Beruflich Dokumente
Kultur Dokumente
CHAPTER 4
GROSS INCOME
Problem 4 1 TRUE OR FALSE
1. True
2. True
3. True
4. False cost of living allowance is part of a taxable compensation income.
5. True
6. False Religious officers income is subject to income tax.
7. True
8. True
9. False , income of debtor = amount of debt settled
10. False transportation allowance pre-computed on a daily basis is not subject to tax.
11. False there is no income because the actual expenses is greater than the advances.
12. True
13. False, the rule on MCIT is being described.
14. True
15. True
Problem 4 2 TRUE OR FALSE
1. False tips are taxable because there is no law exempting it from income tax.
2. True
3. False Not income but a liability in compliance with the trading business rule.
4. False Under service business, advances from clients are to be reported as income. Include as income because
the advanced rental is without restriction.
5. True
6. True
7. False because estimated bad debts is not allowed to be deducted from gross business income.
8. True
9. False Not an option to report, but required to report.
10. False the return of premium from insurance company is not taxable.
11. True
12. False income should be realized to be taxable.
13. True
14. False As a rule, income obtained illegally is taxable.
15. False As a rule, income received by error is reportable income.
23
11.
12.
13.
14.
15.
False The rule of P10,000 and below applies to prizes not winnings.
False Only damages resulting from injuries is nontaxable.
True
False this rule applies to winnings. Prizes amounting to P10,000 and below is subject to normal tax.
True
Problem 4 5
1. D
2. C
3. C
4. A
5. D
6. D
7. A
8. B
9. A
10. B
Problem 4 6
1. D
2. B
3. D
4. B
5. A
6. B
7. C
8. A
9. C
10. D
Problem 4 8
A
Net take home pay
Add: Withholding income tax
Total
Less: 13 th month pay
Gross reportable compensation
Problem 4 7
1. D
2. C
3. B
4. C
5. A
6. B
7. D
8. B
9. D
10. C
P180,000
30,000
P210,000
10,000
P200,000
Unused 10-day vacation leave is nontaxable if it is converted into cash (Rev. Regs. No. 10-2008; BIR Ruling No. 93-34).
In the above problem, the 10-day vacation leave was actually availed; hence, taxable.
Problem 4 9
D
Salary (P370,000 + P50,000)
Per diem as a board of director
Taxable thirteenth month pay (P35,000 P5,000)
Gross taxable compensation income
P420,000
200,000
5,000
P625,000
24
Problem 4 10
B
Salary
Overtime pay
13th month pay and other bonuses
Total compensation income
P150,000
30,000
15,000
P195,000
Problem 4 11
B
Salary
Tips
Cost and living allowance
Total taxable compensation income
P120,000
360,000
5,000
P485,000
Note: New BIR interpretation provides that the 13 th month pay and other benefits amounting to P30,000 and below is
not taxable. Since the 13 th month pay is only P10,000, the P20,000 achievement awards being part of de-minimis can
be used as other benefits, to complete the P30,000 nontaxable threshold.
Problem 4 12
P144,000
36,000
34,000
27,270
P241,270
In general, interest income is subject to final tax; hence not to be reported in the ITR. Non-interest bearing
note is to be reported at its discounted value when received. (Sec. 2.78.1, Rev. Reg. No. 2-98)
Problem 4 13
D
(First employment for 30 years received at the age of 50)
P500,000
Aside from the requirement that the plan should be reasonable, the Tax Code requires that the retiring employee should have been in the service of the same employer for at
least ten years and is not less than fifty years of age at the time of his retirement. The taxpayer should not also have previously availed of the privilege under a retirement
benefit plan for the same or another employer.)
Problem 4 14
B
First employment resigned
P300,000
Problem 4 15
C
Gross compensation income (1,000 x P10)
Problem 4 16
Problem 4 17
P10,000
Compensation
P 10,000
Capital gain
P 20,000
Compensation
P 20,000
Capital gain
P 50,000
Correction: The option was exercised and sold in year 200C when the market price was P30.
25
Problem 4 18
C
Regular compensation per month
Cancellation of indebtedness (P300,000 P275,000)
Total compensation income December 200B
P 50,000
25,000
P75,000
Problem 4 19
B
Insurance premium beneficiary Sico
P5,000
Problem 4 20
A
Basic compensation (P30,000 x 12)
Shares of stock (P100 x 100)
Stock option (P120 P80) x 100
Annual insurance premium (P4,000 x 50%)
Gross compensation
P360,000
10,000
4,000
2,000
P376,000
Problem 4 21
B
Cleaning of business equipment
Repair service of store
Total casual service income
P 1,000
3,000
P 4,000
Problem 4 22
C
Total purchases
Transportation cost on purchases
Unsold goods
Cost of goods sold
Problem 4 23
Inventory, beginning
Purchases
Purchase discounts
Purchase returns
Transportation in
Inventory end
Cost of sale
Problem 4 24
P500,000
5,000
( 40,000)
P465,000
P 20,000
1,200,000
( 10,000)
( 40,000)
5,000
( 50,000)
P1,125,000
Year 1
Inventory, beginning
Inventory, ending
Purchases
Freight in
Purchase discount
Cost of sales
Problem 4 25
B
Sales
Sales returns
Net sales
Less: Cost of goods manufactured and sold
Purchases raw materials
Freight-in
Raw materials, ending inventory
(P50,000)
850,000
10,000
( 20,000)
P790,000
Year 2
P 50,000
( 30,000)
900,000
15,000
( 25,000)
P910,000
P1,275,000
(
25,000)
P1,250,000
P 540,000
20,000
(
10,000)
26
P 550,000
400,000
200,000
P1,150,000
( 100,000)
( 50,000)
1,000,000
P 250,000
B
P 2,000
8,000
3,000
P13,000
Problem 4 27
B
Professional fee, accounting services
Less: Direct costs of services:
Salaries of accounting staff
Accounting supplies
Gross business income for MCIT purposes*
P500,000
P150,000
10,000
160,000
P340,000
Correction: The requirement should qualify that the gross business income is for MCIT purposes.
Problem 4 28
B
Interest income from clients
Trading gain
Less: Cost of services:
Lending and investments funds salaries
Interest expenses paid to depositors
Gross income for MCIT purposes
Problem 4 29
P50,000,000
10,000,000
P3,000,000
2,000,000
5,000,000
P55,000,000
P10,000,000
5,000,000
2,000,000
P17,000,000
P3,700,000
600,000
200,000
1,500,000
Problem 4 30
B
Service charges:
Originating from the Philippines
Collection abroad of collect messages originating in the Philippines
Gross income for Philippine Income Tax computation
6,000,000
P11,000,000
P 150,000
60,000
P 210,000
27
Problem 4 31
B
Rent for year:
200A
200B
200C
200B Reportable income
P 80,000
480,000
40,000
P 600,000
Problem 4 32
1
.
Letter C
Advanced deposit
Monthly rental (P20,000 x 10 months)
Annual insurance premium to be paid by the lessee
(P6,000 x 10/12)
Portion of real estate tax to be paid by the lessee
(P3,000 x 10/12)
Rent income
P 40,000
200,000
5,000
2,500
P247,500
As a general rule, pre-collection of rental is taxable in full to the lessor when received regardless of
accounting method used.
2
.
Letter B
Monthly rental (P20,000 x 10 months)
Annual insurance premium to be paid by the lessee
(P6,000 x 10/12)
Portion of real estate tax to be paid by the lessee
(P3,000 x 10/12)
Rent income
Commission income (P2,000,000 x 5%)
Reportable taxable income
Problem 4 33
P200,000
5,000
2,500
P207,500
100,000
P307,500
Outright
P240,500
P240,500.00
142,464.37
P 98,035.63
4.7
5
P
20,639
9/12
P
15,479
Spread-out
C
Outright
P180,000
Spread-out
P - 0 -
28
For spread out method, there is no reportable income from leasehold improvement for year 200B because the said
improvement was completed at the end of the year.
Problem 4 35
Cost of improvement
Less: Accumulated depreciation at the end of the lease (P300,000/6) x 4 years and 7 months
Book value at the end of the lease
Divided by number of years until the termination of lease contract = 4 years and 7 months
Annual additional income
Multiplied by number of years expired (from March 31, 200B to December 31, 200D)
Reported additional income from improvement
Book value of improvement at the time of pre-termination
Cost
P300,000
Less: Accum. depreciation at pre-termination (P300,000/6) x 2.75 years
137,500
Additional income in 200D from the pre-termination of contract
Problem 4 36
Interest income from
Interest income from
Interest income from
Total taxable interest
A
an investment in a 10-year bond
5-year time deposit in Philippine bank
expanded foreign currency deposit
income
P300,000
229,167
P 70,833
4.58
P 15,454
2.75
(P42,500)
162,500
P120,000
P 40,000
50,000
60,000
P150,000
Note: Technically speaking, the interest from 5-year time deposit in Philippine bank is taxable because the period
involved is not more than 5 years and the deposit is not BSP prescribed form.
Problem 4 37
D
Year 3 interest income of P4,461.20.
Problem 4 38
D
Royalty income as author (P100,000 x 10%)
Royalty income from franchising (P200,000 x 20%)
Royalty income from gold mine (P500,000 x 20%)
Total final tax
Problem 4 39
P 10,000
40,000
100,000
P150,000
Gross royalties:
Copyright (P31,500/90%)
Patent (P20,000/80%)
Income tax final
Copyright (P35,000 x 10%)
Patent (P25,000 x 20%)
Income after tax
Copyright
P 35,000
Patent
P 25,000
( 3,500)
.
P 31,500
( 5,000)
P 20,000
Problem 4 40
1
.
Letter B
Royalties within derived from:
Pain reliever invention (P100,000 x 20%)
Musical compositions (P200,000 x 10%)
Books (P500,000 x 10%)
Final tax on royalty income
P20,000
20,000
50,000
P90,000
29
2
.
Letter D
Royalties outside derived from:
Pain reliever invention
Musical compositions
Books
Royalty income subject to normal tax
P200,000
100,000
300,000
P600,000
In general, royalties derived from sources within the Philippines are subject to a final tax of 20%, except
royalties on books, other literary works and musical compositions which shall be subject to a final tax of
10%. Royalties received by resident citizens from sources outside the Philippines shall be subject to normal
tax under Section 24 (A) of the NIRC and by the domestic corporation under Section 27 (A) of the NIRC.
Problem 4 41
P500,000 - Dividends earned by a domestic corporation from a foreign corporation are taxable.
Problem 4 42
A
The dividend received by a domestic corporation from another domestic corporation is nontaxable.
Problem 4 43
C
First prize in Talentadong Pinoy
2nd place in bicycle race
3rd place in chess tournament
Amount subject to normal tax
P10,000
6,000
15,000
P31,000
In general, prizes (reward for a contest) are subject to final tax of 20% except if the amount of the prize is P10,000 or
less which will be subject to normal tax. Winnings (reward that depends on chance) are subject to 20% final tax
regardless of amount. [Sec. 24 (B)(1), NIRC]
Problem 4 44
D
First prize raffle draw (P50,000 P1,000)
Gambling winnings
Beauty contest winnings
Taxable prizes and winnings
Problem 4 45
P 49,000
300,000
100,000
P449,000
Income (loss)
Less: NOLCO (P25,000 P20,000 P10,000)
Bad debts written off
Income (loss) before bad debts recovery
Bad debts recovery of previous year with tax benefit
Taxable income
Year 1
P100,000
Year 2
(P 20,000)
25,000
P 75,000
.
P 75,000
10,000
(P 30,000)
25,000
(P 5,000)
Year 3
P 50,000
5,000
5,000
P 40,000
8,000
P 48,000
Note: The tax benefit allowed in year 2 for the bad debts written off is only P5,000; hence, the reportable bad debts
recovery in year 3 should also be P5,000.
Problem 4 46
D
Year 1: No bad debt recovery
Year 2: Bad debt recovery
Problem 4 47
D
P5,000 local tax recovery.
None
P 600
30
Problem 4 48
C
Real property tax
Local taxes
Reportable income from tax refund
Problem 4 49
B
Unfair competition
Loss earnings
Moral damages for breach of contract
Exemplary damages for breach of contract
Interest on damages
Gross income from damage recoveries subject to tax
P 10,000
500
P 10,500
P400,000
100,000
150,000
50,000
10,000
P710,000
Actual damages are considered taxable income to the extent that such damages constitute a loss of anticipated profits,
and are non-taxable to the extent they represent a return of capital or investment. However, moral and exemplary
damages awarded as a result of a breach of contract are subject to income tax, and, consequently, withholding tax.
(BIR Ruling No. DA-489-2005 dated December 6, 2005)
Take note that the moral damages and exemplary damages awarded were not on account of injuries or sickness.
Problem 4 50
C
Annuity received
Present value (P20,000 x 0.9091)
Interest income - Taxable annuity
P 20,000
18,182
P 1,818
Note: The present value factor of P1 for an effective interest rate of 10% is 0.9091.
Problem 4 51
D
Annuity received
Present value (P5,880 x 0.8928)
Interest income - Taxable annuity
P 5,880
5,250
P 630
Problem 4 52
B
Excess of withdrawable amount ($10,000 - $1,000)
Multiplied by exchange rate per 1 dollar
Reportable income received by error
$ 9,000
P 50
P450,000
Problem 4 53
C
Net increase in net asset
Less: Salary in a year (P5,000 x 12)
Illegally obtained income - taxable
P108,000
60,000
P 48,000
P 425,000
In case of taxpayers engaged in the sale of service, gross income means gross receipts less sales returns, allowances
and discounts. [Sec. 27 (A) NIRC]
Problem 4 55
Salary
P300,000
Corporate shares received (1,000 shares x P100)
100,000
31
50,000
40,000
P490,000
Problem 4 56
Licensing fee
Registration fees of delivery trucks
Real estate tax
Community tax
Foreign income tax previously claimed as deduction
Reportable gross income on tax refunds
P 30,000
4,000
5,000
3,000
80,000
P122,000
Problem 4 57
1. Gross income trading business (P500,000 P200,000)
Gross income warehouse (P200,000 P150,000)
Net capital gains (loss) on personal properties
Computer more than 1 year
(P10,000 P20,000) x 50%
Car more than 1 year (P100,000 P50,000) x 50%
Gross income subject to regular tax
2.
P300,000
50,000
(P5,000)
25,000
Problem 4 58
Salary (P25,000 + P302,000)
Income tax paid by the employer
Note receivable
Total compensation
Business gross income
Allowable expenses
Prepaid rent income
Bad debts recovered previously written- off (P38,000 x 60%)
Taxable income subject to tabular tax
20,000
P370,000
P12,000
P327,000
5,000
20,000
P352,000
P 400,000
( 250,000)
150,000
50,000
22,800
P574,800