INCOME TAXATION 7TH Edition (BY: VALENCIA & ROXAS) 47

SUGGESTED ANSWERS
Chapter 6: Fringe Benefits Tax

CHAPTER 6
FRINGE BENEFITS TAX
Problem 6 – 1 TRUE OR FALSE
1. False – FBT is a final tax of the employee. However, this is the liability of the employer to
withhold the final tax of 32%
2. True
3. True
4. True
5. True
6. True
7. True
8. True
9. False – Some housing fringe benefit is not subject to income tax. Ex. Temporary housing
for three months or housing benefit under the employer’s benefit rule.
10. True, also FB is also a form of incentives to rank-in-file employees.
11. False – These are benefits other than salaries and also given to rank-in-file employees.
12. False – Wage and salaries are not subject to reduction once given regardless of the
financial condition of the employer.
13. True
14. True
15. False – The corporate income tax rate is 30% as of 2012, while the fringe benefit tax
remains at final tax rate of 32%.
16. True, unless these are among the de minimis

Problem 6 – 2 TRUE OR FALSE

1. False – De minimis are also fringe benefits in small amount but not subject to FBT.
2. False – Fringe benefits given to rank-in-file, except those which are among the de
minimis and those given for employer’s convenience, are not subject to FBT but subject
to compensation income tax.
3. True
4. True
5. False – P750/semester is the ceiling for exempt medical allowance
6. False- the exempt meal allowance must be related in the rendering of overtime work to
be considered de minimis.
7. True
8. True
9. True
10. False – A travel required by the company to its officer is not subject to FBT because by
its nature a travelling expense.
11. true
12. False – Scholarship grants to employees not related to business is taxable.
13. False – These are among those exempted from fringe benefit tax.

Problem 6-3 Problem 6-4

1. C 1. C
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Chapter 6: Fringe Benefits Tax

2. B 2. C
3. C 3. A
4. C 4. D
5. D 5. D
6. A 6. A
7. B 7. B
8. D 8. B
9. A 9. A – only P5,000 is taxable the excess of
P10,000.
10. B 10. D
11. B 11. D
12. D 12. D

Problem 6 – 5 A
Net income (P300,000/30%) P1,000,000
Add: FB charged to miscellaneous expense 170,000
Taxable net income P1,170,000
Multiplied by corporate tax rate 30%
Income tax due P 351,000
Less: Income tax already paid 300,000
Additional tax to be paid P 51,000

The fringe benefits of rank-in-file employee are subject to regular withholding tax on wages, [Sec.
24 (A), NIRC]. There is no grossed-up monetary value involved. If the BIR uncover the
concealment resulting to the nonpayment of withholding tax, the fringe benefits shall be
disallowed as deductible expense. [Sec. 34 (A)(1ai), NIRC]

Problem 6 – 6 C
Fringe benefit tax (P102,000/68% x 32% P48,000
Income tax:
Net income before tax (P1,750,000/70%) P2,500,000
Add: Fringe benefits charge to miscellaneous expense 102,000
Total P2,602,000
Multiplied by corporate income tax rate 30%
Corporate income tax P 780,600
Less: Income tax already paid (P2,500,000 – P1,750,000) 750,000 30,600
Tax recovered by the government P78,600

Note: The fringe benefit tax expense is not deductible because the related withholding
tax was not withheld and paid until the tax evasion was discovered by the BIR.

Problem 6 – 7
Correction: Should be - The car ownership was transferred to Mr. Alegre.

1. Letter B
Cash P 34,000
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Chapter 6: Fringe Benefits Tax

House and lot – FMV, higher (ownership transferred) 544,000

Car – ownership transferred (P680,000 x 9/10) 612,000
Monetary value of fringe benefits P1,190,,000

2. Letter C
Grossed-up monetary value (P1,190,000/68%) P1,750,000

Problem 6 – 8
1. Letter C
Monetary value of FB (P80,000/32%) x 68% P170,000

2. Letter B
Grossed-up monetary value (P80,000/32%) P250,000

3. Letter D
A fringe benefit tax is not an income tax of P - 0 -
employer.

Problem 6 – 9 C
Meal benefits (P10,200 x 6 months) P 61,200
Educational assistance 13,600
Fringe benefits subject to FBT P74,800

Salaries are subject to normal tax. The fringe benefits subject to FBT shall only start from the
time Mr. Rojas was promoted to managerial level. His fringe benefits prior to his promotion
should be subject to normal tax.

Problem 6 – 10 B
Deductible from business income (P136,000/68%) P 200,000

Problem 6 – 11 A
None, because fringe benefit tax is a final tax and no deduction is allowed from gross
compensation income except personal exemptions and health or hospitalization insurance
actually paid if the family income does not exceed P250,000.

Problem 6 – 12 D
Zero. No Fringe benefit tax is to be imposed on fringe benefit of rank-in-file employee.
Mr. Estrada is a company messenger. His fringe benefit is subject to withholding tax
on wages.

Problem 6 – 13
1 Letter A
.
Grossed-up monetary value (P6,000,000 x 5% x 50%)/68% P220,588
Multiplied by FBT rate 32%
Fringe benefit tax P 70,588
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Chapter 6: Fringe Benefits Tax

2 Letter B
.
Down payment P2,000,000
Present value of 4 installments (P1,000,000 x 3.037) 3,037,000
Total P5,037,000

GMV (P5,037,000 x 5% x 50%)/68% P185,183

Multiplied by FBT rate 32%
Fringe benefit tax P 59,258

Problem 6 – 14 D
FB Expense is equal to GMV (P2,000,000 x 5% x 50%)/68% P73,529

Problem 6 – 15 B
Acquisition cost = fair market value (higher than zonal value) P2,040,000

Monthly fringe benefit [(P2,040,000 x 5% x 50%)/12]/68% P 6,250

Problem 6 – 16 A
Zero. Jean’s used of the condominium is not for her benefit but for the benefit of B
Corporation as the former conducts investigation for inventory fraud.

Problem 6 – 17 A
Discounted price of the cars (P1,000,000 x 95% x 50) P47,500,000
Add: Transportation, insurance and testing cost 500,000
Total acquisition cost P48,000,000

Acquisition cost assigned to officers

[(P48,000,000/50) x 10] P9,600,000

Monetary value of 10 cars [(P9,600,000/5) x 50%] P 960,000

Divided by number of officers to received the cars 10
Monetary value of fringe benefit of each officer P 96,000
[Sec. 2.33 (B), Rev. Regs. No. 3-98]

Problem 6 – 18
1 Letter A
.
Grossed-up monetary value [(P1,000,000/5) x 50%] /68% P147,059
Multiplied by FBT rate 32%
Fringe benefit tax P 47,059

2 Letter C
.
Grossed-up monetary value (P1,000,000/5)/68% P294,117
Multiplied by FBT rate 32%
Fringe benefit tax P 94,117

Problem 6 – 19 D
Lease price per vehicle [P6,000,000/(20 + 14 + 6)] P150,000
Multiplied by number of vehicle assigned to officers 6
Total fringe benefits to officers P900,000

Annual value of fringe benefits of each officer

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Chapter 6: Fringe Benefits Tax

[(P900,000/6) x 50%] P 75,000

Problem 6 – 20 C
Annual depreciation allowed (P17,000,000/20) P 850,000
Divided by GMV factor 68%
Grossed-up monetary value P1,250,000
Multiplied by FBT rate 32%
Annual fringe benefit tax P 400,000
Divided by number of the members of the BOD 5
Annual fringe benefit tax for each director P 80,000

The use of aircraft (including helicopters) owned and maintained by the employer shall be
treated as business use and not b e subject to the fringe benefit tax.

The use of yacht whether owned and maintained or leased by the employer shall be treated as
taxable fringe benefit. The value of the fringe benefit shall be measured based on the
depreciation of a yacht at an estimated useful life of 20 years. [Sec. 2.33 (B), Rev. Regs. No. 3-98]

Problem 6 – 21 B
Light and water of his residential house P 5,440
Grocery items 6,800
Reimbursable expense subject to FBT P12,240

Only the personal expense reimbursed.

Problem 6 – 22 D
Grocery items P17,000
Pants and T-shirt 3,400
Total monetary value of FB P20,400

Fringe benefit tax (P20,400/68%) x 32% P 9,600

Problem 6 – 23 B
FB expense (P476,000 x 75%)/68% P525,000

Problem 6 – 24 D
Fringe benefit tax (P16,320/68%) x 32% P 7,680

Problem 6 – 25 C
Fringe benefit tax (P57,800/68%) x 32% P27,200

Problem 6 – 26
1. Letter D
There is no FBT for rank-in-file employee.

2. Letter B
Benchmark interest (P88,400 x 12%) P10,608
Less: Actual interest charge (P88,400 x 3%) 2,652
Difference P 7,956

FBT (P7,956/68%) x 32% P 3,744

Problem 6 – 27 D
Professional Tax Receipts P 5,440
PICPA Lifetime membership 13,600
Goma golf club 68,000
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Chapter 6: Fringe Benefits Tax

Baguio Country Club 340,000

Total taxable fringe benefits P427,040

FBT (P427,040/68%) x 32% P200,960

All membership fees paid by the company in behalf of the comptroller are considered fringe
benefits; hence, subject to FBT.

Problem 6 – 28 A
Hotel accommodation [($1,600- ($300 x 4)] x P50/$1 P 20,000
Personal expenses ($280 x P50/$1) 14,000
Total amount of fringe benefits P 34,000

Fringe benefit expense (P34,000/68%) P 50,000

Problem 6 – 29 C
Fringe benefit tax [(P54,400 x 30%) / 68%] x 32% P 7,680

Problem 6 – 30 B
Fringe benefit expense (P408,000/68%) P600,000

Problem 6 – 31 A
Zero. The scholarship was obtained through competitive examination.

Problem 6 – 32
1. Letter D
None. Exempt because the educational benefit is related to work. (Employer’s benefit rule)

2. Letter B
P65,280 – Only the monetary value is deductible because the benefit is tax-exempt.

Problem 6 – 33 D
Grossed-up monetary value (P170,000/85%) P200,000
Multiplied by applicable FBT rate 15%
Fringe benefit tax P 30,000

Problem 6 – 34 B
Fringe benefit tax:
Chan (P30,000/75%) x 25% P10,000
Lapid (P51,000/68%) x 32% 24,000
Total fringe benefit tax withheld P34,000

Problem 6 – 35 C
Annual life insurance premium P100,000
Amount of loan P1,000,000
Less: Present value at 12% (P1,000,000 x 0.893) 893,000 107,000
Monetary value of fringe benefit subject to FBT P207,000

Problem 6 – 36 C
Insurance premium - VP for Operation (50% x P4,080) P 2,040
Divided by GMV factor 68%
Grossed-up monetary value P 3,000
Multiplied by FBT rate 32%
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Chapter 6: Fringe Benefits Tax

Fringe benefit tax P 960

Problem 6 – 37
1. Rice subsidy P12,000
Nontaxable uniform and clothing allowance 4,000
Employees achievement award 10,000
Nontaxable medical allowance to dependents (P125 x 12) 1,500
Laundry allowance 3,600
Actual medical benefits 10,000
Total nontaxable fringe benefits P41,100

2. Car P214,000
Divided by grossed-up rate 68%
Grossed-up monetary value P314,705
Multiplied by FBT rate 32%
Fringe benefit tax P100,705

Note: The new BIR interpretation is that the excess of the actual fringe benefit given
shall be taxable after deducting the de – minimis threshold amount. The excess
amount of fringe benefit shall be subject to withholding tax on wages whether the
recipient employee is a rank-in-file or managerial employee.

Problem 6 – 38
1. Housing benefit (P12,240 x 110%) P13,464
Lions Club membership fee 20,400
Total P33,864
Divided by grossed-up rate 68%
Taxable amount of FB P49,800

2. Fringe benefit tax (P49,800 x 32%) P15,936

3. Violeta Vicente cannot deduct the FBT from her gross income.

San Miguel Corporation, however, can deduct the entire amount

of grossed-up monetary value amounting to P49,800 from the
gross income of the corporation as fringe benefit expense.

Problem 6 – 39
A. 1. Monetary value P68,000

2. FBT (P68,000/68%) x 32% P32,000

B. 1. Down payment P200,000

Add: Present value of P180,000 installment at 18% per year:
Yr. 1: (P180,000 x 0.8475) 152,550
Yr. 2: (P180,000 x 0.7182) 129,276
Yr. 3: (P180,000 x 0.6086) 109,548
Yr. 4: (P180,000 x 0.5158) 92,844
Yr. 5: (P180,000 x 0.4371) 78,678 562,896
Acquisition cost P762,896
Divided by 5
Monetary value P152,579

2. FBT (P152,579/68%) x 32% P 71,802

C. 1. Monetary value (P816,000 x 150%) P1,224,000

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Chapter 6: Fringe Benefits Tax

2. FBT (P1,224,000/68%) x 32% P 576,000

D. 1. Annual monetary value = annual depreciation (P1,020,000/25) P 40,800

2. FBT (P40,800/68%) x 32% P 19,200

E. 1. Monetary value (P244,000 x 50%) P 122,000

2. FBT (P122,000/68%) x 32% P 57,412

F. 1. Monetary value (P1,360,000 x 5% x 50%) P 34,000

2. FBT (P34,000/68%) x 32% P 16,000

Problem 6 – 40
1. FBT – condominium [(P6,000,000 x 5% x 50%)/68%] x 32% P 70,588
FBT – car:
Down payment P 300,000
Present value of P240,000 yearly installment at 12%
(P240,000 x 3.605) 865,200
Acquisition cost P1,165,200
Divided by 5
Monetary value P 233,040
FBT – car (P233,040/68%) x 32% P 109,666

2. Journal entries:
FB expense 70,588
Cash / FBT payable 70,588

FB expense 342,706
Car 233,040
Cash / FBT payable 109,666

Problem 6 – 41
1. Monetary value – assignment of condominium (P5,000,000 x 5% x 50%) P 125,000

2. Grossed-up monetary value of condominium (P125,000/68%) P 183,823

3. Fringe benefit tax on the use of condominium (P183,823 x 32%) P 58,823

4. Grossed-up monetary value of the car (P500,000/5)/68% P 147,059

5. FBT of car (P147,059 x 32%) P 47,059

6. None. The cash is a fixed compensation income

7 Zero. Compensation income is subject to normal income tax.