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

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 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

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

Chapter 2: TRANSFER TAXES AND


BASIC SUCCESSION

Problem 2-3
1.
A
2.
B
3.
B
4.
C
5.
D
6.
C
7.
D
8.
A
9.
C
10. B
11. A
12. B
13. D
14. C
Problem 2-6

Problem 2-4
1.
A
2.
D
3.
C
4.
D
5.
C
6.
C
7.
D
8.
B
9.
C
10. B
11. A
12. D
13. B
14. A

Problem 2-5
1.
D
2.
C
3.
B
4.
D
5.
D
6.
C
7.
A
8.
B
9.
A
10. A
11. B & D
12. A
13. D

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
Car first prize
Amount of mortgage assumed
Salary
Amount of onerous transfer
2. Letter B
Business, net of liabilities (P2,000,000 P500,000)
House and lot as donation, net of mortgage (P2,000,000 P1,500,000)
Farm as inheritance
Amount of gratuitous transfer
Problem 2-8
1. Letter A
Car (P800,000 P300,000)
2.

Letter D
House and lot mortis causa

500,000
1,000,000
1,500,000
300,000
P3,300,000
P1,500,000
500,000
500,000
P2,500,000

P 500,000
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)

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

Chapter 2: TRANSFER TAXES AND


BASIC SUCCESSION

Problem 2-9
A
Property left by the decedent
Less: Charges against the estate
Hereditary estate
Problem 2-10
D
Distributable estate
Less: Share of 3 children (P12,000,000 x 50%)
Share of surviving spouse (P6,000,000/3)
Free portion
Less: Share of illegitimate child per Will
Free portion for the church

P 5,000,000
1,000,000
P 4,000,000
P12,000,000
P6,000,000
2,000,000

8,000,000
P4,000,000
3,000,000
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
Legitime of children (P5,000,000 x )
Portion for the surviving spouse (P5,000,000 x )
Free portion may be distributed to strangers

P5,000,000
( 2,500,000)
( 1,250,000)
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)
Add: Share inheritance repudiated by Cuto (P4,000,000/2)
Share of Surot

P4,000,000
2,000,000
P6,000,000

Problem 2-15 A
Hereditary estate
Legitime of children (P3,000,000 x )
Portion for the spouse (P1,500,000/4)
Free portion
Multiplied by
Legacy to the sister-in-law
Problem 2-16 NOT IN THE CHOICES
Hereditary estate
Less: Share of parents (P3,000,000 x1/2)
Share of illegitimate child (P3,000,000 x 1/4)
Share of surviving spouse (P3,000,000 x 1/8)
Free portion
Share of the surviving spouse
Add: Share from free portion (P375,000/3)
Total share of the surviving spouse

P3,000,000
( 1,500,000)
( 375,000)
P1,125,000
20%
P 225,000
P3,000,000
P1,500,000
750,000
375,000

2,625,000
P 375,000
P375,000
125,000
P500,000

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

Chapter 2: TRANSFER TAXES AND


BASIC SUCCESSION

Problem 2-17 D
Share of Anac (P12,000,000/3)
Divided by number of children of Anac
Share of Cute

P4,000,000
2
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)
Legitime of legitimate children (P6,000,000 x )
Portion for the acknowledge natural child (P3,000,000/3) x 50%
Portion for the surviving spouse (P3,000,000/3)
Free portion could be disposed of as legacy to the nanny

P 6,000,000
( 3,000,000)
( 500,000)
( 1,000,000)
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. Donors tax

P 500,000

3. Business tax

P - 0 -

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


Problem 2-22
Cash in bank
House and lot
Investments in securities
Total gross estate
Less: Unpaid mortgage
Existing loan
Funeral expense
Estate tax
Hereditary estate
Problem 2-23
Legitimate child Mario (P1,200,000 x )
Illegitimate child Maria (P600,000 x )
Surviving spouse (P600,000 x )

P1,800,000
P 100,000
5,000,000
400,000
P5,500,000
P 200,000
100,000
100,000
100,000

500,000
P5,000,000
P 600,000
300,000
300,000
P1,200,000

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

Chapter 2: TRANSFER TAXES AND


BASIC SUCCESSION

Problem 2-24
With respect to legitime:
Legitimate child (P4,200,000 P200,000) x 50%
Surviving spouse (P2,000,000 x )

Son
P2,000,000

Wife
P1,000,000

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


Legitimate child (P1,000,000 x )
Surviving spouse (P1,000,000 x )

500,000
.
P2,500,000

500,000
P1,500,000

Problem 2-25
Gross estate
Less: Deduction
Net estate before share of the surviving spouse
Less: Share of the surviving spouse (P1,000,000 x 50%)
Net estate before estate tax
Less: Estate tax
Net distributable estate

P2,000,000
1,000,000
P1,000,000
500,000
P 500,000
15,000
P 485,000

Estate Distribution death of Sabel


Fraction of share - intestate
Distribution of inheritance

Dorado (child)
1/3
P161,667

Maya (child)
1/3
P161,667

Jess (husband)
1/3
P161,667

Death of Jess
Exclusive share when Sabel died
Add: Share from distributable share
Distributable estate
Fraction of share - testate
Distribution of inheritance

Dorado (child)

P165,417

Maya (child)

P165,417

Free Portion

P333,883

Total
1
P485,000
P 500,000
161,667
P 661,667
Total
1
P 661,667

Problem 2-26
Legitimate child 1

Fraction of share
Amount of inheritance

1
P2,857,143

Legitimate child 2

Surviving spouse

Illegitimate child

1
P2,857,143

1
P2,857,143

P1,428,571

Total

3.5
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)
Less: Ordinary deductions
Net estate before share of surviving spouse
Less: Share of surviving spouse (P57,500,000 x 50%)
Net estate before standard deduction
Less: Standard deduction
Net taxable estate
Multiplied by assumed estate tax rate
Estate tax
Net estate before standard deduction
Less: Estate tax
Net distributable estate

P60,000,000
2,500,000
P57,500,000
28,750,000
P28,750,000
1,000,000
P27,750,000
15%
P 4,162,500
P28,750,000
4,162,500
P24,587,500

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

10

Chapter 2: TRANSFER TAXES AND


BASIC SUCCESSION

2.

Computation of the shares of the heirs


Share of legitimate son (P24,587,500 x )
Share of surviving spouse (P24,587,500 x )

P12,293,750
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.

2.

Computation of net distributable estate:


Gross estate (P4,000,000 + P1,000,000 + P200,000 + P5,000,000 + P3,000,000)
Less: Ordinary deductions:
Funeral expense
P 100,000
Unpaid mortgage
200,000
Allowable deduction - Standard deduction
Net taxable estate
Less: Estate tax (P11,900,000 x 15%)
Net estate after tax
Add: Standard deduction
Net distributable estate
Distribution of net distributable estate:
Testate succession
Intestate succession
Mixed succession

Christopher
(son)
P4,000,000
2,957,500
P6,957,500

Cristeta
(daughter)
P1,000,000
2,957,500
P3,957,500

P13,200,000
P 300,000
1,000,000

Crisistomo
(driver)
P 200,000
.
P 200,000

1,300,000
P11,900,000
1,785,000
P10,115,000
1,000,000
P11,115,000

Total
P 5,200,000
5,915,000
P 11,115,000

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