Solutions Manual for Transfer & Business Taxation, 3rd Edition

SOLUTIONS MANUAL
TRANSFER & BUSINESS TAXATION, 3rd Edition

By:
TABAG & GARCIA
CHAPTER 1 SUCCESSION & TRANSFER TAXES

TRUE OR FALSE
1. T
6.
2. T
7.
3. T
8.
4. T
9.
5. F
10.
MULTIPLE CHOICE
1. D
12.
2. A
13.
3. D
14.
4. C
15.
5. C
16.
6. A
17.
7. B
18.
8. A
19.
9. B
20.
10. A
21.
11. D
22.
T
F
T
T
T
11.
12.
13.
14.
15.
T
T
T
T
F
C
C
B
D
C
B
D
C
B
B
B
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
D
B
D
D
B
D
A
D
B
A
D
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
D
B
B
D
B
D
D
B
D
B
B
45.
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
B
C
D
D
A
B
A
D
D
D
B
61.
62.
63.
64.
65.
66.
67.
68.
69.
70.
A
A
A
C
D
B
A
C
C
D
CHAPTER 2 GROSS ESTATE

TRUE OR FALSE SET A
1. T
6. T
2. T
7. T
3. F
8. T
4. T
9. T
5. T
10. T
TRUE OR FALSE SET B
1. T
6. F
2. F
7. T
3. F
8. T
4. T
9. T
5. T
10. F
MULTIPLE CHOICE
1. A
16. D
2. B
17. C
3. D
18. B
4. B
19. D
5. C
20. A
6. C
21. D
7. A
22. A
8. B
23. B
9. A
24. A
10. A
25. C
11. C
26. C
12. B
27. C
13. D
28. D
14. A
29. B
11.
12.
13.
14.
15.
T
F
F
T
T
16.
17.
18.
19.
20.
F
T
T
T
T
11.
12.
13.
14.
15.
T
F
F
T
F
16.
17.
18.
19.
20.
T
T
T
F
T
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
C
B
B
A
B
B
D
C
B
D
C
C
B
C
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
56.
57.
58.
59.
C
D
C
C
C
D
D
C
C
C
B
D
C
C
Tr a n s fe r & B u s i n es s Ta xa ti o n (3
r d
E d i ti o n ) b y Ta b a g a n d G a rc i a
15.
30.
45.
60.
Supporting Computations:
23.
Bank deposit in the foreign branch of a domestic
bank
Bank deposit in Makati branch of a foreign bank
Shares of stock issued by a domestic corporation
(certificate kept in Canada)
Franchise exercised in Manila
Receivable, debtor from Mindanao
Total Exclusion from the gross estate
P500,000
300,000
1,000,00
0
800,000
200,000
P2,800,
000
23.
House and lot, family home in Quezon City
Bank deposit in Makati branch of a foreign bank
Shares of stock issued by a domestic corporation
(certificate kept in Canada)
Franchise exercised in Manila
Receivable, debtor from Mindanao
Total Inclusion from the gross estate
P1,500,0
00
300,000
1,000,00
0
800,000
200,000
P3,800,
000
25.
Shares of stocks, domestic corp.
(certificate kept in UK)
Shares of stocks, domestic corp.
(certificate kept in Phils.)
Franchise exercised in the Phils.
Receivables, debtor is from Phils.
Intangibles
subject
to
reciprocity
P250,00
0
100,000
200,000
50,000
P600,0
00
26.
Land & building, Philippines
House and lot, Philippines
Shares of stocks, domestic corp. (certificate kept
in UK)
Shares of stocks, domestic corp. (certificate kept
in Phils.)
Franchise exercised in the Phils.
Receivables, debtor is from Phils.
Gross Estate
33.
34.
35.
36.
44.
100,000
200,000
50,000
P6,100,0
00
(P12M/100,000) x 1,000 shares = P120,000

(P10M/100,000) x 1,000 shares = P100,000
P110 x 1,000 shares = P120,000
(P140 + P80/2) x 1,000 shares = P110,000
Considerat
P2,000,00
0
3,500,000
250,000
FMV upon
r d
FMV upon
Gross Estate
Land
ion
received
P1,500,00
0
100,000
transfer
death
P1,500,000
P2,000,000
Shares
of
50,000
stock
Vintage car
50,000
80,000
Painting
250,000
400,000
INCLUSION IN THE GROSS ESTATE
150,000
100,000
500,000
None. Valid
sale
None. Valid
sale
P50,000
250,000
P300,000
44.
Bequests to charitable institutions are considered exclusions from the gross
estate only if the problem clearly states that not more than 30% were used for
administrative purposes.
PROBLEM SOLVING:
PROBLEM 1
(1) P19,300,000
(3) P11,800,000
(4) P14,300,000
Citizen/
NRA with R
NRA w/o R
Resident
(# 1 & 2)
(# 3)
(# 4)
Family home in the Philippines
P8,000,000 P8,000,000 P8,000,000
Parcel land of with vacation house in Malaysia
5,000,000
Farm land in the Philippines
3,000,000
3,000,000
3,000,000
Shares of stock of a domestic corporation
2,000,000
2,000,000
deposited in a bank safety deposit box in
Malaysia
Shares of stock of a foreign corporation the
500,000
500,000
entire business of which is in the
Philippines, deposited in a bank safety
deposit box in Malaysia
Receivable from a friend who has no property
300,000
300,000
300,000
whatsoever
Receivables under insurance policies:
Life insurance policy, taken by the
200,000
200,000
200,000
decedent on his own life, with his estate
as revocable beneficiary
300,000
300,000
300,000
decedent, with his daughter as
revocable beneficiary
decedent on his own life, with his son as
irrevocable beneficiary
Life insurance (group) taken by the
employer of the decedent, with the
estate as revocable beneficiary
Property insurance, for a loss of property
50,000
50,000
50,000
Accident insurance, for injury sustained
50,000
50,000
50,000
TOTAL GROSS ESTATE
P19,300,0 P11,800,0 P14,300,0
00
00
00
(2) P19,300,000
r d
PROBLEM 2
To Juan
To Pedro
To Maria
To Sisa
Total Gross Estate
P25,000,0
00
18,000,00
0
15,000,00
0
20,000,00
0
P78,000,
000
PROBLEM 3
1.
2.
3.
4.
5.
P230,0000
P1,100,000
P0
P5,000,000
P1,000,000 + [1M x (1M x 10% x 1.5)] = P1,150,000
MODIFIED IDENTIFICATION
EXERCISE A
1. Included
2. Included
3. Excluded
4. Included
5. Excluded
6. Excluded
7. Included *
8. Excluded
9. Excluded**
10. Excluded
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
Included***
Excluded**
Excluded**
Included
Included
Included
Excluded
Excluded**
Excluded
Included
*Included in the gross estate if the beneficiary is the estate, administrator or

executor. In case of doubt, the item should be taxable.
**Exclusions from the gross estate. Nonetheless, the tax code requires these items
to be included first in the gross estate before deducting the same from the gross
estate.
*** Bequests to charitable institutions are considered exclusions from the gross
estate only if the problem clearly states that not more than 30% were used for
administrative purposes.
EXERCISE B
1.
2.
3.
4.
5.
P0; valid sale

P0; valid sale
P0; valid sale
P4,000,000
P6,000,000
EXERCISE C
1.
2.
3.
4.
5.
r d
P10M
P20M
P5M
P10M
P0
CHAPTER 3 DEDUCTIONS FROM THE GROSS ESTATE

TRUE OR FALSE
1. T
7. T
13. F
19. T
25. T
2. T
8. T
14. F
20. T
26. T
3. T
9. T
15. T
21. T
27. F
4. T
10. F
16. F
22. F
28. T
5. T
11. F
17. T
23. T
29. F
6. F
12. F
18. T
24. T
30. T
MULTIPLE CHOICE
1. C
12. C
23. A
34. C
45. C
2. D
13. B
24. A
35. A
46. B
3. D
14. A
25. A
36. C
47. A
4. C
15. A
26. B
37. B
48. A
5. C
16. A
27. B
38. B
49. C
6. B
17. D
28. B
39. C
50. C
7. B
18. D
29. C
40. D
51. A
8. D
19. D
30. A
41. A
52. A
9. C
20. D
31. C
42. D
53. A
10. A
21. C
32. D
43. D
54. B
11. B
22. D
33. C
44. D
55. D
7.
Mourning clothing of the decedents surviving
P1,500
spouse
Mourning clothing of the decedents dependent
3,200
children
Expenses of the wake preceding the burial
40,000
Publication charges for death notices
5,000
Telecommunication
expenses
incurred
in
3,000
informing relatives of the deceased
Cost of burial plot
20,000
Interment fees and charges
12,000
Expenses for the performance of the rites &
5,000
ceremonies incident to interment
Actual Funeral Expenses
P89,700
Limit: 5% of Gross Estate (P2M x 5%)
P100,000
ALLOWED (Lower Amount)
P89,700
15.
Real property tax for the year 2013
P100,000
Notarized interest bearing promissory note
100,000
Accrued interest on the promissory note at the
20,000
time of death
Income tax due for 2013
200,000
Allowable deductions
P420,00
0
(Disregard standard deduction)
23.
Income tax from practice of profession - 2013
Income tax from practice of profession for Jan.-
r d
P300,000
100,000
June 13
Real property taxes for 2013
Deductible taxes
150,000
P550,00
0
35.
ERRATUM: Pedro died leaving a car acquired by purchase from Pedro JUAN
41.
Value to take/Initial Basis
Mortgage paid
Initial basis
2nd Deduction:
(850/1,000 x P100,000**)
Final Basis
X Vanishing rate
VANISHING
DEDUCTION
P900,000
(50,000)
850,000
(85,000)
P765,000
40%
P306,00
0
** Mortgage P150,000
50,000
54.
Shares, domestic corporation
Tangible personal property
Gross Estate
ELIT (500,000 x 2,000/2,500)
Taxable Estate
TAX DUE
1st P500,000
In
excess
of
(1,100,00 x 8%)
Estate Tax Due
P500,000
1,500,000
2,000,000
(400,000)
P1,600,00
0
P500,000
P15,000
88,000
P103,00
0
55.
Gross Estate (Tangible property
Phils.)
ELIT
(1,200,000
x
6,000/10,000,000)
Taxable Estate
PROBLEM SOLVING
Problem 1
Case A:
Case B:
Case C:
Case D:
Case E:
P6,000,00
0
(720,000)
P5,280,0
00
P150,000
P200,000
P150,000
P150,000
P0
r d
Problem 2
ASSUME GROSS ESTATE OF P2,000,000

Embalming charges
Burial apparel of the decedent
Cost of coffin
Mourning apparel of the surviving spouse during the
burial
Mourning apparel of the minor child
Snacks and drinks during the wake
Honoraria of priest for daily masses before burial
Telecommunication charges to inform relatives
Charges for death notice published in a newspaper
Cost of video footage of the burial and interment
Funeral car service during interment
Honorarium of priest who celebrated the mass
during interment
Cost of tombstone
ACTUAL FUNERAL EXPENSE
P15,00
0
3,500
125,00
0
5,000
2,000
12,500
2,000
1,000
8,000
12,000
4,000
2,000
30,000
P232,0
00
Vs. Limit (P5% of P2M)
100,00
0
ALLOWABLE FUNERAL EXPENSE
P100,
000
NOTE: Hospital bills for two months of confinement before decedents death should
be charged to medical expenses
Problem 3
Case A: P100,000
Case B: P333,333 computed as follows:
Receivable
Collectible portion (400/1,200) x
500,000
Uncollectible portion of the claim
Case C: P0.
P200,00
0
Assets of Pedro
P400,00
0
(200,00
0)
200,000
X
200/600
Less: Due to the BIR for unpaid

taxes
Balance
Collectible by Juan
UNCOLLECTIBLE PORTION
(Deductible from Juans Gross
P333,33
3
Debtor is not insolvent
Problem 4
DUE FROM PEDRO
P500,000
(166,667)
(66,667)
P133,3
r d
Estate)
33
Problem 5
Question 1: P550,000 computed as follows:
Unpaid taxes on the estate before death
P150,000
Unpaid mortgage on the estate
200,000
Unpaid loans arising from debt instruments
125,000
(notarized)
Unpaid loans arising from debt instruments (not
75,000
notarized). The debt instrument was issued by
a financial institution not requiring notarizations
for debt instruments issued
Total Deductible Claim Against the Estate
P550,00
0
Question 2: P2,097,000 computed as follows
Ordinary Deductions:
Claim against insolvent person
Unpaid taxes on the estate before death
Unpaid mortgage on the estate
Funeral expenses
Actual = P182,000 + 37,500 = P219,500
Limit = P5M x 5% = P250,000
Maximum = P200,000
Judicial expenses
Unpaid loans arising from debt instruments
(notarized)
Unpaid loans arising from debt instruments (not
notarized). The debt instrument was issued by
a financial institution not requiring notarizations
for debt instruments issued
Casualty loss
Special Deductions:
Standard deduction
Medical expenses
Total Allowable deduction from the gross
estate
P100,000
150,000
200,000
200,000
100,000
125,000
75,000
65,000
1,000,000
82,000
P2,097,00
0
Problem 6
Question 1: P217,500
Question 2: P217,500
Same answer with question #1. Whether or not the estate was
settled judicially is irrelevant in the determination of allowable
deduction for judicial expenses.
Solution:
Expenditures incurred for the collection of assets
P100,000
and payment of debts
Attorneys fees (1/2 were incurred after six
20,000
months)
P40,000 x 1/2
Accountants fees
25,000
Executors commission
15,000
Appraisers fees
2,500
Court fees
18,000
r d
Cost of preserving and distributing the estate

Cost of storing or maintaining the property of the
estate
Brokerage fees for selling property of the estate
Total allowable judicial expenses
Problem 7
Loss due to shipwreck, two (2) months after the
decedents death.
Robbery loss, seven (7) months after the decedents
death. The decedents executor was allowed by
the Bureau of Internal Revenue to extend the
filing (within the period allowed by the Tax Code) of
estate tax return due to a meritorious reason
Allowable Deduction
Problem 8
Value to take
1st Deduction: Mortgage paid
15,000
12,000
10,000
P217,50
0
P500,000
2,000,000
P2,500,0
00
P937,500
(187,500
)
P750,000
Initial basis
2nd
Deduction:
Proportionate
deduction
(750/4,500) x 562,500
Final Basis
x Vanishing rate
Vanishing Deduction
(93,750)
P656,250
40%
P262,50
0
Problem 9
Value to take
P1,500,0
00
-----P1,500,0
00

Initial basis
2nd
Deduction:
Proportionate
deduction
(1,500/1,980) x 170,000
Final Basis
(128,788
)
P1,371,2
12
80%
P1,096,
970
x Vanishing rate
Vanishing Deduction
Problem 10
Case A: P1,000,000
Case B: P1,000,000
r d
Case C: P1,000,000
Case D: P0
Case E: P0
Problem 11
Case A:
Case B:
Case C:
Case D:
Case E:
P500,000
P500,000
P150,000
P500,000
P0
Problem 12
Case A:
Case B:
Case C:
Case D:
Case E:
Case F:
P1,000,000
P500,000
P0
P500,000
P600,000
P750,000;
[ (1M/2) + (500,000/2)]
Problem 13
Gross Estate
Funeral expenses
Actual P300,000 120,000 =
P180,000
Limit = P3M x 5% = P150,000
Standard deduction
Medical expenses
Taxable Estate
P3,000,0
00
(150,000
)
(1,000,0
00)
(400,000
)
P1,450,
000
CHAPTER 4 PROPERTY RELATIONS

TRUE OR FALSE
1. T
6.
2. T
7.
3. T
8.
4. T
9.
5. T
10.
MULTIPLE CHOICE
1. A
7.
2. B
8.
3. B*
9.
4. C
10.
5. C
11.
6. D
12.
10
F
F
T
F
F
11.
12.
13.
14.
15.
T
F
T
T
F
16.
17.
18.
19.
20.
F
T
T
T
T
D
D
B
C
D
C
13.
14.
15.
16.
17.
18.
B
D**
A
D
D
C
19.
20.
21.
22.
23.
24.
C
C
A
A
D
B
r d
25.
26.
27.
28.
29.
30.
C
D
C
A ***
D
D
*Change Aug. 3, 1998 TO August 3, 1988

** Under conjugal partnership of gains, fruits earned during marriage,
regardless of source, are common properties
Supporting Computations
No. 22 and 23
Gross Estate:
Rest House in Batangas
Car
Commercial land
Income from the commercial land
Income from exclusive property of
the spouse
Jewelry owned before the marriage
Other properties at the time of her
death
Gross Estate
No. 24 and 25
Gross Estate:
Rest House in Batangas
Car
Commercial land
Income from the commercial land
Jewelry owned before the marriage
Other properties at the time of her
death
Gross Estate
Exclusive
P2,500,00
0
1,000,000
5,000,000
300,000
1,000,000
P1,700,00
0
Exclusive
P2,500,00
0
Common
1,000,000
5,000,000
500,000
300,000
1,000,000
P2,500,00
0
(35,000)
(20,000)
(45,000)
P100,00
0
2
Divide
P7,800,00
0
P200,00
0
Conjugal Deductions:
Funeral expenses
Actual = P45,000
Limit = (P500,000 + 200,000) x 5%
= 35,000
Judicial expenses
Claim against the estate
Net Conjugal properties
500,000
200,000
P8,800,00
0
No. 26
Conjugal properties
11
Conjugal
r d
Share of the Surviving Spouse
P50,00
0
No. 27
Real property, Philippines
Real property, USA
Funeral expenses
Judicial expenses (200,000 50,000)
Claim against insolvent persons
Unpaid taxes
Balance
Standard Deductions
Medical expenses (max.allowed)
Family Home (P1,500,000/2)
Share of the surviving spouse
(P8,550,000/2)
Net Taxable Estate
P4,000,00
0
5,000,000
(200,000)
(150,000
(50,000)
(50,000)
P8,550,00
0
(1,000,00
0)
(500,000)
(750,000)
(4,275,00
0)
P2,025,0
00
No. 28
Exclusive
Conjugal real properties
Conjugal family home
Exclusive properties
Total
Funeral expenses
Actual P300,000 x 25% =
P75,000
Limit = 5% x P9M = P450,000
Casualty losses***
Miscellaneous deductions (P1M x
75%)
Net
P2,500,00
0
P2,500,00
0
Total
P6,500,00
0
P9,000,00
0
(75,000)
(100,000)
P2,400,00
0
Special Deductions:
Standard Deductions
12
Common
P5,000,00
0
1,500,000
(750,000)
(825,000)
P5,675,00
0
P8,075,00
0
(1,000,00
r d
Medical expenses (P500,000
0)
(250,00)
50%)
Family Home (1,500,000/2)
(5,675,000/2)
Net Taxable Estate
(750,000)
(2,837,50
0)
P3,275,0
00
ERRATUM: DISREGARD .Exclusive Properties are NET of Casualty
Losses***
No. 29 ABSOLUTE COMMUNITY OF PROPERTY

Exclusive
P2,400,00
0
Properties-Land
Other personal property owned before
marriage
Other personal property acquired during
marriage
Gross Estate
Common
1,600,000
500,000
P2,400,00
0
Ordinary Deductions
Funeral expenses
Judicial expenses
Net conjugal before special deductions
P2,100,00
0
(200,000)
(100,000)
P1,800,00
0
P900,000
Share of surviving spouse

(P1,800,000/2)
No. 30 CONJUGAL PARTNERSHIP OF GAINS
Exclusive
P2,400,000
1,600,000
Properties-Land
Other personal property owned before
marriage
Other personal property acquired during
marriage****
Gross Estate
P4,000,000
(1,120,000)
P2,880,000
Standard deductions
Medical expenses
Share of the surviving spouse (P200,000/2)
Share of surviving spouse
(P1,800,000/2)
Total
P500,000
Ordinary Deductions
Funeral expenses
Judicial expenses
Vanishing Deductions*****
Net Estate Before Special Deductions
13
Common
r d
P500,000
P4,500,00
0
(200,000)
(100,000)
200,000
P3,080,00
0
(1,000,00
0)
(500,000)
(100,000)
P1,480,0
00
****If silent and unless the problem clearly illustrate that it is exclusive, assume the
property is common.
Value to take
Initial basis
2nd
Deduction:
Proportionate
deduction
(1,500/4,500) x 300,000
Final Basis
x Vanishing rate
Vanishing Deduction
P1,500,0 00
P1,500,000
(100,000)
P1,400,000
80%
P262,500
*****
PROBLEM SOLVING
PROBLEM 1:
(a)P1,624,773
(b)P4,132,955
(c)P3,691,250
Exclusive
P2,000,00
0
Conjugal properties*
ELIT**
Vanishing Deductions ***
Transfer for Public Use ****
Net Estate
Share of the Surviving Spouse
(4,132,955/2)
Net Taxable Estate
1st P2,000,000
In excess of P2,000,000 @ 11%
ESTATE TAX DUE
(175,227)
(200,000)
P1,624,77
3
(d)P321,038
Common
Total
P5,000,00
0
(867,045)
P7,000,00
0
P4,132,95
5
P5,757,72
8
(2,066,478
)
P3,691,25
0
P135,000
186,038
P321,038
*The problem is silent as to reciprocity, hence, the gross estate should include
tangible and intangible properties within the Philippines.
**ELIT:
Funeral expenses
Judicial expenses
Claim against the
estate
TOTAL ELIT
X
ALLOWABLE ELIT
P200,000
800,000
1,725,000
P2,725,00
0
7,000/22,0
00
P867,045
**VANISHING DEDUCTIONS:
Value to take
14
P500,0 00
r d

Initial basis
P500,000
2nd
Deduction:
Proportionate
deduction
(61,932)
(500/7,000) x 867,045
Final Basis
P438,068
x Vanishing rate
40%
Vanishing Deduction
P175,227
****
Since the properties were already classified as exclusive and common, it
should be assumed that the exclusive properties were already inclusive of transfer for
public use.
PROBLEM 2:
(Decedent: Resident Citizen)
a) Vanishing deduction = P1,676,200
b) Net exclusive property of the decedent = P7,923,800
c) Net community property = P17,800,000
d) Net Taxable estate = P15,323,800
e) Estate tax due = P2,279,760
Exclusive
Conjugal
P10,000,00
0
Conjugal properties
20,000,000
Funeral expenses
Judicial expenses
Claims against conjugal properties
Claims against exclusive properties*
Legacy against exclusive
properties **
VANISHING DEDUCTION***
Amount received under RA4917
Net exclusive/conjugal
(400,000)
(1,676,200)
P7,923,800
Special Deductions:
Standard deduction
Medical expenses
NET TAXABLE ESTATE
Total
P30,000,00
0
(200,000)
(300,000)
(200,000)
(400,000)
-
(1,500,000)
P17,800,00
0
(1,676,200)
(1,500,000)
P25,723,80
0
(200,000)
(300,000)
(200,000)
(1,000,000)
(500,000)
(8,900,000)
P15,323,8
00
P2,279,76
0
ESTATE TAX DUE
*From the information provided in the problem, the amount of P400,000 as claim
against exclusive property should pertain to the unpaid mortgage on the land
inherited. Therefore, the present decedent paid P100,000 on the original amount of
the mortgage (P500,000). This should be taken into consideration in computing the
vanishing deduction.
** LEGACY AGAINST EXCLUSIVE PROPERTIES
Legacy means bequest or inheritance of personal properties.
The deductible
legacy/devised (bequests) under the tax code are:
15
r d
Transfer for public use (Rule: Include both in the Gross Estate as well as in
the Deductions from the Gross Estate) ; and
Bequests to charitable institutions wherein not more than 30% of the bequest
was used for administrative purposes (Rule: Same as transfer for public use)
From the information provided above, the problem was silent as to the type of the
legacy. In case of doubt, the two types of transfers enumerated above should not be
assumed. Therefore, the item should be treated as a simple legacy or transfer in
contemplation of death which is added only in the gross estate.
Value to take
Mortgage Paid (refer to explanation above)
Initial basis
2nd Deduction: 2,900/30,000 x P1.1M
Final Basis
x rate
Vanishing Deduction***
PROBLEM 3:
(Decedent: Resident Alien)
due = P307,700
House and lot, USA *
P3,000,000
(100,000)
P2,900,000
(106,333)
P2,793,667
60%
P1,676,20
0
(a) Net Taxable estate = P3,570,000;
P2,000,00
0
800,000
1,000
000
700,000
300,000
50,000
200.000
800,000
50,000
Investment in stock, Philippines

Investment in stock, USA
Investment in bonds, USA
Cash in bank, Philippines
Cash on hand, Philippines
Accounts receivable
Car, Philippines
Legacy in favor of Philippine National Red
Cross**
Devise
to
Quezon
City
for
childrens
playground**
Total Gross Estate
Funeral expenses
Judicial expenses
Unpaid Philippine income tax for income in 2011
Loss on December 31, 2012 due to theft
Legacy in favor of Philippine National Red Cross
Devise to Quezon City for childrens playground
Accounts receivable (fully uncollectible) ***
Special Deductions:
Standard deduction
Medical expenses
Net Taxable Estate
16
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(b)Estate tax
70,000
P5,970,00
0
P150,000
300,000
120,000
10,000
50,000
70,000
200,000
(900,000)
(1,000,00
0)
(500,000)
P3,570,0
00
Estate Tax Due
P307,70
0
NOTE (Problem 3)
*Family home is not allowed as a deduction for single decedent
**To be deductible, the legacy/devise should be included first in the
decedents gross estate
***Assume the debtor is an insolvent person.
PROBLEM 4
(Decedent: Resident Alien)
a) Vanishing deduction = P441,463
b) Net Taxable estate = P3,200,000
c) Estate tax due = P386,739
Exclusive
Land
P3,000,000
House and Lot, furniture and
appliances
Other tangible personal properties
Amount received under RA4917
Claims against insolvent persons
Ordinary deductions:
Funeral expenses
Judicial expenses
Other claims against conjugal
properties
Claims against insolvent persons
Unpaid mortgage**
VANISHING DEDUCTION*
Net exclusive/conjugal
Special deductions:
Standard deduction
Medical expenses
TAXABLE ESTATE
Conjugal
Total
P5,000,000
1,200,000
1,000,000
50,000
P10,250,00
0
(200,000)
(100,000)
(500,000)
(350,000)
(441,463)
P2,208,537
(50,000)
P6,400,000
P8,608,537
(1,000,000)
(120,000)
(3,200,000)
P4,288,53
7
P386,739
Estate Tax Due

Value to take/Initial Basis***
2nd Deduction: 2,500/10,250 x 1,200,000
Final Basis
x rate
Vanishing Deduction*
P2,500,000
(292,683)
P2,207,317
20%
P441,463
** P700,000 350,000 = P350,000

***The amount paid on the mortgage should not be considered in computing the
vanishing deduction because the amount pertains to a mortgage entered into by
Pedro during his lifetime. To be deductible, the mortgage should have been assumed
on the property at the time of inheritance.
17
r d
PROBLEM 5
1.
Real Property inherited by the decedent

during the marriage.
2. Income earned during marriage from the
property in the preceding number.
3. Property acquired by the decedent with cash
owned before the marriage
4. Personal belongings used exclusively by the
decedent
5. Jewelry for the exclusive use of one of the
spouses
6. Property unidentified when and by whom
acquired
7. Lot acquired before the marriage by the
surviving spouse (surviving spouse had a
previous marriage and legitimate children in
that previous marriage)
8. Income from the lot above
9. Cash income during marriage
10. Exclusive property was sold, and was
repurchased using conjugal property
Conjugal
Partnersh
ip
E
Absolute
Communi
ty
E
E
C
C
E
C
C
CHAPTER 5 ESTATE TAX CREDIT AND ESTATE TAX DISTRIBUTABLE

MULTIPLE CHOICE
1. B
8.
2. C
9.
3. D
10.
4. C
11.
5. C
12.
6. C
13.
7. C
14.
A
D
A
D
D
A
D
15.
16.
17.
18.
19.
20.
21.
A
C
C
A
D
A
C
22.
23.
24.
25.
26.
27.
28.
No.5
Estate tax due (for P4M)
Estate tax credit (3/4 x P355,000) vs
P80,000
Estate tax payable
C
A
C
D
C
A
B
29.
30.
31.
32.
C
D
A
B
P355,000
(80,000)
P275,000
No. 6
Estate tax due (for P500,000)
Less: Estate tax credit
Estate tax payable
18
P55,000
(20,500)
P34,500
r d
Limit 1:
Singapore: 300/1,000 x P55,000
USA: 100/1,000 x P55,000
Limit 2:
400/1,000 x P55,000
ALLOWED TAX CREDIT (LOWER
AMOUNT)
Limit
P16,500
5,500
Actual
P30,000
4,000
Allowed
P16,500
4,000
P20,500
P22,000
34,000
22,000
P20,500
No. 7
Gross Estate
P10,000,00
0
(5,000,000)
(1,500,000)
Deductions
Share of the surviving spouse (5,000,000 x 60%
x 50%)
Net taxable estate
P3,500,000
Tax Due
P300,000
Estate tax credit (2.8/3.5 x P300,000) vs
(124,500)
P124,500
Estate tax payable
P175,500
Net estate France = [(6M -2M) x 0.6 x 1/2] + (6M-2M) x 0.4 = P2,800,000
Net estate R.P.
= [(4M-3M) x 0.6 x 1/2] + (4M-3M) x 0.4 = P700,000
No. 8
Estate tax due (for P500,000)
Less: Estate tax credit
Estate tax payable
P71,000
(41,417)
P29,583
Limit 1:
Japan: 300/1,200 x P71,000
USA: Exclude for purposes of computing
Limit 1
HK: 450/1,200 x P71,000
Limit 2: (Include USA)
700/1,200 x P71,000
ALLOWED TAX CREDIT (LOWER
AMOUNT)
Limit
P17,750
-
Actual
P20,000
-
Allowed
P17,750
-
26,625
45,000
26,625
P44,375
P41,417
65,000
41,417
P41,417
No. 9 and 10
Net Taxable
Property inherited
Property acquired through own
labor
Funeral expenses
Judicial expenses
Claims against the estate
19
P1,400,000
3,600,000
Net
Distributable
P1,400,000
3,600,000
(200,000)
(200,000)
(240,000)
(200,000)
r d
Notarized
Not notarized
Standard deduction
Net Taxable/Distributable
estate
(40,000)
(1,000,000)
P3,560,000
(40,000)
(20,000)
P4,500,000
No. 28
Letter a .The Bureau of Internal Revenue can ask payment from the heirs to
whom the estate has been disturbed .. change to Distributed
PROBLEM SOLVING
Problem I:
(1)P200,000
(2)P0; not allowed
Net Taxable Estate
P10,000,0
00
Estate Tax Due [P465,000 + (5M x 15%)]
P1,215,00
0
(200,000
)
P1,015,00
0
Estate tax credit (4/10 x P1,215,000)

vs P200,000
Estate tax payable
Problem II:
Net Taxable Estate
P2,000,00
0
Estate Tax Due

Estate tax credit
Estate tax payable after tax credit
Net Taxable Estate
Limit 1:
Canada: 500/2,000 x P135,000
USA: 500/2,000 x P135,000
Limit 2:
1,000/2,000 x P135,000
ALLOWED TAX CREDIT
P135,000
(67,500)
P67,500
P2,000,00
0
Limit
Actual
P33,750
P150,000
33,750
110,000
P67,500
260,000
Allowed
P33,750
33,750
P67,500
67,500
P67,500
Problem III:
(a) Net Taxable estate = P3,570,000;
(b)Estate tax due after tax credit = P142,770
(c ) Net Distributable Estate = P4,427,230
House and lot, USA *
P2,000,00
0
Investment in stock, Philippines
800,000
Investment in stock, USA
1,000
000
Investment in bonds, USA***
700,000
Cash in bank, Philippines
300,000
20
r d
Cash on hand, Philippines

Accounts receivable
Car, Philippines
Legacy in favor of Philippine National Red
Cross**
Devise
to
Quezon
City
for
childrens
playground**
Total Gross Estate
Funeral expenses
Judicial expenses
Accounts receivable (fully uncollectible)
Special Deductions:
Standard deduction
50,000
200.000
800,000
50,000
70,000
P5,970,00
0
P150,000
300,000
120,000
10,000
50,000
70,000
200,000
(900,000)
(1,000,00
0)
(500,000)
P3,570,0
00
P307,70
0
(164,930)
Medical expenses
NET TAXABLE ESTATE
Estate Tax Due
Estate Tax Credit
Limit: [(3,200/5,970) x 307,700 = P164,930
Actual: P250,000
ESTATE TAX DUE AFTER ESTATE TAX CREDIT
P142,77
0
NOTE:
*Family home is not allowed as a deduction for single decedent
**To be deductible, the legacy/devise should be included first in the
decedents gross estate
*** Considered as Estate within
TOTAL GROSS ESTATE (Refer above)
Funeral expenses
Judicial expenses
Accounts receivable (fully uncollectible)
Special Deductions:
Standard deduction
Medical expenses
Estate Tax Due after tax Credit
21
r d
P5,970,00
0
P150,000
300,000
120,000
10,000
50,000
70,000
200,000
(900,000)
(500,000)
(142,770
)
P4,427,2
30
NET DISTRIBUTABLE ESTATE
Problem IV:
Real property, Philippines
Claim Against Insolvent Persons
Real property, USA
Real property, Japan
Net estate, Malaysia
Total Gross Estate (common)
Funeral expenses (maximum)
Judicial expenses (P200,000-100,000)
Unpaid taxes
Net estate before special deductions
X (Share of the surviving spouse)
Net estate of the decedent in the conjugal
properties
Standard Deduction
Family Home
Medical Expenses
NET TAXABLE ESTATE
22
P4,000,00
0
50,000
3,000,000
2,000,000
(1,000,00
0)
P8,050,00
0
(200,000)
(100,000)
(50,000)
(50,000)
P7,650,00
0
1/2
P3,825,00
0
(1,000,00
0)
(1,000,00
0)
(500,000)
P1,325,0
00
TAX DUE:
1ST P500,000
In excess of P500,000 @ 8%
ESTATE TAX DUE
Estate Tax Credit (None; No Estate Tax
Payments abroad)
ESTATE TAX PAYABLE
P81,000
Total Gross Estate (common; as computed

above)
Funeral expenses (actual)
Judicial expenses (actual)
P8,050,00
0
(300,000)
(200,000)
(50,000)
r d
P15,000
66,000
P81,000
----
Unpaid taxes
Net estate before special deductions
(50,000)
P7,450,00
0
1/2
P3,725,00
0
----------(650,000)
(81,000)
P2,994,0
00
X (Share of the surviving spouse)

Net estate of the decedent in the conjugal
properties
Standard Deduction
Family Home
Medical Expenses (actual)
Estate Tax
NET DISTRIBUTABLE ESTATE
CHAPTER 6 DONORS TAX

TRUE OR FALSE
1. T
7.
2. T
8.
3. F
9.
4. T
10.
5. T
11.
6. T
12.
MULTIPLE CHOICE
1. A
11.
2. A
12.
3. C
13.
4. C
14.
5. B
15.
6. D
16.
7. D
17.
8. D
18.
9. D
19.
10. C
20.
F
T
F
F
T
F
13.
14.
15.
16.
17.
18.
F
F
F
F
F
F
19.
20.
21.
22.
23.
24.
F
F
F
F
F
T
25.
26.
27.
28.
29.
30.
T
T
F
T
F
F
D
B
C
D
D
B
D*
A
B
C
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
D
C
A
D
C
C
D
C
D
B
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
B
C
D
A
B
D
C
B
D**
D
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.
A
B
A
A
C
B
B
D
D
A
Supporting computation:
No. 17.
ERRATUM: Letter C:
is exempt from gift *
A gift to the International Rice Research Institute
No. 19.
If the sale is considered fictitious, the entire value at the date of sale is subject
to donors tax.
No. 22.
Letter a onerous transfer
Letter b - To be considered valid donation, the renunciation should be specifically and
categorically done in favor of identified heir(s) to the exclusion or disadvantage of the
other co-heir(s) in the hereditary estate.
Letter c gratuitous transfer, subject to donors tax
23
r d
No. 25.
Donation to
Gross Gifts (2M/2) /2
Less Dowry
Net taxable gift
Pedro
P500,000
(10,000)
P490,000
Clara
P500,000
P500,000
No. 28.
Gross Gifts (5M/2)

Less Dowry
Net taxable gift
DONEE
Son
D. in Law
P2,500,0
00
(10,000)
P2,490,0
00
No. 32-34.
NG (3/1)
Tax Due (P25,000 x
2%)
GG (5/1)
Dowry
PNG 3/1
TNG
Tax Due
Tax Paid 3/1
D.T. Payable
GG (7/1)
PNG 3/1 and 5/1
TNG
Tax Due
Total Taxes Paid 7/1
Husband
125,000
P500
Wife
125,000
P500
P100,000
(10,000)
125,000
P215,00
0
P100,000
(10,000)
125,000
P215,00
0
P2,600
(500)
P2,100
P2,600
(500)
P2,100
100,000
100,000
215,000
215,000
P315,00 P315,00
0
0
6,600
6,600
P13,200
No. 39.
Taxable gift
Tax Due
Tax Credit P4,500 vs. (200/300 x
P6,000=P4,000)
D.T.Pyable
P300,00
0
P6,000
(4,000)
P2,000
**
**Change Choice d from P2,200

to P2,000
PROBLEM SOLVING
Problem I:
ITEM
A
24
Q#1
P800,000
Q#2
P800,000
Q#3
P800,000
r d
Q#4
P800,000
Q#5
P800,000
B
C
D
E*
F
G
H
I
Land 1**
Land 2***
Land
3****
Car
GROSS
GIFT
3,000,000
250,000
100,000
5,000,000
1,500,000
100,000
100,000
500,000
5,000,000
3,000,000
250,000
100,000
5,000,000
1,500,000
100,000
100,000
500,000
5,000,000
3,000,000
250,000
100,000
5,000,000
1,500,000
100,000
100,000
500,000
5,000,000
250,000
100,000
1,500,000
500,000
-
1,500,000
100,000
500,000
-
200,000
P16,550,0
00
200,000
P16,550,0
00
200,000
P16,550,0
00
200,000
P3,000,00
0
200,000
P3,450,00
0
*The question is gross gifts, hence, disregard the mortgage.

**Sale of Land #1 is a transfer with insufficient consideration.
However, unlike in Estate Taxation, Transfer with insufficient
consideration for donors tax purposes is not taxable if the property
donated is a real property classified as capital asset subject to capital
gains tax.
*** Sale of Land # 2 is considered bonafide or valid sale.
****Sale of Land #3 is a transfer with insufficient consideration.
Nonetheless, the sale is subject to donors tax because the property
was not subjected to capital gains tax. Capital gains tax on real
properties are applicable only on sale of real properties classified as
capital assets located in the Philippines.
Problem II:
ITEM
A
B
C
D
E
F
Car, Alabang
Car,
Malaysia
Land Cebu
GROSS
GIFT
Problem III:
1.P0
Q#1
P4,500,00
1,000,000
1,500,000
2,000,000
3,000,000
500,000
200,000
200,000
Q#2
P4,500,00
3,000,000
200,000
-
P12,900,0
00
P7,700,00
0
2.P5,000
3.P10,000
Problem IV:
Donation-Red Cross (exempt under a
special law)*
25
43,000
P100,000
r d
Donation to Manila City Hall *

Mortgage on the land (400,000 x )
Total deductions from the gross gifts
300,000
100,000
P500,00
0
*Exempt donations which partake the nature of deductions and are, therefore ,
deductible from the gross gifts to arrive at taxable net gifts.
Problem V (Donations to Relatives and Strangers)

Cash to his son on account of marriage
Cash to PPCRV for 2013 election
Jewelry to his auntie
Shoes and bags to his girlfriend
Books to the City of Makati
Second hand car to his first cousin
Brand new SUV to his second cousin (subject to
revocation)
Shares of stocks of a domestic corp. to his best
friend
Car to his daughter (a donation mortis causa)
Forgiven a loan due from his brother(50,00025,000)
Sports equipment to his brother in law
Parcel of land to the Philippine government for
public use
Gross Gifts
Relative
P50,000
46,000
500,000
-
Stranger
30,000
20,000
150,000
25,000
P621,00
0
75,000
1,000,00
0
P1,275,0
00
NOTE:
Cash to PPCRV. Not considered as donation under the tax code. It is subject
to the rules and regulations of the COMELEC under the election code of the
Philippines.
City of Makati AND Land for Public Use. Although the donation is exempt, it
shall be considered in the determination of gross gifts
Gift subject to revocation is not a gift.
Donation mortis causa is a donation subject to estate tax, not donors tax.
Problem VI
Tax payable on:
1) March 1 = P2,000
2) May 30 = P18,000
3) June 30 = P90,000
4) July 31 = P0
5) September 30 = P447,200
Solution
Gross Gifts
Dowry
P200,000
-
Net taxable gift

Donors Tax Due/ Payable March 1
26
1 year after
celebration
P200,000
P2,000
r d
Gross gift
Less: Mortgage assumed by the donee
Add: Prior net gift
Taxable gift May 30
P500,000
(100,000)
200,000
P600,000
Donors Tax Due

Less: Tax paid
Donors tax payable-May 30
P20,000
(2,000)
P18,000
Donors tax payable-June 30

(P300,000 x 30%)
P90,000
Donors tax payable-July 31 (Bantay

Bata)
Problem
1)
2)
3)
4)
5)
Gross Gift
Dowry
Mortgage assumed
Prior net gift
Taxable gift
September 30
Relative
P1,500,000
(10,000)
(300,000)
600,000
P1,790,000
Tax Due
Less: Tax Payments
Tax Payable
P107,200
(20,000)
P87,200
Total
P1,200,000
@30%
P360,000
360,000
P447,200
P1,000,000
(200,000)
P800,000
P32,000
Gross gift April 1, 2012

Add: Prior net gift
Taxable gift
Donors Tax Due
Less: Tax paid
Donors tax payable-Apr. 1,
2012
Stranger
P1,500,000
(300,000)
VII
January 15, 2012 = P32,000
April 1, 2012 = P6,000
December 25, 2012 = P0
March 30, 2013 = P30,000
May 25, 2013 = P0
Solution
Gross Gifts-Jan. 1, 2012
Less: Encumbrance
Taxable gift
Donors tax due/payable-Jan. 1,
2012
27
P0
P100,000
800,000
P900,000
P38,000
(32,000)
P6,000
r d
December 25, 2012
P0
March 30, 2013

P100,000 x 30%
P30,000
May 25, 2013

Gross gift
Deductions
The rule that gift of not more

than P100,000 is exempt is
applicable only to donations
made to relatives.
P200,000
(200,000
)
P0
P0
Taxable gift
Tax Due
Problem VIII
1) October 8, 2014 = P9,800
2) November 4, 2014 = P1,200
Gross Gift
Dowry
Mortgage assumed
Taxable gift
Donors Tax Payable
Gross Gift
Dowry
Prior Net Gift
Taxable gift
Donors Tax (Tax Table)
Tax Paid-June 6
Donors Tax Payable
Gross Gifts (strangers)

Exempt
Prior Net Gift
Taxable gift
Donors Tax Payable
June 6, 2014
Husband
P240,000
(10,000)
(2,000)
P228,000
P3,120
Wife
P240,000
(10,000)
(2,000)
P228,000
P3,120
October 8, 2014
Husband
P30,000
--P228,000
@30
Wife
P30,000
(10,000)
228,000
P248,000
P3,920
(3,120)
P800
P9,0000
November 4, 2014
Husband
P7,000
(5,000)
P2,000
@30
P600
Wife
P7,000
(5,000)
P2,000
@30
P600
Total
P6,240
Total
P9,800
Total
P1,200
Problem IX
1) October 10, 2013 = P3,140
2) April 4, 2014 = P13,500
28
r d
Gross Gifts (strangers)

Exempt
Taxable gift
Donors Tax Payable
Gross Gifts
Dowry
Mortgage assumed
Prior net gifts
Taxable gift
Donors Tax
Tax paid
Donors Tax Payable
Gross Gifts
Dowry
Prior net gifts
(none; different year)
Taxable gift
Donors Tax Payable
Problem X
(1)P7,000
June 6, 2013
Mr.Ramos
P115,000
(90,000)
P25,000
@30
P7,500
Mrs.Ramos
P115,000
(90,000)
P25,000
@30
P7,500
October 10, 2013

Mr.Ramos
Mrs.Ramos
P191,000
P191,000
(10,000)
(10,000)
(2,500)
(2,500)
P178,500
P178,500
P1,570
P1,570
P1,570
P1,570
April 4, 2014
Mr.Ramos
P45,000
P45,000
@30
P13,500
Mrs.Ramos
P45,000
(10,000)
-
Total
P3,140
Total
Exempt
P13,500
(2)P2,600
Gross Gifts
Dowry
Prior net gift
Taxable gift
Donors Tax
Donors tax paid
Donors Tax Payable
P15,000
P35,000
(3)P69,800
(4)P30,000
Feb. 15, 2014
Mr.Macariol
Mrs.Macari
a
ola
Gross Gifts
P200,000
P200,000
Dowry (beyond 1 year)
Mortgage assumed
(50,000)
(50,000)
Taxable gift
P150,000
P150,000
Donors Tax Payable
P1,000
P1,000
29
Total
March 30, 2014

Mr.Macariol
Mrs.Macari
a
ola
P200,000
P150,000
P350,000
8,000
(1,000)
P7,000
r d
Total
P2,000
Total
P7,000
Gross Gifts
Dowry
Prior net gift
Taxable gift
Donors Tax
Donors tax paid
Donors Tax Payable
June 1, 2014
Mr.Macariol
a
P-
Mrs.Macari
ola
P100,000
(10,000)
150,000
240,000
P3,600
(1,000)
2,600
Total
P2,600
October 12, 2014
Gross Gifts
Dowry (claimed June
1)
Mortgage assumed
Prior net gift
Taxable gift
Donors Tax
Donors tax paid
Donors Tax Payable
Total
Donation by
Clifford:
Gross Gifts
Donors Tax
Mr.Macariola
Donation
Donation to
to
a Relative
Stranger
P200,000
P200,000
-
Mrs.Macariola
Donation to a
Relative
P400,000
-
(50,000)
(50,000)
240,000
590,000
350,000
550,000
150,000
@30%
P45,000
P54,000
Total
P17,000
(8,000)
P9,000
P19,400
(3,600)
P15,800
P69,80
0
P100,00
0
@30%
P30,00
0
ERRATUM: Ronald
Change to Clifford
CHAPTER 7 BUSINESS TAXES

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

TRUE OR FALSE-PART A
1. T
6. F
2. F
7. F
3. F
8. F
4. T
9. T
5. T
10. T
TRUE OR FALSE-PART B
1. T
6. F
2. T
7. F
3. T
8. F
4. F
9. T
5. F
10. F
MULTIPLE CHOICE
1. D
21. A
2. C
22. B
3. A
23. D
4. D
24. C
5. D
25. A
6. D
26. C
7. D
27. C
8. D
28. D
9. D
29. C
10. B
30. D
11. A
31. B
12. C
32. C
13. C
33. B
14. A
34. A
15. A
35. D
16. D
36. A
17. C
37. B
18. C
38. B
19. A
39. B
20. D
40. B
11.
12.
13.
14.
15.
F
F
F
F
F
16.
17.
18.
19.
20.
T
F
F
T
T
11.
12.
13.
14.
15.
F
F
T
F
T
16.
17.
18.
19.
20.
T
T
T
F
F
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
56.
57.
58.
59.
60.
B
C
A
B
C
D
D
B
D
D
C
C
D
B
C
B
D
D
C
A
61.
62.
63.
64.
65.
66.
67.
68.
69.
70.
71.
72.
73.
74.
75.
76.
77.
78.
79.
80.
B
C
A
C
A
B
B
C
D
A
C
B
D
A
D
D
A
D
B
C
21.
22.
23.
24.
25
F
F
T
F
F
81.
82.
83.
84.
85.
86.
87.
88.
89.
90.
91.
92.
93.
94.
95.
D
C
D
C
B
D
A
B
D
D
B
C
D
C
D
ERRATUM:
Illustration #6 . Medical fees (included in the
hospital bills)
No. 14
To be exempt, the contributions from each member in item III should not
exceed P15,000.
No. 21
Item a is composed of selling price and the applicable output vat
31
r d
No. 23
Output Vat (P280,550
+P152,400) x 12%
Input vat (P110,220+P101,250) x
12%
Vat Payable
P51,954
(25,374.6
)
P26,578
No. 24
Output Vat, 3rd quarter (P150,000
x 12%)
Input vat, 3rd quarter (P120,000 x
12%)
Deferred input vat previous
quarter
Vat Payable (Carry-over)
P18,000
(14,400)
(6,000)
(P2,400)
No. 40
AR, July 1
Billings, July-Sept.
AR, Sept. 30
Collections
Output vat @ 12%
Input vat on purchases @
12%
Vat Payable
P180,00
0
850,000
(120,00
0)
P910,00
0
109,200
(57,600)
P51,600
No. 42
Output vat (P10M x 12%)
Input vat on materials
Input vat on capital goods
(P3Mx12%) /60 mos.
Vat Payable June 30,
2014
P1,200,0
00
(480,000
)
(36,000)
P684,000
No. 44
Sales, shares held as
inventory
Cos of shares, held as
inventory
Gross income
Vat rate
Output vat
Les: Input vat
Supplies expense
Rent expense
Vat payable
32
P5,000,0
00
(2,000,00
0)
3,000,00
0
12%
P360,000
12,000
24,000
r d
(36,000)
P324,00
0
No. 52
Domestic sales (P600,000 x 12%)
Add: Transaction deemed sales
Jan. 4 consignment (P200,000 x 12%)
Goods consumed on Fe. 27 (P50,000 x
12%)
Property dividends (P150,000 x 12%)
Total Output Vat
P72,000
24,000
6,000
18,000
P120,00
0
No. 63
Output tax (1,500,00 x 12%)
Less: Input taxes
Purchases (800,000 x 12%)
Machinery (240,000/60 x
3mos.)
Carry-over
Excess input vat
P180,000
96,000
12,000
97,000
205,000
(P25,000)
No. 64
Output tax on sale (2,000,000x 12%)
Output tax on sale of machinery (2,000,000x
12%)
Less: Input taxes
Purchases 1,000,000x 12%)
Unamortized input tax on machinery
(240,000- 12,000)
Carry-over
P240,000
240,000
120,000
25,000
228,000
VAT Payable
(373,000
)
P107,00
0
No. 71 & 72
Output vat (P592,480 x 3/28)
Less: Input Vat
Purchases of goods (P100,000 x
12%)
Purchases of services (P20,000
x 12%)
Transitional input vat
VAT Payable
P63,480
P12,00
0
2,400
4,800
(19,200
)
P44,28
0
No. 77
Change the year from 2010 to 2012
Output Vat for October 2012 = P3M x 12 = P360,000
Ratio of Initial Payt over Gross S.P. = P900,000/P3,000,000 = 30%
33
r d
If initial payment is more than 25% of Selling Price, the sale is classified as
Deferred Sale which is treated as Cash Sale. Therefore, the entire output vat is
due on the month of sale.
No. 78
Output Vat for 2013 = P0;
The entire output vat was paid in 2012
No. 80
Downpayment
1st installment payment
Total (vat inclusive)
Less: VAT (P224,000 x 3/28)
Initial Payment (exclusive of vat)
Divide by contract Price (P1,120,000 x
3/28)
Ratio of Initial Payment over SP
Output vat for 2012 (P200,000 x
12%)
P112,00
0
112,000
224,000
(24,000)
P200,00
0
1,000,00
0
20%
P24,00
0
No. 80
VAT ON CASH SALE:
(FMV is higher than SP) (P600,000 x
12%)
VAT ON DEFERRED SALE:
(Ratio of Initial payment over SP
25%
(Not qualifying under installment
method)
(Treated as cash sale; SP is higher
than FMV)
[(P336,000/1.12) x 12%]
TOTAL OUTPUT VAT
No. 83 and 84
Output vat (P336,000 x 3/28)
Input vat (56,000 + 11,200) x 3/28 x
300/500
Vat Payable
P72,000
36,000
P108,0
00
P36,000
(4,320)
P31,68
0
No. 85
OUTPUT VAT (P896,000 x 3/28)
INPUT VAT
Purchases of goods, vat business, vat included
(P224,000 x 3/28)
MIXED Transactions:
Purchases of supplies, for vat & non vat business
[(112,000 x 3/28) x (800,000/1,000,000)]
34
r d
P96,000
(24,000)
(9,792)
Purchase of depreciable asset, for use in vat and non vat

business
[(P2,240 x 3/28) x (800,000/1,000,000)]
VAT PAYABLE
No. 86 and 87
OUTPUT VAT
Domestic sales (P330,000 + P274,996) x 3/28
Export sales (zero rated)
INPUT VAT
Purchases of goods, supplies and services for domestic sales
and for export (374,000 + 69,848 + 154,000 + 55,000) x 3/28
Vat Payable
P62,208
P64,821
0
(69,948
)
(P5,127
)
No. 88
Raw Materials (P560,000 x 3/28) x
400,000/1M
Supplies (P448,000 x 3/28) x 400,000/1M
Equipment (P300,000 x 12% x 400,000/1M)
INPUT VAT ATTRIBUTED TO EXPORT
SALES
P24,000
19,200
14,400
P57,600
PROBLEM SOLVING
Problem 1:
a) P0
b) P134,400 x 3/28 = P14,400
c) PP201,600 x 3/28 = P201,600
(regardless of whether or not Abi is a vat
registered exporter)
Not zero rated. To be zero rated, the problem should provide that Abi
exported more than 70% of its annual production
d) Vat exempt
Problem 2:
Cash sales (P660,800 x 3/28)
Sales on account (P246,400 x 3/28)
Transaction deemed sales:
(P22,400 + 16,800 + 19,040 +
8,960) x 3/28
Total output vat
Input vat (P291,200 x 3/28)
Vat Payable
P70,800
26,400
7,200
P104,40
0
(31,200)
P73,20
0
Problem 3:
35
r d
OUTPUT:
Sales (P8M 400,000) x 12%
Sales from consignment (March and Feb.)
(20+10) x P10,000 x 12%
Transactions deemed sales
January 8 consignment (20 x P10,000) x
12%
Goods withdrawn
Goods taken as payment to creditors
INPUT VAT
Purchase of goods, supplies,
freight/insurance)
Capital goods (ASSUME USEFUL LIFE OF
4 YEARS)
(P1,100,000 x 12%) / 48 mos.
VAT PAYABLE
Problem 4:
Business tax
Gross receipts (collections) from:
Hotel rooms
P912,000
36,000
24,000
6,000
3,600
82,080
2,750
P896,77
0
P1,800,0
00
3,150,00
0
700,000
P5,650,0
00
12%
Other revenues
Total
VAT
Gross receipts (collections) from disco
operations @18%
TOTAL Business Taxes
Charlie (P4M-P1M) x 12%

Delta (P2M x 12%)
VAT PAYABLE, 1st Quarter 2014
OPT
P678,00
0
P504,00
0
P1,182,000
Problem 5:
Output vat on gross receipts
(collections) from construction contracts
with:
Bobads, City Condo & Urban
Devt.
(P30M x 12%)
Less: Input vat on payments/advances
made to:
Alpha (P12M x 90% x 12%)
(84,830)
VAT
Dining hall
36
P981,600
r d
P3,600,00
0
(1,296,00
0)
(360,000)
(240,000)
P1,704,0
00
Problem 6:
Ratio of Initial Payment over Selling Price:
Lot A = 50/250 = 20% ; Installment Sale
Lot B = 70/200 = 35%; Deferred Sale; Treated as Cash Sale
Lot C = 60/300 = 20%; Installment Sale
No. 2013
Lot A: P25,000 x 12%; P25,000
x 12%
Lot B: P200,000 x 12%
Lot C: P40,000 x 12%; P20,000
x 12%
Vat Payable
P3,000
Dec.
2013
P3,000
24,000
4,800
2,400
P31,800
P5,400
Problem 7:
Output vat: school supplies and gift items (P560,000 + 336,000) x
3/28
Input vat:
Directly attributable to vatable sales (P406,000 x 3/28)
Not directly attributable to vatable sales (P21,112 x 3/28 x
800*/1,000**)
VAT PAYABLE
P96,000
(43,500)
(1,809.6
0)
P50,690
.40
*(560,000/1.12) + (P336,000/1.12) = P800,000 vatable sales

**vatable sales + vat exempt sales (sale of books) = P1,000,000
CHAPTER 9 OTHER PERCENTAGE TAXES

TRUE OR FALSE-SET A
1. F
6. F
2. T
7. F
3. T
8.
4. F
9.
5. F
10.
TRUE OR FALSE-SET
37
T
T
F
B
11.
12.
T
F
16.
17.
13.
14.
15.
F
T
T
18.
19.
20.
r d
T
F (False, should be 20
days)
F
T
F
1. T
6. F
2. T
7. F
3. F
8. T
4. T
9. F
5. T
10. F
MODIFIED IDENTIFICATION
1. A
6. C
2. A
7. A
3. E
8. A
4. C
9. C
5. C
10. C
MULTIPLE CHOICE
1. C
21. -----2. D
22. A
3. D
23. B
4. C
24. D
5. A
25. B
6. A
26. C
7. D
27. B
8. A
28. C
9. A
29. C
10. C
30. A
11. D
31. B
12. A
32. D
13. B
33. D
14. C
34. D
15. D
35. D
16. B
36. A
17. B
37. A
18. D
38. A
19. A
39. D
20. B
40. A
11.
12.
13.
14.
15.
T
F
F
T
T
16.
17.
18.
19.
20.
T
T
T
T
T
11.
12.
13.
14.
15.
C
A
A
A
A
16.
17.
18.
19.
20.
A
C
C
C
C
21.
22.
23.
24.
25.
C
A
A
A
B
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
56.
57.
58.
59.
60.
D
C
A
D
D
C
B
C
B
B
A
C
C
C
A
A
----C
C
A
61.
62.
63.
64.
65.
66.
67.
68.
69.
70.
71.
72.
73.
74.
75.
76.
77.
78.
79.
80.
A
D
D
B
C
D
A
A
B
C**
A
C
C
C
C
D
D
D
C
A
81.
82.
83.
84.
85.
86.
87.
88.
89.
90.
C
B
D
D
B
B
A
D
D
D
No. 5 (P280,000 + P220,000) x 3% = P15,000
No. 6 (P50,000 + 100,000 75,000) x 3% = P2,250
No. 7
Gross receipts (refer to P75,000
#6)
x vat rate
12%
Output vat
P9,000
Input vat (P11,200 x
(1,200)
3/28)
Vat Payable
P7,800
No.
No.
No.
No.
No.
16
17
18
22
22
38
P6.5M x 12% = P780,000

P660,00 x 3% = P19,800
(P400,000 + P100,000) x 12% = P60,000
P10M x 2.5% = P250,000
P10M x 1.5% = P150,000
r d
No.
No.
No.
No.
26
27
30
34
(P10M x 40%) 3% = P120,000

(P10M P6M) X 30% = P1,800,000
Subject to vat, not franchise tax
AR, beg.
P600,00
0
5,000,00
0
(960,000
)
P4,640,0
00
12%
P556,8
00
Revenues (P4M + P1M)

AR, end
Gross receipts
Vat rate
Business tax due
No. 35
Covered
Franchise
AR, beg.
Revenues
by
the
AR, end
Gross receipts
Franchise tax rate
Business tax due
Total
Business
Taxes
No. 42
P600,000
4,000,00
0
(800,000)
P3,800,00
0
2%
P76,000
P176,80
0
NOT Covered
Franchise
AR, beg.
Revenues
by
the
Gross receipts
P---1,000,00
0
(160,000
)
P840,000
Franchise tax rate

Business tax due
12%
P100,800
AR, end
P3M x 10% = P300,000
No. 34
Output vat (P5M x 12%)
Input Vat
P300,000 x 12%
P800,000 x 12% x 5/8
Vat Payable
P600,00
0
(36,000)
(60,000)
P504,0
00
No. 48
OPT%
Interest income from lending
activities from inst1uments with
remaining terms of:
Five years and less
More than five years
39
5,000,00
0
3,000,00
0
r d
GRT
5%
P250,000
1%
30,000
Dividends & equity shares from

subsidiaries
Rental income
Net trading gains
Total Gross Receipts Tax
1,000,00
0
500,000
300,000
0%
7%
7%
35,000
21,000
P336,000
Rentals from safety deposit boxes

Net foreign exchange gains
Net trading gains from trading of
securities
Trust fees
Dividends
from
domestic
corporations
Other service fees
Interest income from lending
activities from inst1uments with
remaining terms of:
Five years and less
More than five years
Total Gross Receipts Tax
P880,000
220,000
660,00
0
110,000
30,000
OPT%
7%
7%
7%
GRT
P61,600
15,400
46,200
7%
0%
7,700
0
220,000
7%
15,400
700,000
800,000
5%
1%
35,000
8,000
P189,300
No. 49
No. 50
Interest income with maturity of less than 5 years
(P500,000 x 5%)
Rentals (P500,000 x 7%)
Net trading loss = none; if net trading gain, tax is
7%
Gross receipt tax (GRT)
P25,0
00
35,00
0
P60,0
00
No. 51
Interest income with maturity of less than 5 years
(P1M x 5%)
Rentals (P500,000 x 7%)
Net trading gain
[200,000 (100,000 net trading loss previous
month) x 7%]
Gross receipt tax (GRT)
P50,000
35,000
7,000
P92,00
0
No. 52
Interest withheld and paid (P100,000 x 5 years x 1%)
Adjusted amount of tax due to pretermination (P100,000 x
5 years x 5%)
Tax Payable
40
r d
P5,000
25,000
P20,0
00
No. 55
P2M x 10% = P200,000
No. 56
[(P500,000 x 12%)-(300,000x12%)] = P24,000
No. 58
P2M x 2% = P40,000
No. 64
P7.5M x 18% = P1,350,000
No. 65
P5M x 18% = P900,000
No. 66
Not subject to OPT. Gross Receipts > 1,919,500, therefore, JC is subject to vat,
not OPT
No. 70**
ERRATUM: CHANGE THE QUESTION TO : WHICH OF THE FOLLOWING IS SUBJECT TO
PERCENTAGE TAX?
a - not subject to percentage tax or any business tax Overseas communication
into the Philippines.
b and d - subject to vat
c not world or oriental championship. Subject to 10% OPT
No. 75
No. 77
No. 79
rate = 1%
No. 80
No. 81
P350,000 x .005 = P1,750

[(P1,500,000 - P1,000,000) x 12] = P60,000
(120,000 30,000) x x P30 x 1% = P13,500;
Ratio = 45/75 = 60%;
(2,000 x P25 x 4% = P2,000;

Ratio = 2/75 = 2.67%;
(6,000 x P40 x .005% = P1,200
PROBLEM SOLVING
Problem I:
Gross receipts-passenger
operations
(P8,000,000 x 3% CCT)
Gross receipts cargo operations
(P5M x 75% x 12%vat)
Rentals (P2M x 12%vat)
Total business taxes
IPO
IPO rate = 4%
P240,000
450,000
240,000
P930,00
0
Problem II:
1) 3% OPT on vat exempt sales (GR<1,919,500 & non-vat registered) =P1.4M x 3%
= P42,000
2) VAT = P1,400,000 x 12% = P168,000
Problem III:
1) Income tax due = P625,000
Subject to 2.5% GPB:
GR Passenger operations-Phils.
GR cargo operations-Phils.
Total
GPB rate
Subject o NCIT (RR 15-2013):
41
P10,000,0
00
6,000,000
16,000,00
0
2.5%
r d
P400,000
Demurrage, detention and

Other fees
Expenses on demurrage fees
Income subject to NCIT
NCIT rate
Total income tax due
1,000,000
(250,000)
750,000
30%
225,000
P625,000
EXCLUDED FROM GPB: RR15-2003 provides that demurrage fees, detention

fees, and other charges relating to inbound and outbound cargoes are
considered as income derived from sources within the Philippines subject to
regular tax rates.
2) Income tax due = P545,000
Subject to 2% GPB (Under a tax
treaty):
Total
GPB rate
Subject o NCIT (RR 15-2013):
Other fees
Income subject to NCIT
NCIT rate
Total income tax due
P10,000,0
00
6,000,000
16,000,00
0
2%
P320,000
1,000,000
(250,000)
750,000
30%
225,000
P545,000
3) Business tax due = 3% CCT on cargo operations originating in the Philippines

= 3% x P6M = P180,000
4) Income tax due = P3,225,000
An offline carrier is not an international carrier. Assume therefore that the
income provided were in the nature of commission income from
international carriers.
***An offline carrier may be a domestic or resident foreign corporation.
Since the original problem pertains to an international carrier (resident
foreign corporation), the offline carrier provided in the problem should be
treated as a resident foreign corporation taxable only on its income from
sources within the Philippines.
Solution:
Net income subject to NCIT:
P10,000,0
00
6,000,00
0
1,000,00
0
Other fees
Expenses-passenger operations- (4,000,00
42
r d
Phils.
Expenses-cargo operationsPhils.
0)
(2,000,00
0)
(250,000)
NCIT rate
Income tax due
P10,750,000
***
30%
P3,225,000
5) Business tax due (offline carrier) = P2,040,000

GR from Passenger operationsP10,000,0
00
Phils.
GR from cargo operations-Phils.
6,000,000
1,000,000 P17,000,00
0
Other fees
Vat rate
12%
Business tax due
P2,040,00
0
Problem IV:
1. P0. Not subject to business tax but subject to a capital gains tax of P2,500.
[(5,000 sh. X P50) P200,000 = P50,000 capital gain x 5%CGT = P2,500 CGT
2. P0. Not subject to business tax as well as income tax (CGT). The
transaction resulted to a loss amounting to P75,000, hence, not subject to
CGT.
Purchase Price = P50/share; S.P.=P35/share; Loss = P15/share
3. Subject to P6,000 value added tax
[(5,000 sh. X P50) P200,000 = P50,000 capital gain x 12% = P6,000
4. Subject to OPT (stock transaction tax) of P600 computed as follows:
P120,000 x .005 = P600
5. OPT = 5,000 shares x P18 x .005 = P450
Problem V:
1. P3,000 OPT.
ratio=10/35=28.5%; IPO rate= 2%;
on=P150,000 x 2% = P3,000
2. P100 OPT.
P20,000 x .005
Problem VI:
1.
2.
3.
4.
5.
Tax due
P1,053,000 OPT (amusement tax).

P5,850,000 x 18%
P1,053,000 OPT.
Subject only to a business tax due of 18% OPT.
P720,000 OPT
P4,000,000 x 18%
P55,500 OPT.
P1,850,000 x 3%
P108,000 Vat.
(P1850,000 x 12%) [P750,000 x 12% + (P224,000 x
3/28)]
Problem VII:
43
r d
1. P651,250
(P4M + 3.5M + 775,000) x 7% = P579,250
(P6M + 1.2M) x 1% = P72,000
2. P578,500
[(P2.8M + 3.3M + 825,000) + (325,000 150,000)] x 7% = P497,000
(P7.2M + 950,000) x 1% = P81,500
44
r d

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SOLUTIONS MANUAL

TRANSFER & BUSINESS TAXATION, 3rd Edition

TABAG & GARCIA

CHAPTER 1 SUCCESSION & TRANSFER TAXES

CHAPTER 2 GROSS ESTATE

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

*Included in the gross estate if the beneficiary is the estate, administrator or

P0; valid sale

CHAPTER 3 DEDUCTIONS FROM THE GROSS ESTATE

ASSUME GROSS ESTATE OF P2,000,000

Less: Due to the BIR for unpaid

Debtor is not insolvent

Cost of preserving and distributing the estate

1st Deduction: Mortgage paid

CHAPTER 4 PROPERTY RELATIONS

*Change Aug. 3, 1998 TO August 3, 1988

Share of the Surviving Spouse

Medical expenses (P500,000

No. 29 ABSOLUTE COMMUNITY OF PROPERTY

Share of surviving spouse

1st Deduction: Mortgage paid

ESTATE TAX DUE

(a) Net Taxable estate = P3,570,000;

Investment in stock, Philippines

Estate Tax Due

Estate Tax Due

** P700,000 350,000 = P350,000

Real Property inherited by the decedent

CHAPTER 5 ESTATE TAX CREDIT AND ESTATE TAX DISTRIBUTABLE

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

Estate tax credit (4/10 x P1,215,000)

Estate Tax Due

Cash on hand, Philippines

NET DISTRIBUTABLE ESTATE

Total Gross Estate (common; as computed

X (Share of the surviving spouse)

CHAPTER 6 DONORS TAX

A gift to the International Rice Research Institute

Gross Gifts (5M/2)

**Change Choice d from P2,200

*The question is gross gifts, hence, disregard the mortgage.

Donation to Manila City Hall *

Problem V (Donations to Relatives and Strangers)

Net taxable gift

Donors Tax Due

Donors tax payable-June 30

Donors tax payable-July 31 (Bantay

Gross gift April 1, 2012

December 25, 2012

March 30, 2013

May 25, 2013

The rule that gift of not more

Gross Gifts (strangers)

Gross Gifts (strangers)

October 10, 2013

March 30, 2014

October 12, 2014

CHAPTER 7 BUSINESS TAXES

CHAPTER 8 VALUE ADDED TAX

Purchase of depreciable asset, for use in vat and non vat

Charlie (P4M-P1M) x 12%

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

CHAPTER 9 OTHER PERCENTAGE TAXES