materials 360,000
Total purchases P1,488,000
Output VAT (P5,500,000 x 12%) P660,000

Less: Input VAT from expenses P36,000
Presumptive input VAT (P1,488,000 x 4%) 59,520 95,520
2. Actual sales P5,000,000

Less: OSD (P3,120,000 x 40%) – higher – better 1,248,000
Note: It is assumed that Sardines Manufacturing is a corporation.
Problem 10 – 32
1. Output VAT from deemed sales (P100,000 + P400,000) x 12% P60,000
2. Output VAT P60,000

VAT payable P40,000
Problem 10 – 33
Output VAT (P11,200,000/1.12) x 12% P1,200,000
Purchases (P7,840,000/1.12) x 12% P840,000
Unutilized input VAT of M Corporation 300,000 1,140,000
Problem 10 – 34
1. Total Output VAT
First year: (P2,500,000 x 20%) = P500,000 x 12% P 60,000
Second year: (P2,000,000 x ½ ) x 12% 120,000

(P2,000,000 x 6% x 12%) 14,400
Third year: (P1,000,000 x 12%) 120,000

(P1,000,000 x 6% x 12%) 7,200
Total Output VAT P321,600
2. Additional Output VAT

Required VAT (P3,000,000 x 12%) P360,000
Less: Previously paid VAT from first to third year 321,600
Additional Output VAT P 38,400
SUGGESTED ANSWERS
Problem 10 – 35
1. Year of sale
Output VAT (P100,000 x 12%) P 12,000
2. Second year
Output VAT (P200,000 x 12%) P 24,000
(P400,000 x 6% x 12%) 2,880
Total Output VAT – 2nd year P 26,880
3. Third year
Output VAT (P200,000 x 12%) P 24,000
(P200,000 x 6% x 12%) 1,440
Total Output VAT – 3rd year P 25,440
Problem 10 – 36
1. VAT (P10M x 12%) P1,200,000
Real property sales subject to 25% rule.
Sales of house and lot of P2,500,000 & below is
exempt from business taxes.
2. Cash sales (P10,000,000 + P400,000) P10,000,000

Installment sales 400,000
Less: Cost of sales of:
Installment sales (P1,500,000 x 4/20) 300,000 6,300,000
Less: Operating expenses 2,000,000
Multiplied by corporate normal income tax rate 30%
Problem 10 – 37
1. Net income (P570,000/30%) P1,900,000
Sales discounts 150,000
2. Output VAT (P4,000,000 x 12%) P 480,000

Problem 10 – 38
1. Gross income P12,300,000
Add: Cost of sales (P10,000,000 + P150,000 – P850,000) 9,300,000
Net sales (P12,300,000 + P9,000,000) P21,600,000
Add: Sales discounts – due to prompt payments 200,000
Vatable base P21,800,000
SUGGESTED ANSWERS
Less: Input VAT 1,200,000
Net VAT payable P1,416,,000
2. Gross income P12,300,000

Less: OSD (P12,300,000 x 40%) higher deduction 4,920,000 P
allowed Net taxable income 7,380,000
Multiplied by normal tax 30%
rate Income tax due P2,214,000
Problem 10 – 39
Sales on account 300,000
Installment sales – collection (P500,000 x 20%) 100,000
Transactions deemed sale:
Owner’s personal use (P50,000 x 70%) 35,000
Consigned goods (P100,000 x 70%) 70,000
Input VAT credit from previous month 36,000
Input VAT from imported machines used in business
(P200,000 x 150%) x 12% 36,000 120,000
Note: The transactions deemed sale may be reduced by 30%. (R.A. 9337)
Problem 10 – 40
1. Sales P10,000,000
Transactions deemed sale:
Consigned goods (P560,000 x 70%) P392,000
Inventory used to pay dividends (P400,000 x 70%) 280,000 672,000
Total P10,672,000
Less: Sales returns and allowances 300,000
2. Actual net sales P9,500,000

Gross profit P4,000,000
Less: OSD (P4,000,000 x 40%) – higher – better* 1,600,000
*Note: The actual operating expense is lower than OSD because the bad debts is based on percent
of receivable which is not allowed as deduction. Also, the interest expense deductible would only
be P34,800.
SUGGESTED ANSWERS
Chapter 10: CONCEPTS OF VAT
CHAPTER 10
CONCEPTS OF VAT
Problem 10–1
1. True
2. False – Some sales are VAT-exempt.
3. False – the buyer is legally liable for the payment of VAT on importation of goods or services.
4. True
5. True
6. False – Goods and services sold outside the Philippines are either zero-rated or VAT-exempt.
7. False – VAT is not a specific tax, but an ad valorem tax because its computation is based on
the value of goods or services sold.
8. True
9. False – 4%.
10. True
11. True
12. False – regardless of the amount of sales, a VAT-registered person is subject to VAT.
13. False – the privilege of input VAT is granted only to VAT-registered taxpayer.
14. False – Subject to VAT whether for business or not.
15. False – To be treated separately.
Problem 10–2
1. True
2. False – should not be subjected to the same tax.
3. False – VAT sales invoice or VAT official receipt.
4. True
5. True – for as long as the buyer is VAT-registered.
6. False – VAT refund.
7. False – excess of input VAT over output VAT.
8. False – importation is subject to VAT whether for business or personal use.
9. True
10. True
11. False – goods for sale is not covered by the P1,000,000 threshold. The goods must
depreciated/amortized as a result of use in business.
12. False – only zero-rated/ effectively zero-rated sales and cancellation of VAT registration can
apply for TCC issuance.
13. True
14. False – the resident lessee or licensee must file the VAT return in the name of nonresident
foreign entity.
15. True
Problem 10–3
1. True
2. False – deductible from the VAT-registered buyer’s output VAT.
3. True
4. True
5. False – the transitional input VAT is allowed only once upon shifting from non-VAT to VAT.
6. False – presumptive input VAT is allowed only to raw materials used in the production of few
products such as milk, sardines, mackerel, refined sugar, cooking oil, and instant noodles.
7. True
8. True
9. False – input VAT is recognized in effectively zero-rated sales.
10. False – within 2 years.

SUGGESTED ANSWERS
11. True
12. True
13. False – more than P1,000,000.
14. True
15. True

1. B 1. C
2. A 2. D
3. B 3. A
4. D 4. B
5. C 5. C
6. D 6. D
7. C 7. C
8. C 8. D
9. A 9. B
10. C 10. D
11. A 11. A
12. B 12. C
13. A
Problem 10–6 D
The sale of Y is not subject to VAT because its registration is nonVAT and its sales do not exceed
P1,919,500.
Problem 10–7 A
Mar Roxas – non-VAT P300,000
Baguio City Government 200,000
SSS Baguio 100,000
San Marino 400,000
Total amount subject to VAT P 1,000,000
Problem 10–8 C
Sales to: Within
Regular customers P2,000,000
Government 500,000
Employees 300,000
Total amount of sale subject to VAT P2,800,000
Problem 10–9 D
The ultimate consumer is not VAT-registered and does not sale the products. Therefore, no
output VAT. If the consumer is VAT-registered still there is no output VAT, but instead input
VAT.
Problem 10–10 A
Output VAT (P5,000,000 + P5,000,000) x 12% P1,200,000
Less: Input VAT (P6,720,000/9.333) 720,000
Problem 10–11 C
Sales per VAT invoice, no output VAT is shown (P224,000/9.333) P24,000
Sales per VAT invoice, output VAT shown separately
amounted to P30,000 inclusive in the invoice (P330,000/9.333) 35,358
Sales per purchase order – delivered (P100,000 x 12%) 12,000
Amount of output VAT P71,358

SUGGESTED ANSWERS
Problem 10–12 D
Total manufacturing costs P1,000,000
Delivery and insurance 200,000
Excise tax (P1,000,000 x 10%) 100,000
Gross margin (P1,000,000 x 70%) 700,000
Total sales price P2,000,000
Problem 10–13 B
Fair market value of machine P1,500,000
Insurance charges 50,000
Duty tax 150,000
Excise tax 75,000
Total Vatable amount P1,875,000
VAT on importation P 225,000
Problem 10-14 B
Output VAT [(P1,800,000/30%)/40%] x 12% P1,800,000
Less: Input VAT (P8,960,000/9.333 960,000
Problem 10 – 15 D
Total sales (P2,000,000 + P800,000) P2,800,000
Problem 10 – 16 B
Output VAT (P40M x 4 x 12%) P19,200,000
Less: Ouput VAT (P180M /5) x 4 x 12%) 17,280,000
Net VAT payable P 1,920,000
Purchase price P100,000,000
Excise taxes 40,000,000
Duty taxes 30,000,000
Insurance 5,000,000
Freight 5,000,000
Total landed cost P180,000,000
Problem 10 – 17 D
Gross receipts – sale of electricity P 5,000,000
Sale of assets:
Power general assets 30,000,000
Other real properties 20,000,000
Total P55,000,000
Problem 10 – 18 A
Zero. The business is non-VAT; hence, no input VAT is allowed.

SUGGESTED ANSWERS
Problem 10 – 19 A
Output VAT (P425,600/9.3333) P45,600
Less: Input VAT (P448,000/9.3333) 48,000
Input VAT carry-over P 2,400
VAT-registered buyers of non-VAT business that collects VAT is allowed to deduct input VAT.
Problem 10 – 20 D
Input VAT from:
VAT invoice in the name of Capoy Enterprises (P224,000/9.333) P 24,000
NonVAT invoice with VAT charges (P168,000/9.333) 18,000
Total creditable input VAT P42,000
The VAT invoice in the name of Capuypoy Trading is not allowed because it does not bear the
name of Capoy Enterprises.
Problem 10 – 21 B
Input VAT from VAT purchased invoice (P1,792,000/9.333) P192,000
Non-VAT purchase invoice (P313,600/9.333) 33,600
Transitional input VAT 5,800
Total input VAT from purchases P231,400
Less: Proportionate input VAT for sales to the government
(P192,000 + P33,600) x 500/2,000 56,400
Input VAT balance P175,000
Add: Standard input VAT on sales to government (P560,000/9.333) x 7% 35,000
Problem 10 – 22 A
Purchases per VAT invoice amount (P140,000/9.3333) P 15,000
Payments for VAT person’s services inclusive of VAT (P1,232/9.3333) 132
Payment for services of VAT person, net of VAT (P917 x 12%) 110
Total available input VAT P 15,242
Problem 10 – 23 C
Input VAT from:
Machine 1 – inventory (P1,680,000/9.333) P180,000
Amortization of input VAT from:
Machines 2 and 3 [(P672,000 + P560,000)/9.333]/60 months 2,200
Creditable input VAT – January P182,200
Note: Machines 2 and 3 are depreciable capital goods with aggregate costs of P1,100,000
excluding VAT; hence, their input VAT is subject to amortization of 60 months or estimated
useful life, whichever is shorter.
Problem 10 – 24 D
January February March
Output VAT P120,000 P156,000 P180,000
Input VAT from purchases of:
Goods (72,000) (84,000) (96,000)
Capital goods – March acquisition (60,000)
Capital goods – February acquisition . ( 3,000) ( 3,000)
Net VAT payable (refundable) P 48,000 P 69,000 P21,000
Problem 10 – 25
1. Letter B
Total costs incurred to date
SUGGESTED ANSWERS
Year 1 P4,000,000
Year 2 8,000,000 P12,000,000
Multiplied by percent of construction costs subject to VAT 60%
Construction costs subject to VAT P 7,200,000
Creditable input VAT in year 2 P 864,000
2. Letter C
Output VAT P3,600,000
Less: Input VAT from purchases P1,200,000
Input VAT from construction in progress
Year 3 (P3,000,000 x 60% x 12%) 216,000 1,416,000
Net VAT payable P2,184,000
Problem 10 – 26 A
Input VAT from CIP:
Materials (P3,600,000 x 30%) 1,080,000
Labor (P2,400,000 x 20%) 480,000
Overhead (P1,200,000 x 20%) 240,000 3,800,000
Problem 10 – 27
1. Letter D
Purchases from VAT person (P644,000/9.333) P69,000
Purchases from Non-VAT person in VAT invoice (P61,600/9.333) 6,600
Payments to VAT services (P56,000/9.333) 6,000
2. Letter A
Output VAT (P784,000/9.333) P 84,000
Less: Creditable input VAT 81,600
Net VAT payable (refundable) P 2,400
Problem 10 – 28 B
Equipment (P2,500,000 x 12%) = P300,000/60 P 5,000
Supplies (P10,000 x 12%) 1,200
Goods (P800,000 x 12%) 96,000
Problem 10 – 29 C
Siopao machine (P300,000 x 1) P300,000
Siomai machines (P250,000 x 2) 500,000
Pizza machines (P200,000 x 3) 600,000
Oven (P150,000 x 4) 600,000
Total amount P2,000,000
Add: Custom duty (P2,000,000 x 10%) P200,000
Excise tax (P2,000,000 x 5%) 100,000
Storage fee (P2,000,000 x 2%) 40,000 340,000
Total landed costs P2,340,000
Input VAT P 280,800
Problem 10 – 30
1. Letter A
Total machines – imported (P100,000 + P200,000 + P300,000) P 600,000
SUGGESTED ANSWERS
Add: Excise tax (P600,000 x 50%) 300,000
Total P 900,000
VAT paid on importation P 108,000
2. Letter D
Output VAT (P1,000,000 x 12%) P 120,000
Less: Creditable input VAT:
Machine 2 (P200,000 + P100,000) x 12% P36,000
Machine 3 (P300,000 + P150,000) x 12% 54,000 90,000
Problem 10 – 31 D
Actual input VAT (P896,000 x 20%)/9.333, higher P19,200
Transitional input VAT (P1,500,000 x 50%) x 2% 15,000
Total transitional input VAT allowed, the higher amount P34,200
Problem 10 – 32 A
Output VAT (P1,600,000 + P2,000,000) x 12% P432,000
Less: Other percentage tax paid 48,000
Output VAT balance P384,000
Less: Input VAT from purchases – August to December P240,000
Transitional input VAT, (P100,000 x 2%) = P2,000; higher - actual 34,000 274,000
Problem 10 – 33 B
Prime raw materials – coconut for cooking oil (P1,000,000 x 3/5) P600,000
Multiplied by presumptive VAT rate 4%
Presumptive input VAT P 24,000
Problem 10 – 34 C
Output VAT (P2,800,000/9.333) P300,000
Less: Input VAT from
Presumptive input VAT – sardines (P800,000 x 4%) P32,000
Supplies (P50,400/9.333) 5,400
Amortization of capital goods [(P1,232,000/9.333)/60] x 3 months 6,600 44,000
Problem 10 – 35 B
Output VAT (P600,000 + P1,500,000) x 12% P252,000
Less: OPT (P600,000 x 3%) 18,000
Less: Transitional input VAT (P100,000 x 2%) P 2,000
Presumptive input VAT (P800,000 – P200,000) x 4% 24,000 26,000
Note: The basis of presumptive input VAT is the gross value of the purchased raw materials used
in the production.
Problem 10 –36 C
Input VAT from purchases – second quarter (P5,040,000/9.333) P540,000
Input VAT carry-over from first quarter 57,000
Input VAT - Purchases returns (P50,000 x 12%) ( 6,000)
Input VAT amortized on capital goods (P180,000/60) x 3 9,000
Creditable input VAT – second quarter P600,000

SUGGESTED ANSWERS
Problem 10 –37 B
Amount of input VAT allowed for VAT refund or
Issuance of TCC (P600,000 x 20/50) – export sales or zero-rated VAT related P240,000
Problem 10 –38 C
Input VAT from importation (P1,120,000/9.333) P120,000
Input VAT per VAT invoice issued
by nonVAT person (P896,000/9.333) 96,000
Total input VAT refund P216,000
Problem 10 – 39 A
Output VAT on actual sales [P400,000 + (P560,000/1.12)] x 12% P108,000
Add: Output VAT on deemed sales (P30,000 + P20,000) x 12% 6,000
Less: Other percentage tax paid (P400,000 x 3%) 48,000
Output VAT balance P 66,000
Purchases (P672,000/9.333) P72,000
Input VAT previous quarter 42,000
Transitional input VAT 2,000 116,000
Input VAT carry-over (P50,000)
D
Problem 10 – 40
Contract price P6,720,000
Less: VAT withholding (P6,720,000/9.333) P 720,000
Final withholding income tax (P6,000,000 x 7.5%) 450,000 1,170,000
Net remittance to Japan Inc. P5,550,000
Problem 10 – 41
1. Total Output VAT (P1,344,000/9.333) P 144,000
2. Total Output VAT P144,000

Less: Input VAT
VAT purchase invoice amount (P840,000/9.333) 90,000
Problem 10 – 42
1. Output VAT (P880,000 + P720,000) x 12% P 192,000

Less: Input VAT (P1,200,000 x 12%) 144,000
Problem 10 – 43
1. Output VAT (P125,000 x 12%) P 15,000
2. Input VAT (P84,000/9.3333) P 9,000
Note: The sales is multiplied by 12% because the term used is not per VAT invoice while the
purchase is divided by 9.333 because the purchase is inclusive of VAT.
Problem 10 – 44
Total sales price (P20 x 10) P 200
Add: VAT (P200 x 12%) 24
Total sales invoice amount P 224

SUGGESTED ANSWERS
Problem 10 – 45
1. Net income (P570,000/30%) P1,900,000
Vatable base – Sales subject to VAT P4,000,000
2. Output VAT (P4,000,000 x 12%) P 480,000

Problem 10 – 46
1. Net income (P600,000/30%) P2,000,000
Add: Cost of sales (P240,000/12%) – P400,000 P1,600,000
Operating expenses before taxes 1,000,000
Sales subject to VAT P4,500,000
Output VAT (P4,500,000 x 12%) P540,000

Presumptive input VAT 60,000 300,000
Add: Surcharge (P240,000 x 25%) P60,000
Interest from Jan. 25 to Mar. 25 (P240,000 x 20% x 2/12) 8,000
Compromise for late payment 1,000 69,000
Total amount payable P309,000
2. None, because the payment of income tax is made on time – April 15, of
the succeeding year.
Problem 10 – 47
Importation for business use P1,000,000
Add: Customs duties (P1,000,000 x 50%) 500,000
Total P1,500,000
Add: Excise tax (P1,500,000 x 10%) 150,000
Total P1,650,000
Creditable Input VAT P 198,000
Problem 10 – 48
1. Output VAT (P1,456,000/9.3333) P156,000
2. Input VAT (P1,120,000/9.3333) P120,000
3. Net VAT payable (P156,000 – P120,000) P 36,000

SUGGESTED ANSWERS
Problem 10 – 49
1. Net income (P1,200,000/30%) P4,000,000
Add: Operating expenses (P2,540,000- P240,000) 2,300,000
Add: Cost of sales (P3,360,000/1.12) P3,000,000
Less: Increase in inventory 300,000 2,700,000
Sales P9,000,000
2. Output VAT (P9,000,000 x 12%) P1,080,000

Less: Input VAT from purchases (P3,360,000/9.333) P360,000
Input VAT from operating expenses 240,000
Input VAT from CIP:
Materials (P560,000 + P448,000 + P672,000)/9.333 180,000
Labor (P1,500,000 x 40%) x 12% 72,000
Overhead (P1,500,000 x 20%) x 12% 36,000 888,000
Problem 10 – 50
Non-VAT
Total sales as of November 1, 201B P1,900,000
Add: Sales on November to December 201B
(P672,000/1.12) + P100,000 = P700,000/70% 1,000,000
VAT-registered
Less: Transitional input VAT
(P672,000/1.12) + (P100,000) = P700,000 x 2% = P14,000
(P672,000/9.333) = P72,000, higher + (P100,000 x 2%) 74,000 217,000
VAT advantage to register under VAT system P 74,000
Alah Nganin should register under VAT system.
Problem 10 – 51
Output VAT (P5,000,000 x 12%) P600,000
Supplies (P784,000/9.333) P84,000
Rent (P214,000/107%) x 12% 24,000
Creditable input VAT
from previous period 112,000
Presumptive input VAT
(P2,200,000 – P200,000) x 2% 40,000 260,000
Problem 10 – 52
Output VAT (P3,000,000 x 12%) P360,000
Presumptive input VAT (P1,620,000 x 4%) 64,800
Input VAT from operating expenses 3,600 70,400

SUGGESTED ANSWERS
The presumptive input VAT is based on primary raw materials used. The primary raw materials
used during the period are computed as follows:
Copra raw materials, beginning P 100,000

Add: Purchases of copra from farmers 1,900,000
Total P2,000,000
Less: Copra raw materials, ending 380,000
Copra raw materials used P1,620,000
Problem 10 – 53
Output VAT P200,000
Purchases P240,000
Carry-over from last quarter 30,000
Capital goods (P180,000/60) 3,000 273,000
Creditable input VAT for next quarter (P 73,000)
Problem 10 – 54
1. Input VAT from purchases for business (P112,000/9.333) P 12,000
Input VAT from importation (P79,520/9.333) 8,520
Creditable input VAT for the period P20,520
Less: Output VAT 20,000
Input VAT carry-over P 520
2. Input VAT carry-over (P20,520 – P20,520) P - 0 -
Problem 10 – 55
Input VAT on Depreciable Capital Goods from purchase of
Truck (P1,120,000/9.333) P120,000
Processing machine (P1,568,000/9.333)/60 x 1 2,800
Total Input VAT for the last quarter P122,800
Note: The Input VAT from the purchase of truck should not be amortized because its cost does
not exceed P1,000,000.
Problem 10 – 56
Transitional input VAT P 40,000
Presumptive input VAT 50,000
Input VAT on purchases of depreciable capital goods (P180,000 x 10/15) 120,000
Input VAT on operating expenses (P96,000 x 10/15) 64,000
Input VAT not allowed for TCC issuance P274,000
Only input VAT that can be traced or allocated to zero-rated or effectively zero-rated is allowed for
issuance of TCC. Transitional and presumptive input VATs are not allowed for TCC issuance.
Problem 10 – 57
VAT invoice in the name of Busal Enterprises (P448,000/9.333) P 48,000
NonVAT invoice charged with VAT (P313,600/9.333) 33,600
Total input VAT P 81,600
Multiplied by percent of VAT for regular sales (P1M/P1.5M) = 2/3 2/3
Creditable input VAT from regular VAT sales P 54,400
The input VAT on sales to government is subject to SIV and is deductible only from the Output
VAT on sales to the government. Its actual input VAT of P18,000 is not allowed to be deducted
from output VAT. (R.A. 9337)

SUGGESTED ANSWERS
Problem 10 – 58
Input VAT from purchases 60,000
Input VAT capital goods 240,000
Total P324,000
Less: Adjustments:
Input VAT on purchase returns
(P100,000 x 12%) P 12,000
Input VAT on VAT-exempt sales
(P60,000 x 5/20) 15,000
Unamortized portion of input VAT
on capital goods
(P240,000 – (P240,000/60) 236,000 263,000
Adjusted creditable input VAT P 61,000

SUGGESTED ANSWERS
Chapter 11: VAT ON SALE OF SERVICES
CHAPTER 11
VALUE-ADDED TAX
Problem 11–1
1. False – Not all because there are services that are rendered in the Philippines yet subject to
zero-rated or VAT-exempt.
2. True
3. False – services performed outside the Philippines even if undertaken in the course
of business are beyond the scope of 12% VAT.
4. False – in service, receivable is not subject to VAT.
5. True
6. True
7. False – the consent of the depositor-buyer restricts the withdrawal; therefore there is no
constructive receipt.
8. True
9. True
10. True
11. False – only those with gross receipts of more than P1,919,500 or those VAT-registered
professionals are subject to VAT.
12. True
13. True
14. False – the registration is non-VAT subject to OPT, except if the gross receipts
exceeds P1,919,500 during the taxable year.
15. True
Problem 11–2
1. True
2. False – receivables are not part of gross receipts.
3. True
4. False – transport of passengers by land is subject to 3% OPT.
5. True
6. True
7. False – provisional receipt does not constitute a VAT-invoice or receipt.
8. True
9. False – amount of insurance premium paid.
10. False – it is the obligation of the payor to pay and withhold the VAT.
11. False – Subject to VAT only if VAT-registered or if non-VAT, the total gross receipts should
exceed P1,919,500.
12. False – In addition, the total aggregate collection during the year must exceed P1,919,500.
13. True
14. False – publications devoted primarily for advertisements are subject to VAT.
15. True
Problem 11–3
1. False – subject to effectively zero-rated VAT.
2. True
3. False – VAT-exempt.
4. True
5. True – because the review classes are duly accredited with CHED.
6. True
7. False – not subject to VAT, except when confiscated.
8. True
9. True
10. True
SUGGESTED ANSWERS
11. False – granted only to persons or entities as provided by special laws and international
agreements.
12. True
13. False – the performance of service must be within the PEZA boundaries to be entitled to
a zero-rated VAT.
14. False – zero-rated VAT.
15. True
Problem 11–4
1. False – subject to VAT only if the professional is VAT-registered or the annual professional
fees received exceeded P1919,500.
2. False – subject to final tax of 20%.
3. True
4. True
5. True
6. True
7. True
8. False – a tip is a compensation income; hence not subject to VAT.
9. False – subject to 5% OPT.
10. True
11. True
12. True
13. True
14. True
15. False – still in original state.

1. D 1. A
2. C 2. D
3. B 3. A
4. A 4. C
5. A 5. B
6. D 6. C
7. A 7. C
8. C 8. D
9. D 9. B
10. B 10. C
Problem 11 – 7 A
Zero. All items of income are not subject to 12% VAT.
Problem 11 – 8
1. Letter C
Gross receipts outside the Philippines – zero-rated VAT P800,000
2. Letter A
Output VAT (P1,000,000 x 12%) P120,000
Less: Input VAT to service costs (P40,000 + P30,000) P 70,000
Input VAT from supplies (P22,400 + P30,800)/9.333 5,700 75,700
Problem 11 – 9 B
Collections from contracts with:
Government (P50,000,000 x 20%) P10,000,000
Goshen Land (P30,000,000 x 40%) 12,000,000
Advance collections from various clients 20,000,000
Amount subject to 12% VAT P42,000,000
SUGGESTED ANSWERS
Problem 11 – 10 A
Various cash collections:
From receivables of past services P 350,000
From current services 900,000
For future trucking services 250,000
Deposits to Moon Trucking ‘s savings deposits
by clients located in the provinces 300,000
Legal compensation agreement with his creditor 200,000
Total gross receipts subject to VAT P2,000,000
Multiplied by the VAT rate 12%
Problem 11 – 11 D
Remaining contract price (P10,000,000 – P3,500,000) P6,500,000
Less: Retained amount before verification (P10,000,000 x 10%) 1,000,000
Amount in the 2nd VAT official receipts P5,500,000
The contract price includes the 12% VAT because the agreement is total amount.
Problem 11 – 12 C
Total amount collected (P70,000 x 30) P2,100,000
Less: Total advance expenses in the name of clients (P50,000 x 30) 1,500,000
Gross receipts subject to VAT P 600,000
Problem 11 – 13 C
Gross receipts – professional fees P1,000,000
Add: Value-added tax (P1,000,000 x 12%) 120,000
Total P1,120,000
Less: Withholding income tax (P1,000,000 x 15%) 150,000
Actual cash received P 970,000
Problem 11 – 14 C
Professional fee (P510,000/102%) P500,000
Proof:
Professional fee 100% P500,000
Add: VAT (P500,000 x 12%) 12% 60,000
Total 112% P560,000
Less: Creditable withholding income tax (P500,000 x 10%) 10% 50,000
Net amount received 102% P510,000
Problem 11 – 15
1. Letter D
Boxing professional fee (P714,000/102%) P 700,000
Endorsement fee (P776,000/97%) 800,000
Actor’s talent fee (P970,000/97%) 1,000,000
Total professional fee P2,500,000
Total output VAT P 300,000
2. Letter B
Professional fee (P700,000 x 10%) P 70,000
Endorsement fee (P800,000 x 15%) 120,000
Actor’s fee (P1,000,000 x 15%) 150,000
Total creditable withholding tax P 340,000
SUGGESTED ANSWERS
Problem 11 – 16
1. Letter B
Service income (P735,000/105%) P700,000
Proof:
Service income 100% P700,000
Add: Output VAT (P700,000 x 12%) 12% 84,000
Total 112% P784,000
Less: Final VAT (P700,000 x 5%) (5%) P35,000
Creditable withholding income tax (P700,000 x 2%) (2%) 14,000 49,000
Net cash received 105% P735,000
2. Letter D
Output VAT (P700,000 x 12%) P84,000
Less: Standard Input VAT (P700,000 x 7%) 49,000
VAT payable P35,000
Less: Final withholding VAT (P700,000 x 5%) 35,000
Net VAT payable P - 0 -
Problem 11 – 17 A
Output VAT (P336,000/9.333) x 3 months – Oct. to Dec. 200A P108,000
Less: Input VAT (P616,000/1.12) x 12% 66,000
Problem 11 – 18
1. Letter C
Security agency fee (P3,000/2%) P150,000
Output VAT P 18,000
2. Letter A
Total amount received P615,000
Add: Creditable withholding income tax 3,000
Total P618,000
Less: Security agency fee P150,000
Amount of VAT 18,000 168,000
Security guards’ salaries P450,000
Proof:
Salaries of security guards P450,000
Security agency fee inclusive of VAT (P150,000 x 1.12) 168,000
Total P618,000
Less: Creditable withholding income tax (P400,000 x 2%) 3,000
Net amount received P615,000
Problem 11 – 19 C
Output VAT (P7,840,000/9.333) P840,000
Listing broker (P7,840,000 x 10%)/9.333 P 84,000
Selling broker (P7,840,000 x 20%)/9.333 168,000
Office rent (P128,400/107%) x 12% 14,400
Office supply (P11,200/9.333) 1,200 267,600
SUGGESTED ANSWERS
Problem 11 – 20 B
Sales of securities P20,000,000
Less: Cost of securities 18,000,000
Gross receipts on sales of securities P 2,000,000
Add: Broker’s commission 400,000
Total amount subject to VAT P 2,400,000
Output VAT (P2,400,000 x 12%) P288,000

Less: Input VAT - Office rent (P160,500/107%) x 12% 18,000
Problem 11 – 21 C
Percentage tax - passengers (P3,000,000 x 3%) P 90,000
Vatable transactions - cargoes (P2,200,000 x 12%) 264,000
Additional amount charged in ordinary bus fare tickets issued by common carrier for
passengers’ excess baggage is subject to VAT. (BIR Ruling 094-99)
Although there is actual Input VAT paid, this could not be claimed as tax credit because the
business is non-VAT registered.
Problem 11 – 22 A
Output VAT (P1,400,000 + P600,000) x 12% P240,000
Less: Creditable input VAT (P560,000/9.333) 60,000
Net business tax payable P180,000
Problem 11 – 23 B
Output VAT (P8,000,000 + P2,000,000) x 12% P1,200,000
Net business tax payable P 240,000
Problem 11 – 24
1. Letter A P1,000,000
Gross receipts P1,000,000
Currency adjustment factor P30,000
Documentation charges 25,000
Processing charges 20,000
Third party service provider:
Carrier security charges 90,000
Trucking fee 100,000
Advance manifest surcharge 35,000 750,000
Actual commission income P250,000
2. Letter B
Outbound movement
Local origin charges:
Currency adjustment factor P30,000
Actual commission income 250,000
Inbound movement
Local destination charges:
SUGGESTED ANSWERS
Trucking fee 100,000
Advance manifest surcharge 35,000
Total taxable based P460,000
Output VAT P 55,200
Problem 11 – 25 A
Package price per person P100,000
Less: Allowed deductible costs:
Hotel room charges P25,000
Passport and visa fees 13,000 38,000
Gross receipts subject to VAT P 62,000
Output VAT per person P 7,440
Multiplied by number of delegates 30
Less: Input VAT (P85,600/107%) x 12% 9,600
Note: The sale of tickets is considered taxable on the gross selling price because the margin
exceeds 9%.
Problem 11 – 26 C
Add: Commission on sales of tickets (P5,000,000 x 5%) 250,000
Total revenue P30,250,000
Less: Total cost of service from third party (P16,500,000 – P250,000) 16,250,000
VAT Taxable base P14,000,000
Problem 11 – 27 B
Hotel accommodation (P2,500 x 100) P250,000
Food and beverages consumptions 650,000
Handling charges for cable and internet 50,000
VAT taxable amount P950,000
Output VAT P114,000
Problem 11 – 28 D
Output VAT (P300,000/9.333) P32,144
Less: Input VAT (P224,000/9.333) 24,000
Problem 11 – 29 B
Output VAT: (P10,000 x 12%)
On smoke belching test (P500 x 12%) P 60
On nonlife insurance premiums (P10,000 x 12%) 1,200 P1,260
Less: Input VAT (P10,000 x 30% x 12%) 360
Net VAT payable P 900
Problem 11 – 30
1. Letter B
Output VAT (P100,000 x 12%) P12,000
SUGGESTED ANSWERS
2. Letter C
OPT (P100,000 x 10%) P10,000
Problem 11 – 31
1. NOT IN THE CHOICES
Output VAT (P20,000,000 x 12%) P2,400,000
2. Letter A
Final withholding income tax (P14,000,000/70%) x 30% P6,000,000
Add: Withholding VAT (P14,000,000/70%) x 12%) 2,400,000
Total amount of national taxes P8,400,000
The final withholding income tax from the gross income of a nonresident foreign corporation is 30%. The 12%
withholding VAT is to be paid by the buyer of service not by the nonresident foreign corporation.
Problem 11 – 32 C
Net VAT payable = final VAT (P1,000,000 x 12%) P120,000
Problem 11 – 33 D
Output VAT (P32,100/107%) x 12% P3,600
Problem 11 – 34 B
Output VAT – printing of office forms (P600,000 x 12%) P72,000
Less: Input VAT (P280,000/9.333) 30,000
Input VAT P42,000
Problem 11 – 35 A
Property Ads P2,000,000
Bindery services 1,500,000
Passbook and calling cards 500,000
Total production costs 100% P4,000,000
Add: Gross profit (P4,000,000 x 30%) 30% 1,200,000
Sales price before VAT 130% P5,200,000
Output VAT (P5,200,000 x 12%) P624,000

Problem 11 – 36 B
Sales of canteen (P50,000 x 30 days x 3 months) P4,500,000
Problem 11 – 37 D
Zero, Farmers’ Products is purely engaged in buy and sell of agricultural products in their
original state. Likewise, it is engaged in the milling service of agricultural products.
Problem 11 – 38 D
Output VAT (P900,000 + P1,500,000) x 12% P288,000
Problem 11 – 39 A
Output VAT (P672,000/9.333) P72,000
SUGGESTED ANSWERS
Problem 11 – 40 D
Zero. Accredited educational institutions are VAT-exempt. The amount of input VAT they paid on
purchases of goods or services are not creditable.
Problem 11 – 41 C
Output VAT (P5,556,000 + P144,000) x 12% P684,000
Rent (P1,284,000/107%) x 12% P144,000
Electricity (P392,000/9.333) 42,000
Supplies (P728,000/9.333) 78,000 264,000
Problem 11 – 42 B
Output VAT from:
Professional fee (P1,455,000/97%) x 12% P180,000
Sale of musical compositions (P2,000,000 x 12%) 240,000
Sale of drama manuscript (P1,000,000 x 12%) 120,000
Sale of paintings (P500,000 x 12%) 60,000
Less: Input VAT (P1,940,000/97%) x 12% 240,000
Problem 11 – 43 A
Zero. Compensation income is not subject to business tax. The sales of banana cue is classified
as subsistence livelihood because the sales amount does not exceed P100,000 in a year; hence,
business tax exempt.
Problem 11 – 44 B
Manpower’s gross salary (P12,000 x 100) P1,200,000
Add: Sales of cleaning materials (P952,000/1.12) x 130% 1,105,000
Gross receipts subject to VAT P2,305,000
Problem 11 – 45 C
Local telephone calls (P6,000,000 x 12%) P 720,000
Overseas conversation (P3,000,000 x 10%) 300,000
Forfeited telephone instruments deposit (P500,000 x 12%) 60,000
Total business taxes P1,080,000
Problem 11 – 46 D
Output VAT – within (P20M + P10M) x 12% P3,600,000
Less: Total input VAT 2,400,000
Problem 11 – 47
1. Withholding VAT (P50,000,000 x 40%) x 12% P2,400,000
2. Final withholding tax (P50,000,000 x 40%) x 25% P5,000,000
3. Share of Dragon Films (P50,000,000 x 40%) P20,000,000

Add: VAT 2,400,000
Total P22,400,000
Less: Withholding VAT P2,400,000
Final withholding income tax 5,000,000 7,400,000
SUGGESTED ANSWERS
Problem 11 – 48
Class A – rent per unit more than P12,800 per month P1,680,000
Class B – rent per unit more than P12,800 per month 1,440,000
Total aggregate gross receipts P3,120,000
(VAT Review Committee Ruling No. 010-07 dated July 18, 2007; BIR Rulings No. 144-2006 dated
March 17, 2006; Rev. Regs. No. 16-2005)
Problem 11 – 49
Gross receipts from passengers P19,800,000
Add: Advances from passengers 500,000
Total P20,300,000
Less: Refunds made for passengers 300,000
Gross receipts subject to OPT P20,000,000
1. OPT on passengers (P20,000,000 x 3%) P 600,000

Add: VAT on cargoes (P10,000,000 x 12%) 1,200,000
Total business tax P1,800,000
2. Gross receipts (P20M + P10M) P30,000,000

Less: Operating expenses, before business taxes P24,400,000
Other percentage tax expense 600,000 25,000,000
Net income P 5,000,000
Multiplied by corporate normal tax rate 30%
Income tax due P 1,500,000
Problem 11 – 50
1. Hospital services P6,000,000
2. Health maintenance services P3,000,000

Medical and drugs distributions 4,900,000
Sales of scrap materials 100,000
Total gross receipts subject to VAT P8,000,000
Problem 11 – 51
1. Gross receipts P400,000
Currency adjustment factor P 6,000
Third party service provider:
Carrier security charges 50,000
Trucking fee 30,000
Advance manifest surcharge 16,000 370,000
Actual commission income P 30,000
2. Outbound movement
Local origin charges:
Currency adjustment factor P 6,000
SUGGESTED ANSWERS
Actual commission income 30,000
Inbound movement
Local destination charges:
Trucking fee 30,000
Advance manifest surcharge 16,000
Total taxable based P100,000
Output VAT P 12,000
Problem 11 – 52
1. Output VAT on Construction of roads
c/o National Government (P20,000,000 x 12%) P2,400,000
Less: Input VAT:
Applicable actual input VAT (P16,800,000/9.333) x 20/50 P 720,000
Less: Standard input VAT (P20,000,000 x 7%) 1,400,000 1,400,000
Other income P 680,000
VAT payable P1,000,000
Less: Final withholding VAT (P20,000,000 x 5%) 1,000,000
Net VAT payable P - 0 -
Output VAT on accounting information system installation for

San Beda College, a CHED accredited institution
(P10,000,000 x 12%) P1,200,000
Less: Input VAT [(P16,800,000/9.333) – P720,000] 1,080,000
2. Total revenues:
Repair services for international shipping P 8,000,000
Repair of Asian Development Bank’s building 7,000,000
Repair services for Moog, a PEZA-registered entity 5,000,000
Construction of roads (c/o National Government) 20,000,000
Accounting information system installation for
San Beda College, a CHED accredited institution 10,000,000 P50,000,000
Less: Costs of services (P16,800,000/1.12) 15,000,000
Add: Other income 680,000
Total gross income P35,680,000
Multiplied normal corporate income tax rate 30%
SUGGESTED ANSWERS
Chapter 12: Input VAT Credits and Refunds
CHAPTER 12
INPUT VAT CREDITS AND REFUNDS
Problem 12–1
1. True
2. False – should not be subjected to the same tax.
3. False – VAT refund.
4. False – excess of input VAT over output VAT.
5. False – VAT sales invoice or VAT official receipt.
6. True
7. True – for as long as the buyer is VAT-registered.
8. False – importation is subject to VAT whether for business or personal use.
9. True
10. True
11. False – goods for sale is not covered by the P1,000,000 threshold. The goods
must depreciated/amortized as a result of use in business.
12. False – only zero-rated/ effectively zero-rated sales and cancellation of VAT registration can
apply for TCC issuance.
13. True
14. False – the resident lessee or licensee must file the VAT return in the name of
nonresident foreign entity.
15. True
Problem 12–2
1. True
2. False – not creditable.
3. True
4. False – TIV is granted only once when a non-VAT taxpayer shifts to VAT.
5. False – PIV is intended only the primary raw materials used in the processing of sardines,
mackerel, milk, refined sugar, cooking oil, packed noodles based instant meals.
6. True
7. True
8. True
9. False – within 2 years.
10. True
11. True
12. True
13. True
14. False – input VAT related to zero-rated or effectively zero-rated sales and input VAT of VAT-
registered person cancelling to non-VAT.
15. True
Problem 12–3
1. B
2. C
3. D
4. C
5. D
6. B – sugar only
7. D
8. A
9. C
10. A
SUGGESTED ANSWERS
Problem 12 – 4 A
Zero. The business is non-VAT; hence, no input VAT is allowed.
Problem 12 – 5 A
Output VAT (P425,600/9.3333) P45,600
Less: Input VAT (P448,000/9.3333) 48,000
VAT-registered buyers of non-VAT business that collects VAT is allowed to deduct input VAT.
Problem 12 – 6 D
Input VAT from:
VAT invoice in the name of Capoy Enterprises (P224,000/9.333) P 24,000
NonVAT invoice with VAT charges (P168,000/9.333) 18,000
The VAT invoice in the name of Capuypoy Trading is not allowed because it does not bear the
name of Capoy Enterprises.
Problem 12 – 7 B
Input VAT from VAT purchased invoice (P1,792,000/9.333) P192,000
Non-VAT purchase invoice (P313,600/9.333) 33,600
Transitional input VAT 5,800
Total input VAT from purchases P231,400
Less: Proportionate input VAT for sales to the government
(P192,000 + P33,600) x 500/2,000 56,400
Input VAT balance P175,000
Add: Standard input VAT on sales to government (P560,000/9.333) x 7% 35,000
Problem 12 – 8 A
Purchases per VAT invoice amount (P140,000/9.3333) P 15,000
Payments for VAT person’s services inclusive of VAT (P1,232/9.3333) 132
Payment for services of VAT person, net of VAT (P917 x 12%) 110
Total available input VAT P 15,242
Problem 12 – 9 C
Input VAT from:
Machine 1 – inventory (P1,680,000/9.333) P180,000
Amortization of input VAT from:
Machines 2 and 3 [(P672,000 + P560,000)/9.333]/60 months 2,200
Creditable input VAT – January P182,200
Note: Machines 2 and 3 are depreciable capital goods with aggregate costs of P1,100,000
excluding VAT; hence, their input VAT is subject to amortization of 60 months or estimated
useful life, whichever is shorter.
Problem 12 – 10 D
January February March
Output VAT P120,000 P156,000 P180,000
Input VAT from purchases of:
Goods (72,000) (84,000) (96,000)
Capital goods – March acquisition (60,000)
Capital goods – February acquisition . ( 3,000) ( 3,000)
Net VAT payable (refundable) P 48,000 P 69,000 P21,000
SUGGESTED ANSWERS
Problem 12 – 11
1. Letter B
Total costs incurred to date
Year 1 P4,000,000
Year 2 8,000,000 P12,000,000
Multiplied by percent of construction costs subject to VAT 60%
Construction costs subject to VAT P 7,200,000
Creditable input VAT in year 2 P 864,000
2. Letter C
Input VAT from construction in progress
Year 3 (P3,000,000 x 60% x 12%) 216,000 1,416,000
Problem 12 – 12 A
Input VAT from CIP:
Materials (P3,600,000 x 30%) 1,080,000
Labor (P2,400,000 x 20%) 480,000
Overhead (P1,200,000 x 20%) 240,000 3,800,000
Problem 12 – 13
1. Letter D
Purchases from VAT person (P644,000/9.333) P69,000
Purchases from Non-VAT person in VAT invoice (P61,600/9.333) 6,600
Payments to VAT services (P56,000/9.333) 6,000
2. Letter A
Output VAT (P784,000/9.333) P 84,000
Net VAT payable (refundable) P 2,400
Problem 12 – 14 B
Equipment (P2,500,000 x 12%) = P300,000/60 P 5,000
Supplies (P10,000 x 12%) = P1,200 1,200
Goods (P800,000 x 12%) = P96,000 96,000
Problem 12 – 15 C
Siopao machine (P300,000 x 1) P300,000
Siomai machines (P250,000 x 2) 500,000
Pizza machines (P200,000 x 3) 600,000
Oven (P150,000 x 4) 600,000
Total amount P2,000,000
Add: Custom duty (P2,000,000 x 10%) P200,000
Excise tax (P2,000,000 x 5%) 100,000
Storage fee (P2,000,000 x 2%) 40,000 340,000
Total landed costs P2,340,000
Input VAT P 280,800
SUGGESTED ANSWERS
Problem 12 – 16
1. Letter A
Total machines – imported (P100,000 + P200,000 + P300,000) P 600,000
Add: Excise tax (P600,000 x 50%) 300,000
Total P 900,000
VAT paid on importation P 108,000
2. Letter D
Output VAT (P1,000,000 x 12%) P 120,000
Less: Creditable input VAT:
Machine 2 (P200,000 + P100,000) x 12% P36,000
Machine 3 (P300,000 + P150,000) x 12% 54,000 90,000
Problem 12 – 17 D
Actual input VAT (P896,000 x 20%)/9.333, higher P19,200
Transitional input VAT (P1,500,000 x 50%) x 2% 15,000
Total transitional input VAT allowed, the higher amount P34,200
Problem 12 – 18 A
Output VAT (P1,600,000 + P2,000,000) x 12% P432,000
Less: Input VAT from purchases – August to December P240,000
Transitional input VAT, (P100,000 x 2%) = P2,000; higher - actual 34,000 274,000
Problem 12 – 19 B
Prime raw materials – coconut for cooking oil (P1,000,000 x 3/5) P600,000
Multiplied by presumptive VAT rate 2%
Presumptive input VAT P 12,000
Problem 12 – 20 C
Output VAT (P2,800,000/9.333) P300,000
Less: Input VAT from
Presumptive input VAT – sardines (P800,000 x 4%) P32,000
Supplies (P50,400/9.333) 5,400
Amortization of capital goods [(P1,232,000/9.333)/60] x 3 months 6,600 44,000
Problem 12 –21 B
Output VAT (P600,000 + P1,500,000) x 12% P252,000
Less: OPT (P600,000 x 3%) 18,000
Presumptive input VAT (P800,000 – P200,000) x 4% 24,000 26,000
Note: The basis of presumptive input VAT is the gross value of the purchased raw materials used
in the production.
Problem 12 –22 C
Input VAT from purchases – second quarter (P5,040,000/9.333) P540,000
Input VAT carry-over from first quarter 57,000
SUGGESTED ANSWERS
Input VAT - Purchases returns (P50,000 x 12%) ( 6,000)
Input VAT amortized on capital goods (P180,000/60) x 3 9,000
Creditable input VAT – second quarter P600,000
Problem 12 –23 D
Texas Instruments, Inc. (ECOZONE) P10M 10%
San Miguel Corporation 15M 15%
Department of Tourism 25M 25%
Low cost housing (P1,000,000 per house and lot) 50M 50%
P100M 100%
Input VAT on purchases P3,600,000
Less: Input VAT allowed:
Zero-VAT sales – Texas Instruments (P3.6M x 10%) P 360,000
Reg. VAT sales – San Miguel Corporation (P3.6M x 15%) 540,000
Std input VAT – Department of Tourism (P25,000,000 x 7%) 1,750,000 2,650,000
Input VAT not allowed P 950,000
Problem 12 –24 B
Amount of input VAT allowed for VAT refund or
Issuance of TCC (P600,000 x 20/50) – export sales or zero-rated VAT related P240,000
Problem 12 –25 D
Input VAT from importation (P1,120,000/9.333) P120,000
Input VAT per VAT invoice issued
by nonVAT person (P896,000/9.333) 96,000
Total input VAT refund P216,000
Problem 7 – 26 A
Output VAT on actual sales [P400,000 + (P560,000/1.12)] x 12% P108,000
Add: Output VAT on deemed sales (P30,000 + P20,000) x 12% 6,000
Less: Other percentage tax paid (P400,000 x 3%) 48,000
Purchases (P672,000/9.333) P72,000
Input VAT previous quarter 42,000
Transitional input VAT 2,000 116,000
Input VAT carry-over (P50,000)
Problem 12 – 27
Contract price P6,720,000
Less: VAT withholding (P6,720,000/9.333) P 720,000
Final withholding income tax (P6,000,000 x 7.5%) 450,000 1,170,000
Problem 12 – 28
Importation for business use P1,000,000
Add: Customs duties (P1,000,000 x 50%) 500,000
Total P1,500,000
Add: Excise tax (P1,500,000 x 10%) 150,000
Total P1,650,000
Creditable Input VAT P 198,000
SUGGESTED ANSWERS
Problem 12 – 29
1. Output VAT (P1,456,000/9.3333) P156,000
2. Input VAT (P1,120,000/9.3333) P120,000
3. Net VAT payable (P156,000 – P120,000) P 36,000
Problem 12 – 30
1. Net income (P1,200,000/30%) P4,000,000
Add: Operating expenses (P2,540,000- P240,000) 2,300,000
Add: Cost of sales (P3,360,000/1.12) P3,000,000
Less: Increase in inventory 300,000 2,700,000
Sales P9,000,000
2. Output VAT (P9,000,000 x 12%) P1,080,000

Less: Input VAT from purchases (P3,360,000/9.333) P360,000
Input VAT from operating expenses 240,000
Input VAT from CIP:
Materials (P560,000 + P448,000 + P672,000)/9.333 180,000
Labor (P1,500,000 x 40%) x 12% 72,000
Overhead (P1,500,000 x 20%) x 12% 36,000 888,000
Problem 12 – 31
Non-VAT
Total sales as of November 1, 201B P1,900,000
Add: Sales on November to December 201B
(P672,000/1.12) + P100,000 = P700,000/70% 1,000,000
VAT-registered
Less: Transitional input VAT
(P672,000/1.12) + (P100,000) = P700,000 x 2% = P14,000
(P672,000/9.333) = P72,000, higher + (P100,000 x 2%) 74,000 217,000
VAT advantage to register under VAT system P 74,000
Alah Nganin should register under VAT system.
Problem 12 – 32
Output VAT (P5,000,000 x 12%) P600,000
Supplies (P784,000/9.333) P84,000
Rent (P214,000/107%) x 12% 24,000
Creditable input VAT
from previous period 112,000
Presumptive input VAT
(P2,200,000 – P200,000) x 2% 40,000 260,000
SUGGESTED ANSWERS
Problem 12 – 33
Output VAT (P3,000,000 x 12%) P360,000
Presumptive input VAT (P1,620,000 x 4%) 64,800
Input VAT from operating expenses 3,600 70,400
The presumptive input VAT is based on primary raw materials used. The primary raw materials
used during the period are computed as follows:
Copra raw materials, beginning P 100,000

Add: Purchases of copra from farmers 1,900,000
Total P2,000,000
Less: Copra raw materials, ending 380,000
Copra raw materials used P1,620,000
Problem 12 – 34
Output VAT P200,000
Purchases P240,000
Carry-over from last quarter 30,000
Capital goods (P180,000/60) 3,000 273,000
Creditable input VAT for next quarter (P 73,000)
Problem 12 – 35
1. Input VAT from purchases for business (P112,000/9.333) P 12,000
Input VAT from importation (P79,520/9.333) 8,520
Creditable input VAT for the period P20,520
Less: Output VAT 20,000
Input VAT carry-over P 520
2. Input VAT carry-over (P20,520 – P20,520) P - 0 -
Problem 12 – 36
Input VAT on Depreciable Capital Goods from purchase of
Truck (P1,120,000/9.333) P120,000
Processing machine (P1,568,000/9.333)/60 x 1 2,800
Total Input VAT for the last quarter P122,800
Note: The Input VAT from the purchase of truck should not be amortized because its cost does
not exceed P1,000,000.
Problem 12 – 37
Transitional input VAT P 40,000
Presumptive input VAT 50,000
Input VAT on purchases of depreciable capital goods (P180,000 x 10/15) 120,000
Input VAT on operating expenses (P96,000 x 10/15) 64,000
Input VAT not allowed for TCC issuance P274,000
Only input VAT that can be traced or allocated to zero-rated or effectively zero-rated is allowed for
issuance of TCC. Transitional and presumptive input VATs are not allowed for TCC issuance.
SUGGESTED ANSWERS
Problem 12 – 38
VAT invoice in the name of Busal Enterprises (P448,000/9.333) P 48,000
NonVAT invoice charged with VAT (P313,600/9.333) 33,600
Total input VAT P 81,600
Multiplied by percent of VAT for regular sales (P1M/P1.5M) = 2/3 2/3
Creditable input VAT from regular VAT sales P 54,400
The input VAT on sales to government is subject to SIV and is deductible only from the Output
VAT on sales to the government. Its actual input VAT of P18,000 is not allowed to be deducted
from output VAT. (R.A. 9337)
Problem 12 – 39
Input VAT from purchases 60,000
Input VAT capital goods 240,000
Total P324,000
Less: Adjustments:
Input VAT on purchase returns
(P100,000 x 12%) P 12,000
Input VAT on VAT-exempt sales
(P60,000 x 5/20) 15,000
Unamortized portion of input VAT
on capital goods
(P240,000 – (P240,000/60) 236,000 263,000
Adjusted creditable input VAT P 61,000
SUGGESTED ANSWERS
Chapter 13: MIXED BUSINESS TRANSACTIONS
CHAPTER 13
MIXED BUSINESS TRANSACTIONS
Problem 13–1 True or False
1. True
2. True
3. False – only those supported with VAT invoice or VAT receipts are allowed to claim input VAT
credit.
4. True
5. False – zero-rated transaction refers to output VAT and not input VAT. Zero-rated VAT
transactions have input VAT.
6. False – for the input VAT of zero-rated transaction, the treatment is either VAT credit, refund
or TCC issuance.
7. True
8. False – the basis of allocation is sales volume.
9. True
10. True
11. False – costs of sales or operating expense.
12. False – zero-rated VAT transaction.
13. True
14. False – transport of passengers by land is subject to 3% OPT regardless of amount.
Problem 13–2
1. False – zero-rated transactions.
2. True
3. False – 12% VAT.
4. True
5. False – subject to OPT regardless of amount.
6. False – life insurance premium is subject to 5% VAT.
7. False – not anymore subject to OPT tax because such amount is deducted from the gross
receipts.
8. True
9. True
10. False – if the monthly rent income is P12,800 and below, not subject to business tax
regardless of amount.
11. True
12. False – subject to income tax but not subject to VAT.
13. False – some are subject to OPT. Only those specified by law such as sale of food agricultural
products in their original state are exempt both from VAT and OPT.
14. False – only the allocated amount of input VAT related to VAT transactions and zero-rated
VAT transactions is allowed as deduction from output VAT.
Problem 13–3
1. B
2. C
3. A
4. C&D
5. C
6. D
7. B
8. C
9. A
10. B
SUGGESTED ANSWERS
Problem 13 – 4 A
Output VAT on taxable transaction P14,400
Less: Creditable input VAT (P8,640 + P2,880 ) 11,520
Subject Zero- VAT-
to 12% Rated Exempt
Output VAT (P120,000 x 12%) P14,400 P 0 P 0
Input VAT – Credited 8,640 2,880 None
Amount to be remitted (refunded or credited) P 5,760 (P 2,880) None
Allocation of Input VAT

Regular sales (P14,400 x 60%) P 8,640
Zero-VAT rate (P14,400 x 20%) 2,880
VAT-exempt (P14,400 x 20) 2,880
Input VAT (P134,400/9.333) P14,400
Notes:
1. The amount of Input VAT allocated to regular sales and zero-VAT sales are creditable VAT,
while the Input VAT allocated to the VAT-exempt sales are not creditable VAT which should
become part of the cost of sales.
2. Computation of percent of sales:

Percent Amount
Regular VAT sales 60% P120,000
Zero-rated sales ($800 x P50) 20% 40,000
VAT-exempt 20% 40,000
Total sales 100% P200,000
Problem 13 – 5 B
Standard input VAT (P15,000 x 7%) P1,050
Add: Final withholding VAT (P15,000 x 5%) 750
Amount of VAT deductible from sales to government P1,800
Problem 13 – 6 C
Total domestic cash sales (P110,000 + P55,000) P165,000
Sales to government 15,000
Total sales subject to VAT P180,000
Total Output VAT P 21,600
Problem 13 – 7 D
Input VAT – export sales (zero-rated) P 60,000
Add: Allocated input VAT – export sales (P250,000 x 8/20) 100,000
Tax refund or tax credit certificate – applicable to zero-rated VAT only P160,000
Problem 13 – 8 A
Zero, the business is nonVAT; hence, no input VAT is allowed.
Problem 13 – 9 C
Output VAT (P2,000,000 x 12%) P240,000
SUGGESTED ANSWERS
Problem 13 – 10 B
Increase in cost of service is the input VAT (P1,120,000/9.333) P120,000
Problem 13 – 11 C
Percentage tax - passengers (P2,000,000 x 3%) P 60,000
VAT taxable transactions - cargoes (P2,000,000 x 12%) 240,000
Notes:
Additional amount charged in ordinary bus fare tickets issued by common carrier for passengers’
excess baggage is subject to VAT. (BIR Ruling 094-99)
Although there is actual Input VAT paid, this could not be claimed as tax credit because the
business is non-VAT registered.
Problem 13 – 12 B
Common carrier’s tax (P1,400,000 x 3%) P 42,000
Output VAT (P1,792,000/9.333) 192,000
Less: Creditable Input VAT (P560,000/9.333) x P1,600,000/P3,000,000 32,000
Notes:
Additional amount charged in ordinary bus fare tickets issued by common carrier for passengers’
excess baggage is subject to VAT. (BIR Ruling 094-99)
The creditable Input VAT is prorated between the Vatable and VAT-exempt gross receipts.
Problem 13 – 13 D
Output VAT [(P30,000/3%) + P3,000,000] x 12% P480,000
Less: OPT paid 30,000
Less: Input VAT
Transitional input VAT (P500,000 x 2%) P 10,000
Actual input VAT (P2,240,000/9.333) 240,000 250,000
Problem 13–14
1. Letter A
Input tax on regular VAT taxable sales P10,000
Input tax on zero-rated sales 4,000
Input tax allocated to regular and zero-rated VAT sales (P60,000 x 3/5) 36,000
Creditable input tax against regular sales output VAT P50,000
2. Letter D
Input tax on sales to government P 3,000
Input tax allocated to sales to government (P60,000 x 1/5) 12,000
Actual input VAT of sales to government P15,000
3. Letter C
Input VAT on VAT-exempt sales P 4,000
Excess of actual input VAT over standard input VAT of sales to gov’t.
Actual input VAT P15,000
Less: Std. input VAT (P100,000 x 7%) 7,000 8,000
Input VAT to cost of sales or operating expense P12,000
SUGGESTED ANSWERS
4. Letter B
Gross income (P500,000 x 40%) P200,000
Less: OSD (P200,000 x 40%) 80,000
Net taxable income P120,000
Income tax due – operating expense approached P 36,000
Less: Cost of sales (P500,000 x 60%) P300,000
Input VAT of VAT-exempt sales 12,000 312,000
Gross income P188,000
Less: OSD (P188,000 x 40%) 75,200
Income tax due – cost of sale approach 33,840
Tax advantage P 2,160
Problem 13–15
1. Letter B
Output VAT from:
Regular VAT sales (P1,120,000/9.333) P120,000
Sale of defective products (P168,000/9.333) 18,000 P138,000
Less: Allocation of input VAT from:
Packaging materials (P60,000 x 85%) P 51,000
Presumptive input VAT [(P800,000 – P100,000) x 4%] x 85% 23,800 74,800
Note: The presumptive input VAT is based on the primary raw materials
used in the production.
2. Letter A
Total sales, net of VAT (P1,000,000 + P1,400,000 + P450,000 + P150,000) P3,000,000
Less: Cost of sales P1,786,800
Input VAT traced to VAT–exempt sales (P60,000 x 15%) 9,000
Presumptive input VAT to VAT-exempt (P700k x 4%) x 15% 4,200 1,800,000
Less: Itemized deductions 700,000
Problem 13–16
1. Letter D
Other percentage tax – land passengers, within
(P20,000,000 x 3%) P 600,000
Add: Net VAT payable
Output VAT - transport within from:
Air (P40,000,000 x 12%) P4,800,000
Sea (P20,000,000 x 12%) 2,400,000
Land – cargoes (P10,000,000 x 12%) 1,200,000
Total output VAT P8,400,000
Less: Actual input VAT air and sea - within P775,000
Input VAT [(P6,000,000 x 75%)/60 months] x 3 225,000 1,000,000 7,400,000
Total business taxes due P8,000,000
SUGGESTED ANSWERS
Computation of percent of allocation:

Allowed with input VAT P 90M 75%
VAT-exempt – land passengers 30M 25%
Total gross receipts P120M 100%
Input VAT on Jet purchased (P50,000,000 x 12%) P6,000,000
2. Letter A
Total gross receipts P120,000,000
Less: Cost of service (P120,000,000 x 40%) P47,925,000
Applicable input VAT for VAT-exempt
[(P6M x 25%)/60 months] x 3 75,000 48,000,000
Gross income P 72,000,000
Less: OSD (P72,000,000 x 40%) 28,800,000
Net taxable income – OSD P43,200,000
Less: Net taxable income – itemized
Less: Itemized deductions (P5M + P3.8M) 8,800,000 63,200,000
Difference P20,000,000
Tax advantage using OSD P 6,000,000
Problem 13–17
Other percentage tax – life insurance premium (P76,000,000 x 5%) P3,800,000
Add: Net VAT payable
Output VAT – nonlife insurance premium
(P24,000,000 x 12%) P2,880,000
Less: Input VAT (P300,000 x 24%) 72,000 2,808,000
Total business taxes due P6,608,000
Percent of gross receipts:

Nonlife (P26,000,000 – P2,000,000) 24% P 24,000,000
Life (P82,000,000 – P6,000,000) 76% 76,000,000
100% P100,000,000
2. Letter B
Total gross receipts (P24M + P76M) P100,000,000
Less: Cost of service
Life (P76,000,000 x 40%) 30,400,000
Nonlife (P24,000,000 x 30%) 7,200,000
Amount of input VAT – life (P300,000 x 76%) 228,000 37,828,000
Gross income P 62,172,000
Add: Rent income 828,000
Total gross income P 63,000,000
Less: OSD (P63,000,000 x 40%) 25,200,000
Net taxable income P 37,800,000
Problem 13–18
1. Letter B
Output VAT (P2,000,000 + P1,500,000) x 12% P420,000
Less: Amortization of input VAT
[(P33,600,000/9.333)/60] x 10 months x 3.5/6 350,000
Total business tax payable P 70,000
SUGGESTED ANSWERS

Total gross receipts P6,000,000
Less: Costs of service:
Depreciation – direct cost [(P33,600,000/1.12)/30] P1,000,000
Input VAT traced to VAT-exempt transactions
Class C (P3,600,000/60) x 10 mos. x 2.5/6 250,000 1,250,000
Less: OSD (P4,750,000 x 40%) 1,900,000
Problem 13–19
1. Output VAT – vacation house (P9M x 12%) P1,080,000
Less: Input VAT (P360,000) + (P240,000 x 75%) 540,000
The installment sale of real property is subject to 25% rule of initial

payment. If the initial payment exceeds 25% of the selling price, the sale
is considered as cash sales.
The sale of house and lot with a selling price of P3,199,200 and below is
exempt from VAT.
2. Cash sales – vacation house P9,000,000

Installment sales 600,000
Less: Cost of sales of:
Cash sales – vacation house P6,000,000
Installment sales – bungalow (P2,100,000 x 6/30) 420,000
Input VAT traced to VAT-exempt sales related to:
Cost of sale (P120,000 x 6/30%) 24,000
Operating expense (P240,000 x 3/12) 60,000 6,504,000
Multiplied by corporate normal income tax rate 30%
Problem 13 – 20
Output VAT from:
Cash sales to VAT persons (P300,000 x 12%) P 36,000
Cash sales to Non-VAT persons (P100,000 x 12%) 12,000
Cash sales to government units (P200,000 x 12%) 24,000
Credit sales to VAT persons (P400,000 x 12%) 48,000
Sales return (P10,000 x 12%) ( 1,200) P118,800
Purchases from VAT person per invoice (P324,800/9.333) P 34,800
Payment of services for business purposes, gross of VAT
(P72,800/9.333) 7,800
Standard input VAT – government (P200,000 x 7%) 14,000 56,600
Less: Final withholding VAT – government (P200,000 x 5%) 10,000
SUGGESTED ANSWERS
Notes:
1. The sales discount is generally a cash discount that depends on the happening of future
events which is the prompt payment of customers. This sales discount is not allowed to
be deducted for VAT purposes. (Sec. 4.106-9, R.R. 14-2005)
2. The 5% final withholding VAT is deductible from output VAT on sales to the government.
Problem 13 – 21
1. Input tax on taxable goods P 5,000
Input tax on zero-rated sales 3,000
Standard input tax – government sales (P100,000 x 7%) 7,000
Input tax on depreciable capital goods
not attributable to any specific activity
(monthly amortization for 60 months) = (P20,000 x P200,000/P400,000) 10,000
Creditable input tax for the month P25,000
2. Input tax on sale to the government P4,000

Input tax on depreciable goods allocated to sales to the government
(P20,000 x 100,000/400,000) 5,000
Input tax attributable to sales to government for the month P9,000
Note: This actual input tax is deductible only to the extent of standard input
VAT amounting to P7,000. The excess of actual input VAT over standard
input VAT is to be treated as additional cost of sales or operating expense.
3. Input tax on sale of exempt goods P2,000

Input tax attributable to VAT-exempt goods (P20,000 x 1/4) 5,000
Input tax attributable to VAT-exempt goods P7,000
Note: This input VAT is not deductible from output VAT. Its entire
amount is to be treated as additional cost of sales or operating
expense.
Problem 13 – 22
Gross sales/receipts for the month (VAT taxable) P750,000
Output VAT P 90,000
Less: Input taxes:
Goods (P392,000/9.333) x 675/750 P37,800
Service (P84,000/9.333) x 675/750 8,100
Std input VAT on sales to government (P75,000 x 7%) 5,250 51,150
VAT Payable before final VAT P 38,850
Less: Final withholding VAT (P75,000 x 5%) 3,750
Notes:
1. Composition of sales:
Cash sales to VAT persons P450,000
Cash sales to Non-VAT persons 50,000
Credit sales to VAT persons 200,000
Gross sales P700,000
Less: Sales returns P20,000
Sales discounts 5,000 25,000
VAT taxable sales – subject to VAT P675,000
Add: Sales to the government-subject to final VAT 75,000
SUGGESTED ANSWERS
2. All sales, whether sold to VAT or non-VAT person, cash and on credit are included.
3. Sales return and discounts were deducted to arrive at the amount of net sales. In this
particular case, the sales discounts is deductible to determine the taxable based because the
it does not depend on the happening of future event and its related total sales are recorded.
4. VAT on expenses that are not related in the conduct of business is not allowed as creditable
Input VAT.
5. Sale to government unit is subject to final VAT withholding tax. (Sec. 4.114-2, R.R. 14-2005)
Problem 13 – 23
Output VAT from:
Regular sales (P216,000 + P576,000) x 12% P95,040
Deemed sales (P90,000 + P180,000) x 12% 32,400
Government sales (P160,000 x 12%) 19,200 P146,640
Less: Input VAT allocation to:
Regular VAT transactions P88,888
Zero-VAT transactions 27,123
Standard VAT from sales to government
(P160,000 x 7%) 11,200 127,211
VAT payable before final VAT P 19,429
Less: Creditable withholding final VAT from sales
to government (P160,000 x 5%) 8,000
Net VAT payable 11,429
Regular VAT
Sales: Taxable Zero-VAT With Gov’t. Total
To VAT P576,000 P576,000
To non-VAT 216,000 216,000
To government (P169,600/106%) P160,000 160,000
Export P324,000 324,000
Personal use, at cost 90,000 90,000
Consignment (P241,920/9.333) x 83.33%* 180,000 . . 180,000
Totals P1,062,000 P324,000 P160,000 P1,546,000
Percentage 68.69% 20.96% 10.35% 100%
Input VAT from:

Creditable input VAT balance P 20,000
VAT business (P571,760/9.333) 61,260
Office supplies (P28,000/9.333) 3,000
Payments VAT persons
(P110,000 x 12%) 13,200
Importation (P298,144/9.333) 31,945
Input VAT allocations P88,888 P27,123 P13,394 P129,405
Notes:
1. The goods consumed for personal use can be price at cost being transaction deemed sale.
2. The deemed sale consigned goods is also price at cost, computed as follows:
Consignment price excluding VAT (P241,920/1.12) P216,000
Multiplied by percent of cost based on the goods consumed for
personal use (P90,000/P108,000) 83.33%
*Cost of consigned goods P180,000
SUGGESTED ANSWERS
Chapter 14: OTHER PERCENTAGE TAXES
CHAPTER 14
PERCENTAGE TAXES
Problem 14–1
1. False – 3% of gross sales or gross receipts.
2. False – business tax.
3. False – advalorem tax.
4. False – if the business is VAT-registered or engaged in business tax-exempt transactions, it
shall not be subject to 3% OPT. Also not all OPT rate is 3%.
5. False – Non-VAT business is not allowed to have Input VAT.
6. True
7. False – expressly exempted from business tax by law. (R.A. 8424)
8. False – the 3% is applicable only to transport by land. Transport by water and air is subject
to 12% VAT.
9. True
10. False – 2% percentage tax.
11. True
12. True
13. False – Premium collections outside the Philippines from nonresident person is exempt.
14. True
15. False – only gross receipts within.
Problem 14–2
1. False – Option to register not required under OPT. The business can also register as VAT.
2. True
3. False – minimum quarterly receipts or actual quarterly gross receipts, whichever is higher.
4. True
5. False – Subject to VAT for being registered as VAT
6. False – CNN is exempt from OPT because the communication is for news services.
7. True
8. True
9. False – amusement taxes ranging from 10% to 30%
10. True
11. False – Horse race’s cost of winning ticket is deductible.
12. False – not deductible.
13. False – only interest is subject to GRT
14. False – national tax
15. True

1. B 1. A
2. A 2. A should be “is NOT exempt
from OPT.”
3. B 3. C
4. B 4. A
5. C 5. D
6. C 6. B
7. A 7. A
8. B 8. B
9. D should be “NOT covered by 9. D
P1,919,500 threshold.”
10. C 10. B
11. D 11. A
12. C 12. C
SUGGESTED ANSWERS
Problem 14 – 5 D
Zero. Monthly rental income of P12,800 or less per unit of residential property is exempt from
business tax regardless of the aggregate amount per year.
Problem 14 – 6 C
Beginning inventory P 100,000
Add: Purchases 896,000
Total P 996,000
Less: Ending inventory (P100,000 + P196,000) 296,000
Cost of sales P 700,000
Add: Gross profit (P700,000 x 100%) 700,000
Sales P1,400,000
Multiplied by OPT rate 3%
Business tax P 42,000
Problem 14 – 7 D
Other percentage tax (P403,200/112%) x 3% P10,800
VAT (P403,200/9.333) 43,200
Surcharge (P43,200 x 50%) 21,600
Problem 14 – 8 C
Other percentage tax (P800,000 x 3%) P24,000
Problem 14 – 9 A
Sales (P1,330,000/70%) P1,900,000
Problem 14 – 10 B
Net taxable income (P180,000/30%) P 600,000
Add: OSD (P600,000/60%) x 40% 400,000
Add: Cost of sales 800,000
Gross sales P1,800,000
OPT P 54,000
Problem 14 – 11
1. Letter C
Sales (P35,000/25%) x 12 P1,680,000
Annual business tax P 50,400
2. Letter D
Sales (P35,000/20%*) x 12 P2,100,000
*Computation of 20%:
Sales 125%
Cost 100%
Gross profit 25% (25%/125%) = 20%
SUGGESTED ANSWERS
Problem 14 – 12 A
Cooperatives are exempt from income and business tax on their sales. Furthermore all of the
sales reported are VAT and OPT exempt products.
Problem 14 – 13
1. Letter D
Percentage tax P - 0 -
There is no percentage tax because nonprocessed agricultural
food products are business tax exempt.
2. Letter B
Total sales (P5M + P20M) P25,000,000
Less: Cost of sales (P3M + P12M) 15,000,000
Less: OSD (P10,000,000 x 40%) 4,000,000
Income tax due and payable (OSD provides lesser income tax) P 1,800,000
Problem 14 – 14 C
OPT withheld (P90,000 x 3%) P 2,700
Proof:
Sales (P86,400/96%) 100% P90,000
Less: OPT withholding (P90,000 x 3%) (3%) P2,700
Creditable withholding tax (P90,000 x 1%) (1%) 900 3,600
Net sales proceeds P86,400
Problem 14 – 15 B
Service fee P30,000
Less: OPT (P30,000 x 3%) P900
Creditable withholding tax (P30,000 x 2%) 600 1,500
Net check payment P28,500
Problem 14 – 16 D
Gross receipts P350,000
Net income before personal exemption P300,000
Income tax due of P250,000 (Sec. 24A,NIRC) P 50,000
Note: Owners of bancas and owners of animal-drawn two-wheeled vehicles are business tax-
exempt; but subject to income taxes.
Problem 14 – 17 B
Percentage taxes:
Taxi (P1,500,000 x 3%) P45,000
Bus (15 x P7,200 x 3%) 3,240
VAT (P50,000 x 12%) 6,000
Common carrier tax due P54,240
Note: The gross receipts from the transport of cargoes by domestic carriers by land shall still subject to 12%
VAT. (R.A. 9337)
SUGGESTED ANSWERS
Problem 14 – 18 D
Total gross receipts (P1,000,000 + P6,000,000) P7,000,000
Multiplied by applicable business tax rate 12%
Total business tax P 840,000
Note: Common carrier by sea is subject to VAT of 12%.
Problem 14 – 19 A
Percentage tax (P10,000,000 x 3%) P 300,000
VAT (P6,000,000 + P1,000,000) x 12% 840,000
Average business tax in a year P1,140,000
Divided by number of quarter in a year 4
Estimated average business tax per quarter P 285,000
Problem 14 – 20 C
Problem 14 – 21
1. Letter D
Business tax P - 0 -
If Philippine registry, zero-rated on their transport of passengers and
cargo from the Philippine port to a foreign port (vice versa).
2. Letter C
Manila to USA (P1,000,000 x 3%) P30,000
Manila to China (P1,400,000 x 3%) 42,000
Philippine business tax P72,000
Problem 14 – 22 C
Percentage tax – water franchise (P1,000,000 x 2%) P 20,000
Problem 14 – 23 B
Percentage tax – radio franchise (P10,000,000 x 3%) 300,000
Total percentage tax P 340,000

OPT – Overseas call (P5,000 x 10%) P500
VAT - Local calls (P2,000 x 12%) 240
Total percentage tax or business tax P740
Problem 14 – 25 A
Exempt
Problem 14 – 26 D
Service charge (P75,000/10%) P 750,000
Add: Percentage tax (P750,000 x 10%) 75,000
Total collection P 825,000
Problem 14 – 27 D
P - 0 -. Premium on life insurance from a nonresident alien is not covered of business tax in the
Philippines.
SUGGESTED ANSWERS
Problem 14 – 28 C
Life insurance (P10,000,000 x 80% x 5%) P400,000
Non-life insurance (P5,000,000 x 12%) 60,000
Total P460,000
Less: Life insurance refund within 6 months
(P2,000,000 x 30%) x 5% 30,000
Total percentage tax P430,000

Amusement tax (P3,500,000 x 18%) P630,000
Problem 14 – 30 D
Amusement tax (P500,000 + P200,000 + P100,000) x 18% P 144,000
Problem 14 – 31
1. Letter A
Percentage tax (P2,000,000 + P1,000,000) x 10% P300,000
2. Letter D
Exempt
Problem 14 – 32 B
Percentage tax [P1,000,000 - (P200,000/100)] x 10% P 99,800
Problem 14 – 33 A
Percentage tax (P100,000 – P1,000) x 10% P 9,900
Problem 14 – 34 A
Percentage tax [400,000 x P12) x 1% P 48,000
IPO tax rate (400,000/1,150,000) = 34.5% more than 33 1/3% = 1% percentage tax.
Problem 14 – 35 D
Percentage tax [P600,000 x 4%) P 24,000
IPO tax rate (600,000/20)/ (2,600,000/20) = 23% = 4% percentage tax.
Problem 14 – 36 A
Number of shares sold during the IPO (400,000 x 50%) 200,000
Total outstanding shares (500,000 x 120%) + 200,000 800,000
Percentage of IPO sales 25%
Applicable IPO tax rate 4%
Percentage tax (P1,000 x 200,000 x 4%) P8,000,000
Problem 14 – 37 B
Percentage tax [P1,000,000 x .005) P 5,000
Problem 14 – 38 D
P - 0 -. The sale is subject to capital gains tax because the shares of stock were sold directly to
the buyer.
SUGGESTED ANSWERS
Problem 14 – 39 B
Interest income with maturity more than 5 years (P400,000 x 1%) P 4,000
Leasehold income (P300,000 x 7%) 21,000
Total gross receipt tax P25,000
Note: The net trading loss is deductible only from trading gain of the same taxable year.
Problem 14 – 40 D
Interest income with maturity less than 5 years (P600,000 x 5%) P 30,000
Royalty income (P300,000 x 7%) 21,000
Gain from sale of derivatives (P200,000 x 7%) 14,000
Total gross receipt tax P 65,000
Note: The net trading loss for 200A is not deductible from trading gain of 200B.
Problem 14 – 41 D
1. Total gross receipts during the year (P360,000 x 3%) P10,800
2. Total gross receipts P360,000

Less: OSD (P360,000 x 40%) 144,000
Tax on P140,000 P22,500

Tax on excess (P26,000 x 25%) 6,500
Problem 14 – 42
Gross receipts (P480,000 + P190,000 + P100,000 + P1,950,000 + P2,480,000) P5,200,000
Multiplied by applicable business tax rate - VAT 12%
Add: OPT on overseas calls (P100,000 x 10%) 10,000
Problem 14 – 43
Actual gross receipts (higher) – City taxi (P195,000) from April to June P195,000
Multiplied by percentage tax rate 3%
Percentage tax payable – 2nd quarter (answer) P 5,850
Problem 14 – 44
Tax units Actual Minimum Higher
1 15,000 10,800 15,000
2 9,000 10,800 10,800
3 12,000 10,800 12,000
4 8,000 10,800 10,800
5 20,000 10,800 20,000
Total amount = higher amount 68,800
Multiplied by percentage tax 3%
Percentage tax 2,058
Note: The higher of the aggregate/total amount of the actual gross receipts or minimum amount
is subject to other percentage tax.
SUGGESTED ANSWERS
Problem 14 – 45
Subject to VAT:
Transport of goods (P2.5M x 12%) P 300,000
Transport of passengers (P5M x 12%) 600,000
Transport of cargoes (P3M x 12%) 360,000
Transport of animals (P1.5M x 12%) 180,000
Notes:
1. Common carriers by air and water relative to the transport of passengers within the
Philippines is subject to 12% VAT. Transport of passengers by land however is subject to 3%
percentage tax.
2. International air carriers and international shipping carriers with foreign registry doing
business in the Philippines shall pay a tax of three percent (3%) of their quarterly gross
receipts.
Problem 14 – 46
Gross receipts (P100,000 + P50,000 + P150,000 + P200,000) P 500,000
Business tax for the quarter P 90,000
Problem 14 – 47
Multiplied by applicable franchise tax rate – VAT 12%
Franchise tax P 6,000,000
Problem 14 – 48
Actual gross receipts from business operations
First quarter (P3,000,000 + P4,000,000) P7,000,000
Franchise tax due – first quarter P 840,000
Note: During the taxable year, its business gross receipts must exceed P10,000,000; hence,
subject to VAT.
Problem 14 – 49
Gross receipts – overseas calls (P500,000 x 10%) P 50,000
Gross receipts – local calls (P500,000 x 12%) 60,000
Total percentage taxes P110,000
Problem 14 – 50
Total gross receipts (P600,000 + P400,000) P1,000,000
Multiplied by percentage tax for professional basketball organization 15%
Percentage tax P 150,000
Problem 14 – 51
Total gross receipts (P800,000 + P300,000 + P500,000 + P50,000) P1,650,000
Multiplied by applicable business tax rate for cockpits 18%
Problem 14 – 52
Income tax on cockfighting winnings (P500,000 x 20%) P 100,000
Percentage tax on horseracing winnings (P800,000 x 10%) 80,000
Income tax on horseracing winnings (P800,000 x 20%) 160,000
Total tax on winnings P 340,000
SUGGESTED ANSWERS
Problem 14 – 53
Sales proceeds (P15 x 500,000) P7,500,000
Multiplied by applicable IPO rate 2%
The percentage tax rate is 2% because the initial public offering is 33%, computed as follows:
Number of shares sold through IPO 500,000

Divided by outstanding shares (1,000,000 + 500,000) 1,500,000
Percent of IPO 33%
Problem 14 – 54
1. Sales proceeds (P50 x 2,000 shares) P100,000
Multiply by percentage tax rate 0.5%
Percentage tax P 500
2. Sales proceeds (4,000* shares x P55 per share) P220,000

Shares Unit Cost Amount
Original holding 5,000 P50.00 P250,000
Add: Stock dividend (5,000 x 20%) 1,000 .
Total shares available 6,000 P41.67 P250,000
Less: First sale 2,000 83,320
*Remaining shares for this sale 4,000 P41.67 P166,680
Problem 14 – 55
1. Percentage tax (P0.50 x 1,000,000) x 0.005 P 2,500
2. August 20, 200A = last day of remittance without penalty.
Problem 14 – 56
Gross receipts tax on:
Rent income (P30,000 x 7%) P 2,100
Interest income (P50,000 + P20,000 + P10,000) x 5% 4,000
Problem 14 – 57
1. Amount Applicable
Year Remaining maturity of interest, etc. tax rate Gross receipt tax
2013 9 P 200,000 1% P 2,000
2014 8 200,000 1% 2,000
2015 7 200,000 1% 2,000
2016 6 200,000 1% 2,000
2017 5 200,000 5% 10,000
Total gross receipt tax paid P18,000
2013 4 P 200,000 5% P10,000
SUGGESTED ANSWERS
2014 3 200,000 5% 10,000
2015 2 200,000 5% 10,000
2016 1 200,000 5% 10,000
2017 Less than 1 year 200,000 5% 10,000
Total gross receipt tax as recomputed P50,000
Less: Gross receipt tax previously paid 18,000
Gross receipt tax still due P32,000
Problem 14 – 58
Franchise Non-franchise
Beginning receivables P 400,000 P - 0 -
Add: Revenues 3,000,000 1,800,000
Total P3,400,000 P1,800,000
Less: Ending receivables 100,000 120,000
Gross receipts P3,300,000 P1,680,000
1. Local telephone services 12% 12%

P396,000 P201,600
2. Water franchise 2% 3%
P 66,000 P 50,400
3. Fast food (P3,000,000 x 12%) P360,000

(P1,800,000 x 12%) P216,000
Note: The business tax on fast food is based on the revenue because the business is a
combination of sales of goods and service. Moreover, the fast food business is subject to12% VAT
because the total revenue exceeded the P1,919,500 threshold amount.
Problem 14 – 59
Collections: Current Previous
Revenues P 500,000 P300,000
Accounts receivable 300,000 100,000
Advances 200,000 .
Gross receipts P1,000,000 P400,000
Computation of percentage taxes:

1. Common carrier of passengers (assume land transport) 3% 3%
P 30,000 P 12,000
2. Race track 30% 30%
P300,000 P120,000
3. Boxing exhibition 10% 10%
P100,000 P 40,000
4. Water utilities 2% 2%
P 20,000 P 8,000
5. Life insurance 5% 5%
P 50,000 P 20,000
6. Agents of foreign insurance companies 10% 10%
P100,000 P 40,000
7. Overseas dispatch 10% 10%
P100,000 P 40,000
SUGGESTED ANSWERS
Extra problems
Write True if the statement is correct, or False if it is incorrect.
1. Buyers from non-VAT business are required to withhold the percentage tax on their
purchases from such business.
2. Generally, the withholding tax on the payments by the government to persons who are
exempt from payment of VAT and who are not a VAT-registered person is 3%.
3. The sale to the government is not subject to withholding tax if the seller is a non-VAT
person.
4. The percentage tax on sale of shares of stocks outside stock exchange is ½ of 1%.
5. The tax on winning is required to be remitted to BIR within 20 days from the date
withhold.
6. Boxing exhibitions for World and Oriental Championships are exempted from amusement
tax if one of the contenders is a Filipino and a Filipino Citizen promotes such exhibitions.
7. Net trading gains obtained by banks and non-bank financial intermediaries are subject to
5% percentage tax.
8. The gross receipt tax of financial institutions is to be paid to the BIR within 10 days
following the end of the taxable month.
9. The pre-terminated loan agreement within 5 years shall be subject to a gross receipts tax
of 1%.
10. The payment of ½% of 1% tax on sale of securities will exempt the gain from such
transaction from capital gain tax.
Answer to Extra problems

1. False – the percentage tax forms part of seller’s expense
2. True
3. False – subject to 3% OPT withholding and CWT withholding.
4. False – The ½ of 1% is applicable for sale of shares of stock in the stock exchange.
5. True
6. True
7. False – 7% percentage tax
8. False – within 20 days
9. False – 5%.
10. True
SUGGESTED ANSWERS
CHAPTER 15
PERCENTAGE TAXES
Problem 15–1
1. D 11. A
2. A 12. C
3. C 13. D
4. A 14. D
5. C 15. E
6. A 16. C
7. D 17. E
8. D 18. D
9. A 19. C
10. A 20. C
Problem 15–2
1. True
2. True
3. False – deduct as cost of sales from sales.
4. True
5. False – exempt from VAT and OPT.
6. True
7. False – 3% of gross sales or gross receipts.
8. False – business tax.
9. False – advalorem tax.
10. False – if the business is VAT-registered or engaged in business tax-exempt transactions, it
shall not be subject to 3% OPT. Also not all OPT rate is 3%.
11. False – Non-VAT business is not allowed to have Input VAT.
12. True
13. False – expressly exempted from business tax by law. (R.A. 8424)
14. False – the 3% is applicable only to transport by land. Transport by water and air is subject
to 12% VAT.
15. False – OPT-exempt.
Problem 15–3
1. False – 2% percentage tax.
2. True
3. True
4. False – Premium collections outside the Philippines from nonresident person is exempt.
5. True
6. False – only gross receipts within.
7. False – Option to register not required under OPT. The business can also register as VAT.
8. True
9. False – minimum quarterly receipts or actual quarterly gross receipts, whichever is higher.
10. True
11. False – Subject to VAT for being registered as VAT
12. False – CNN is exempt from OPT because the communication is for news services.
13. True
Problem 15–4
1. False – subject to 3% OPT withholding. The 1% is a creditable withholding income tax, not a
percentage tax withholding.
SUGGESTED ANSWERS
2. True
3. False – subject to 12% VAT.
4. True
5. False – overseas calls are subject to 10% OPT.
6. True
7. True
8. False – amusement taxes ranging from 10% to 30%
9. True
10. False – Horse race’s cost of winning ticket is deductible.
11. False – not deductible.
12. False – only interest is subject to GRT, not the collections.
13. False – national tax
14. True
Problem 15–5
1. False – Overseas calls may be personal or for business but both are subject to OPT.
2. True
3. True
4. False – deductible only in the year when the loss was incurred.
5. False – 1% is applicable to leasing period beyond 5 years.
6. False – 2%.
7. False – exempt from business tax.
8. False – national tax.
9. True
10. False – 1% OPT rate.
11. True
12. False – buys and sells securities
Problem 15–6 Problem 15–7 Problem 15–8

1. A&C 1. B 1. A
2. B 2. D 2. D
3. A 3. A 3. A
4. B 4. D 4. A
5. D 5. C 5. C
6. B 6. C 6. A
7. C 7. C 7. D
8. C 8. B 8. B
9. D 9. A 9. A
10. A 10. D 10. B
11. C
Problem 15 – 9
1. Letter B P200,000
Sales of computers P200,000
Gross receipts – computer repairs 100,000
Sales returns and allowances (20,000)
Taxable amount P280,000
Output VAT P 33,600
Business tax payable P 20,000
2. Letter D
Taxable amount P280,000

SUGGESTED ANSWERS
Business tax payable P 8,400
Problem 15 – 10 A
Withholding taxes;
OPT (P2,100,000 x 3%) P 63,000
CWIT (P2,100,000 x 2%) 42,000
Total amount of withholding taxes P105,000
Problem 15 – 11 B
Business tax (P1,500,000 x 3%) P45,000
Problem 15 – 12 C
Beginning inventory P 100,000
Add: Purchases 896,000
Total P 996,000
Less: Ending inventory (P100,000 + P196,000) 296,000
Cost of sales P 700,000
Add: Gross profit (P700,000 x 100%) 700,000
Sales P1,400,000
Problem 15 – 13 D
Other percentage tax (P403,200/112%) x 3% P10,800
VAT (P403,200/9.333) 43,200
Surcharge (P43,200 x 50%) 21,600
Problem 15 – 14 C
Other percentage tax (P800,000 x 3%) P24,000
Problem 15 – 15 A
Sales (P1,330,000/70%) P1,900,000
Problem 15 – 16 B
Net taxable income (P180,000/30%) P 600,000
Add: OSD (P600,000/60%) x 40% 400,000
Add: Cost of sales 800,000
Gross sales P1,800,000
OPT P 54,000
Problem 15 – 17
1. Letter C
Sales (P35,000/25%) x 12 P1,680,000
2. Letter D
Sales (P35,000/20%*) x 12 P2,100,000

SUGGESTED ANSWERS
*Computation of 20%:
Sales 125%
Cost 100%
Gross profit 25% (25%/125%) = 20%
Problem 15 – 18 A
Cooperatives are exempt from income and business tax on their sales. Furthermore all of the
sales reported are VAT and OPT exempt products.
Problem 15 – 19
1. Letter D
Percentage tax P - 0 -
There is no percentage tax because nonprocessed agricultural
food products are business tax exempt.
2. Letter B
Total sales (P5M + P20M) P25,000,000
Less: Cost of sales (P3M + P12M) 15,000,000
Less: OSD (P10,000,000 x 40%) 4,000,000
Income tax due and payable (OSD provides lesser income tax) P 1,800,000
Problem 15 – 20 C
OPT withheld (P90,000 x 3%) P 2,700
Proof:
Sales (P86,400/96%) 100% P90,000
Less: OPT withholding (P90,000 x 3%) (3%) P2,700
Creditable withholding tax (P90,000 x 1%) (1%) 900 3,600
Net sales proceeds P86,400
Problem 15 – 21 B
Service fee P30,000
Less: OPT (P30,000 x 3%) P900
Creditable withholding tax (P30,000 x 2%) 600 1,500
Net check payment P28,500
Problem 15 – 22 D
Income tax due of P250,000 (Sec. 24A,NIRC) P 50,000
Note: Owners of bancas and owners of animal-drawn two-wheeled vehicles are business tax-
exempt; but subject to income taxes.
Problem 15 – 23 B
Percentage taxes:
Taxi (P1,500,000 x 3%) P45,000
Bus (15 x P7,200 x 3%) 3,240
VAT (P50,000 x 12%) 6,000

SUGGESTED ANSWERS
Common carrier tax due P54,240
Note: The gross receipts from the transport of cargoes by domestic carriers by land shall still subject to 12%
VAT. (R.A. 9337)
Problem 15 – 24 D
Total gross receipts (P1,000,000 + P6,000,000) P7,000,000
Note: Common carrier by sea is subject to VAT of 12%.
Problem 15 – 25 A
VAT (P6,000,000 + P1,000,000) x 12% 840,000
Average business tax in a year P1,140,000
Divided by number of quarter in a year 4
Estimated average business tax per quarter P 285,000
Problem 15 – 26 A
Output VAT (P1,400,000 + P600,000) x 12% P240,000
Less: Creditable input VAT (P560,000/9.333) 60,000
Problem 15 – 27 D
Percentage tax (P10,000,000 20% x 3%) P 60,000
Problem 15 – 28
1. Letter D
Business tax P - 0 -
If Philippine registry, zero-rated on their transport of passengers and
cargo from the Philippine port to a foreign port (vice versa).
2. Letter C
Manila to USA (P1,000,000 x 3%) P30,000
Manila to China (P1,400,000 x 3%) 42,000
Philippine business tax P72,000
Problem 15 – 29 C
Problem 15 – 30 B
Percentage tax – radio franchise (P10,000,000 x 3%) 300,000
Problem 15 – 31 C
Local telephone calls (P6,000,000 x 12%) P 720,000
Overseas conversation (P3,000,000 x 10%) 300,000
Forfeited telephone instruments deposit (P500,000 x 12%) 60,000
Total business taxes P1,080,000
Problem 15 – 32 B
OPT – Overseas call (P5,000 x 10%) P500
VAT - Local calls (P2,000 x 12%) 240
Total percentage tax or business tax P740

SUGGESTED ANSWERS
Problem 15 – 33 A
Exempt
Problem 15 – 34 D
Service charge (P75,000/10%) P 750,000
Add: Percentage tax (P750,000 x 10%) 75,000
Total collection P 825,000
Problem 15 – 35 D
P - 0 -. Premium on life insurance from a nonresident alien is not covered of business tax in the
Philippines.
Problem 15 – 36 A
Life insurance (P10,000,000 x 80% x 2%) P160,000
Non-life insurance (P5,000,000 x 12%) 60,000
Total P220,000
Less: Life insurance refund within 6 months
(P2,000,000 x 30%) x 2% 12,000
Total percentage tax P208,000
Problem 15 – 37 B
Premiums collected – life insurance (P20M x 2%) P 400,000
Premiums collected – non-life insurance (P15M x 12%) 1,800,000
Investment income (P10M x 60% x 7%) 420,000
Rent income (P5M x 12%) 600,000
Management fees (P3M x 12%) 360,000
Total business tax due P3,580,000
Problem 15 – 38
1. Letter B
Output VAT (P100,000 x 12%) P12,000
2. Letter C
OPT (P100,000 x 4%) P4,000
3. Letter D
OPT (P100,000 x 2%) P2,000
Problem 15 – 39 A
Amusement tax (P3,500,000 x 18%) P630,000
Problem 15 – 40 D
Amusement tax (P500,000 + P200,000 + P100,000) x 18% P 144,000
Problem 15 – 41
1. Letter A
Percentage tax (P2,000,000 + P1,000,000) x 10% P300,000
2. Letter D
Exempt
Problem 15 – 42 B
Percentage tax [P1,000,000 - (P200,000/100)] x 10% P 99,800

SUGGESTED ANSWERS
Problem 15 – 43 A
Percentage tax (P100,000 – P1,000) x 10% P 9,900
Problem 15 – 44 A
Percentage tax [400,000 x P12) x 1% P 48,000
IPO tax rate (400,000/1,150,000) = 34.5% more than 33 1/3% = 1% percentage tax.
Problem 15 – 45 D
Percentage tax [P600,000 x 4%) P 24,000
IPO tax rate (600,000/20)/ (2,600,000/20) = 23% = 4% percentage tax.
Problem 15 – 46 A
Number of shares sold during the IPO (400,000 x 50%) 200,000
Total outstanding shares (500,000 x 120%) + 200,000 800,000
Percentage of IPO sales 25%
Percentage tax (P1,000 x 200,000 x 4%) P8,000,000
Problem 15 – 47 B
Percentage tax [P1,000,000 x .005) P 5,000
Problem 15 – 48 D
P - 0 -. The sale is subject to capital gains tax because the shares of stock were sold directly to
the buyer.
Problem 15 – 49 B
Interest income with maturity more than 5 years (P400,000 x 1%) P 4,000
Leasehold income (P300,000 x 7%) 21,000
Total gross receipt tax P25,000
Note: The net trading loss is deductible only from trading gain of the same taxable year.
Problem 15 – 50 D
Interest income with maturity less than 5 years (P600,000 x 5%) P 30,000
Gain from sale of derivatives (P200,000 x 7%) 14,000
Total gross receipt tax P 65,000
Note: The net trading loss for 200A is not deductible from trading gain of 200B.
Problem 15 – 51 D
1. Total gross receipts during the year (P360,000 x 3%) P10,800
2. Total gross receipts P360,000

Less: OSD (P360,000 x 40%) 144,000
Tax on P140,000 P22,500

Tax on excess (P26,000 x 25%) 6,500

SUGGESTED ANSWERS
Problem 15 – 52
Gross receipts (P480,000 + P190,000 + P100,000 + P1,950,000 + P2,480,000) P5,200,000
Multiplied by applicable business tax rate - VAT 12%
Add: OPT on overseas calls (P100,000 x 10%) 10,000
Problem 15 – 53
Actual gross receipts (higher) – City taxi (P195,000) from April to June P195,000
Multiplied by percentage tax rate 3%
Percentage tax payable – 2nd quarter (answer) P 5,850
Problem 15 – 54
Tax units Actual Minimum Higher
1 15,000 10,800 15,000
2 9,000 10,800 10,800
3 12,000 10,800 12,000
4 8,000 10,800 10,800
5 20,000 10,800 20,000
Total amount = higher amount 68,800
Multiplied by percentage tax 3%
Percentage tax 2,058
Note: The higher of the aggregate/total amount of the actual gross receipts or minimum amount
is subject to other percentage tax.
Problem 15 – 55
Subject to VAT:
Transport of goods (P2.5M x 12%) P 300,000
Transport of passengers (P5M x 12%) 600,000
Transport of cargoes (P3M x 12%) 360,000
Transport of animals (P1.5M x 12%) 180,000
Notes:
1. Common carriers by air and water relative to the transport of passengers within the
Philippines is subject to 12% VAT. Transport of passengers by land however is subject to 3%
percentage tax.
2. International air carriers and international shipping carriers with foreign registry doing
business in the Philippines shall pay a tax of three percent (3%) of their quarterly gross
receipts.
Problem 15 – 56
Gross receipts (P100,000 + P50,000 + P150,000 + P200,000) P 500,000
Business tax for the quarter P 90,000
Problem 15 – 57
Multiplied by applicable franchise tax rate – VAT 12%
Franchise tax P 6,000,000
Problem 15 – 58
Actual gross receipts from business operations
First quarter (P3,000,000 + P4,000,000) P7,000,000

SUGGESTED ANSWERS
Franchise tax due – first quarter P 840,000
Note: During the taxable year, its business gross receipts must exceed P10,000,000; hence,
subject to VAT.
Problem 15 – 59
Gross receipts – overseas calls (P500,000 x 10%) P 50,000
Gross receipts – local calls (P500,000 x 12%) 60,000
Total percentage taxes P110,000
Problem 15 – 60
Total gross receipts (P600,000 + P400,000) P1,000,000
Multiplied by percentage tax for professional basketball organization 15%
Problem 15 – 61
Total gross receipts (P800,000 + P300,000 + P500,000 + P50,000) P1,650,000
Multiplied by applicable business tax rate for cockpits 18%
Problem 15 – 62
Income tax on cockfighting winnings (P500,000 x 20%) P 100,000
Percentage tax on horseracing winnings (P800,000 x 10%) 80,000
Income tax on horseracing winnings (P800,000 x 20%) 160,000
Total tax on winnings P 340,000
Problem 15 – 63
Sales proceeds (P15 x 500,000) P7,500,000
Multiplied by applicable IPO rate 2%
The percentage tax rate is 2% because the initial public offering is 33%, computed as follows:
Number of shares sold through IPO 500,000

Divided by outstanding shares (1,000,000 + 500,000) 1,500,000
Percent of IPO 33%
Problem 15 – 64
1. Sales proceeds (P50 x 2,000 shares) P100,000
Percentage tax P 500
2. Sales proceeds (4,000* shares x P55 per share) P220,000

Shares Unit Cost Amount
Original holding 5,000 P50.00 P250,000
Add: Stock dividend (5,000 x 20%) 1,000 .
Total shares available 6,000 P41.67 P250,000
Less: First sale 2,000 83,320
*Remaining shares for this sale 4,000 P41.67 P166,680

SUGGESTED ANSWERS
Problem 15 – 65
1. Percentage tax (P0.50 x 1,000,000) x 0.005 P 2,500
2. August 20, 200A = last day of remittance without penalty.
Problem 15 – 66
Gross receipts tax on:
Rent income (P30,000 x 7%) P 2,100
Interest income (P50,000 + P20,000 + P10,000) x 5% 4,000
Problem 15 – 67
2013 9 P 200,000 1% P 2,000
2014 8 200,000 1% 2,000
2015 7 200,000 1% 2,000
2016 6 200,000 1% 2,000
2017 5 200,000 5% 10,000
Total gross receipt tax paid P18,000
2013 4 P 200,000 5% P10,000
2014 3 200,000 5% 10,000
2015 2 200,000 5% 10,000
2016 1 200,000 5% 10,000
2017 Less than 1 year 200,000 5% 10,000
Total gross receipt tax as recomputed P50,000
Less: Gross receipt tax previously paid 18,000
Gross receipt tax still due P32,000
Problem 15 – 68
Franchise Non-franchise
Beginning receivables P 400,000 P - 0 -
Add: Revenues 3,000,000 1,800,000
Total P3,400,000 P1,800,000
Less: Ending receivables 100,000 120,000
Gross receipts P3,300,000 P1,680,000
1. Local telephone services 12% 12%

P396,000 P201,600
2. Water franchise 2% 3%
P 66,000 P 50,400
3. Fast food (P3,400,000 x 12%) P408,000

(P1,800,000 x 12%) P216,000
Note: The business tax on fast food is based on the revenue because the business is a
combination of sales of goods and service. Moreover, the fast food business is subject to12% VAT
because the total revenue exceeded the P1,919,500 threshold amount.

SUGGESTED ANSWERS
Problem 15 – 69
Collections from: Current Previous
Current business transactions P 500,000 P300,000
Accounts receivable 300,000 100,000
Advances 200,000 .
Gross receipts P1,000,000 P400,000
Computation of percentage taxes:

1. Common carrier of passengers (assume land transport) 3% 3%
P 30,000 P 12,000
2. Race track 30% 30%
P300,000 P120,000
3. Boxing exhibition 10% 10%
P100,000 P 40,000
4. Water utilities 2% 2%
P 20,000 P 8,000
5. Life insurance 2% 2%
P 20,000 P 8,000
6. Agents of foreign insurance companies 4% 4%
P 40,000 P 16,000
7. Overseas dispatch 10% 10%
P100,000 P 40,000
Extra problems
Write True if the statement is correct, or False if it is incorrect.
1. Buyers from non-VAT business are required to withhold the percentage tax on their
purchases from such business.
2. Generally, the withholding tax on the payments by the government to persons who are
exempt from payment of VAT and who are not a VAT-registered person is 3%.
3. The sale to the government is not subject to withholding tax if the seller is a non-VAT
person.
4. The percentage tax on sale of shares of stocks outside stock exchange is ½ of 1%.
5. The tax on winning is required to be remitted to BIR within 20 days from the date
withhold.
6. Boxing exhibitions for World and Oriental Championships are exempted from amusement
tax if one of the contenders is a Filipino and a Filipino Citizen promotes such exhibitions.
7. Net trading gains obtained by banks and non-bank financial intermediaries are subject to
5% percentage tax.
8. The gross receipt tax of financial institutions is to be paid to the BIR within 10 days
following the end of the taxable month.
9. The pre-terminated loan agreement within 5 years shall be subject to a gross receipts tax
of 1%.

SUGGESTED ANSWERS
10. The payment of ½% of 1% tax on sale of securities will exempt the gain from such
transaction from capital gain tax.
Answer to Extra problems

1. False – the percentage tax forms part of seller’s expense
2. True
3. False – subject to 3% OPT withholding and CWT withholding.
4. False – The ½ of 1% is applicable for sale of shares of stock in the stock exchange.
5. True
6. True
7. False – 7% percentage tax
8. False – within 20 days
9. False – 5%.
10. True

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Chapter 16: DOCUMENTARY STAMP TAXES
CHAPTER 16
DOCUMENTARY STAMP TAXES
Problem 16 – 1
1. True
2. True
3. False – the transaction.
4. False – to be taxed against the party who is not exempt.
5. True
6. False – 10 days from the close of the month
7. True
8. True
9. True
10. True
Problem 16 – 2 B
Documentary stamp tax to be paid (P1,000/P200) x P10 x P2 P 100
Problem 16 – 3 A
Documentary stamp tax to be paid ($5,000 x P40/P200) x P0.30 P 300
Problem 16 – 4 B
DST on first P5,000 P 20
DST on excess of the first P5,000 = (P395,000/P5,000) x P10 790
Total documentary stamp tax P810
Problem 16 – 5 C
Documentary stamp tax (P800,000/P1,000) x P15 P12,000
Problem 16 – 6 D
DST on first P2,000 P 3
DST on excess of the first P2,000 = (P142,000/P1,000) x P1 142
Total P145
Multiply by 2
Total documentary stamp tax P290
Problem 16 – 7
Face value of the bonds P50,000
Divide by 200
250
Multiply by documentary stamp tax P 1.50
Documentary stamp tax P 375
Problem 16 – 8
Par value of the stock (P100 x 1,000 shares) P100,000
Divide by 200
500
Documentary stamp tax P 1,000
Problem 16 – 9
Par value (P100 x 100 shares) P10,000
Divide by value 200
50
Problem 16 – 10
Face value of document P100,000
Divide by 200
500
Multiply by documentary stamp tax rate P 0.30
Problem 16 – 11
Face value of document (P50 x $5,000) P250,000
Divide by 200
1,250
Problem 16 – 12
Insurance policy P1,000,000
Divide by 200
5,000
Problem 16 – 13
Annual insurance premium P 5,000
Divide by 4
1,250
Problem 16 – 14
The documentary stamp tax on the affidavit of loss is P15.00.
Problem 16 – 15
The documentary stamp tax would be P10.00.
Problem 16 – 16
Sales price P1,000,000
Less: Unpaid mortgage balance 200,000
Balance P 800,000
Less: Amount not subject to DST 1,000
Balance P 799,000
Divide by P 1,000
799
Multiply by P 15
Add: DST for the first P1,000 15
Total documentary stamp tax P 12,000
Problem 16 – 17
Documentary stamp (P1,000,000/ P1,000) x 15 P15,000
Surcharge (P15,000 x 25%) 3,750
Interest (from June 25 to July 25) (P15,000 x 20%) 250
Total payable P19,000
Problem 16 – 18
a. P – 0 –
b. P – 0 –
See page 503 of the textbook. Deeds of property donated to the government are exempt from
documentary stamp tax.
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Chapter 15: LOCAL TAXES
CHAPTER 17
LOCAL TAXES
Problem 17–1
1. True
2. True
3. False – Subject to final approval of the executive.
4. False – cities
5. True
6. True
7. False – Only if employed, doing business or owner of real properties
8. True
9. False – Additional should be based on gross receipts.
10. False – P10,000.
Problem 17–2
1. True
2. True
3. True
4. True
5. True
6. True
7. True
8. False – Assessed value.
9. True
10. True
Problem 17–3
1. A 5. D
2. D 6. D
3. D 7. D
4. A 8. D
Problem 17–4
Case 1:
The administrative order is not enforceable because such is not covered by any city tax
ordinance.
Case 2:
The tax ordinance is still unenforceable because of the lack of required public hearing.
Case 3:
No, because the issue does not involve the tax liability of the taxpayer, but the authority of
the enforcing government unit. The ambiguity of power to tax is to be resolved liberally in
favor of the taxing authority.
Case 4:
No, because with regards to exemption, the burden of proof must be on the part of the
taxpayer.
Case 5:
No. Although appropriately exercised by the Sanggunian (legislative branch), it will still need
the approval of the mayor or provincial governor (executive branch)
Problem 17–5
Case 1:
Taxable base, (higher value) P 600,000
Multiply by tax rate 0.5%
Tax on transfer - amount payable by Mon Ting P 3,000
Case 2:
There is no transfer or ownership tax because the land is intended as a site for personal
residence. Real property for the purpose of this tax refers only to land, building and
machineries intended by the owner for an industry or which tend directly to meet the needs of
the said industry or work. (Sec. 135, LGC)
Problem 17–6
Taxable base P 200,000
Multiply by tax rate 0.5%
Printing and Publication tax P 1,000
Problem 17–7
1. Total collections P4,000,000
Less: Receipts from the government (P1,000,000 x 50%) 500,000
Balance P3,500,000
Multiplied by 0.005
Local tax payable P 17,500
2. Basic P 5
Additional community tax:
Gross receipts (P4,000,000/P1,000) x P1 4,000
Total community tax P4,005
Problem 17–8
1. Total market value P6,000,000

Multiplied by provincial tax rate 10%
Provincial tax P 600,000
2. Basic P 500
Additional community tax:
Gross receipts (P9,000,000/P5,000) x P2 P3,600
Market value of real property (assumed as the assessed value)
(P20,000,000/P5,000) x P2 8,000 10,000
Total community tax P10,500
Problem 17–9
1. P50 annually.
2. Basic P 5.00
Additional [ (P150 x 365) /1,000] x P1.00 54.75
Total community tax P59.75
Problem 17–10
Local tax per unit P 500
Multiply by number of vans maintained 5
Total local tax for the delivery van P 2,500
Problem 17–11
Case 1:
1. Taxable base P1,500,000
Multiplied by tax rate bracket 0.25%
Municipal business tax P 3,750
2. Taxable base P 600,000

Multiplied by tax rate bracket 0.5%
Municipal business tax P 3,000
Case 2:
None, because his business tax is payable to the barangay in as much as his sales is lesser
than P30,000. In that case, the barangay has the exclusive power to levy the local business
tax. (Sec. 152, LGC)
Problem 17–12
Case 1:
No, because the imposition is not in excess of what is provided in the Code. What is allowed
in the province is ½ of 1% of the total consideration for the transfer of Real Property.
The maximum that is allowed for the city is an increase of not more than 50% of what is
allowed for the province or municipalities, thus the maximum could be tabulated as:
Provincial rate 0.50%

Maximum percent increase 50%
Effective % increase 0.25%
Add: the basic rate for the province 0.50%
Maximum rate that a city could impose* 0.75%
*0.75% is the same as ¾ of 1%.
Case 2:
No, because the imposition is not in excess of what is provided in the Code. The allowed
minimum tax per year in municipalities is P165 of which a maximum of 50% increase is
allowed to compute the tax for the cities. Thus, the computation would be:
Minimum tax in municipalities per year P165.00

Add: Maximum increase allowed (P165 x 50%) 82.50
Maximum allowed for the cities P247.50
Case 3:
Yes. The city is only allowed of 30% maximum of what is allowed to the province. Amusement
and professional taxes are not included in the allowed 50% increase a city could make above
the province and the municipality could legally impose.
Case 4:
The retailer should be paying only his business tax to barangay, computed as follows:

Multiply by rate of tax 2%
Business tax to the barangay P 800
The retailer is no longer required to pay to the city because its gross receipts is not exceeding
P50,000 per year.
Problem 17–13
Case 1:
The community tax of AWAN Corporation should be paid on or before February 28, 2005. The
amount of community tax to be paid is P500.
Case 2:
Basic P 5.00
Additional community tax (P200,000/1,000) x P1 200.00
Total P205.00
Add: Surcharge P205 x 25%) 51.25
Interest (P205 x 2% x 2 mos.) 8.20
Total community tax P264.45
Problem 17–14
Case 1:
Yes. Engr. Kitik is required to pay a professional tax because any professional, signing a
document in the exercise of his profession is required to indicate the PTR (professional tax
receipt) number on the document he is signing or certifying.
Case 2:
Mr. Max Cuenta need not obtain a PTR in Makati because a person who has paid the
corresponding professional tax shall be entitled to practice his profession in any part of the
Philippines.
Case 3:
Mr. Ado will have to pay P150 for his profession as CPA and another P150 for his profession
as a Lawyer.
Problem 17–15
Assume that the fair value is equal to assessed value.
Basic (P600,000 x 1%) P 6,000
Additional tax on idle lands (P600,000 x 5%) 30,000
Total amount P36,000
Problem 17–16
X’s total fees and taxes in order to obtain a business permit would be P2,000, computed as
follows:
Mayor’s permit P 500

Local business tax (P150,000 x 1%) 1,500
Total fees and taxes P2,000

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BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 1

Problem 1-3 Problem 1-4 Problem 1-5

Subject to income tax:

Subject to transfer tax (P3,000,000 + P2,000,000) P 5,000,000

Subject to transfer tax (P3,000,000 + P2,000,000) P5,000,000

1. Taxpayer is a resident citizen

2. Taxpayer is a resident alien

3. Taxpayer is nonresident alien

1. P720,000 = (P600,000 x 1.2)

2. P180,000 = (P720,000 – P600,000) + (P660,000 – P600,000)

2. Dates of filing and payments:

b. Capital gains tax P3,000,000

c. Regular income tax (professional income – within) P500,000

d. Transfer tax (P500,000 + P400,000) P900,000

e. Documentary stamp tax P3,000,000

2. Sale of land (capital asset) - within

Problem 2-3 Problem 2-4 Problem 2-5

Gifts in favor of an educational and/or charitable, religious, cultural or social welfare

Problem 2-16 NOT IN THE CHOICES

Share of the surviving spouse P375,000

2. Donor’s tax P 500,000

4. Estate tax (P1,500,000 + P300,000) P1,800,000

Remaining balance (divide based on the intention of the will)

Estate Distribution – death of Sabel

Net estate before standard deduction P28,750,000

2. Computation of the shares of the heirs

2. Distribution of net distributable estate:

Problem 3-3 Problem 3-4

1. The reportable gross estate is P3,000,000 or (P2,500,000 + P500,000)

2. Absolute community of property = C

Case 8 – Include. The transfer is an inheritance to be received at the time of death as

Case 10 – Include. The transfer is a general power of appointment.

2. Family home P2,000,000

2. Nonresident alien without reciprocity

3. Nonresident alien with reciprocity

Problem 4–5 Problem 4–6 Problem 4–7 Problem 4–8

3. P - 0 -. No vanishing deduction is allowed when the property subjected to previous transfer

5. P - 0 -. Special deductions are not allowed to nonresident alien.

7. P1,840,000. The special deduction within is computed as follows:

ALL RIGHTS RESERVED BY VALENCIA EDUCATIONAL SUPPLY.

Problem 4–14 NOT IN THE CHOICES

Claims against the estate P - 0 -

ALL RIGHTS RESERVED BY VALENCIA EDUCATIONAL SUPPLY.

Percent of collectible is computed as follows:

ALL RIGHTS RESERVED BY VALENCIA EDUCATIONAL SUPPLY.

ALL RIGHTS RESERVED BY VALENCIA EDUCATIONAL SUPPLY.

ALL RIGHTS RESERVED BY VALENCIA EDUCATIONAL SUPPLY.

Total deductions P1,012,500 P3,687,500

Problem 4–50 NOT IN THE CHOICES

2. Actual deductions (P200,000 + 500,000) P700,000

3. Deductible allowance – standard deduction P1,000,000

4. Net taxable estate (P3,000,000 – P700,000 – P1,000,000) P1,300,000

ALL RIGHTS RESERVED BY VALENCIA EDUCATIONAL SUPPLY.

Problem 5-3 Problem 5-4 Problem 5-5

3. Letter B Exclusive Conjugal

Tax credit allowed (P800,000/P2,500,000) x P55,000 = P17,600 vs. P20,000 P17,600

Cash, initial value allowed to take P500,000

Tax on P500,000 P15,000

Gross estate P2,180,000

Gross estate P1,900,000

Tax on P5,000,000 P465,000

Conjugal estate P1,000,000

Note: The medical expense is assumed to have been paid.