EXERCI

SES1-
1 EXERCI
SES1-
2
1. D 11 K 1. F 11 T 21 F 31 F
. . . .
2. F,
K 12 J 2. F 12 T 22 T 32 F
. . . .
3. I 13 A 3. F 13 F 23 T 33 T
. . . .
4. J 4. F 14 F 24 T 34 T
. . .
5. J 5. F 15 F 25 T 35 T
. . .
6. B 6. F 16 F 26 T
. .
7. E 7. F 17 T 27 F
. .
8. H 8. F 18 T 28 F
. .
9. C 9. T 19 T 29 F
. .
10. M 10 T 20 T 30 T
. . .

EXERCI
SES1–3 EXERCI
SES1–4
1. B 11. A 1. A 11. B 21. A 31. D
2. C 12. B 2. A 12. A 22. A 32. C
3. C 13. D 3. D 13. A 23. D 33. B
4. B 14. A 4. B 14. C 24. D 34. A
5. C 15. A 5. B 15. C 25. C 35. A
6. D 16. C 6. C 16. B 26. D
7. A 17. C 7. B 17. D 27. C
8. C 18. C 8. C 18. A 28. D
9. C 19. D 9. B 19. C 29. B
10. C 20. C 10. C 20. B 30. C

EXERCI
SE1–5
Thecl
aim oft
heCommi
ssi
onershoul
dbedeni
ed.
Rule-
makingpowermustbeconfi
nedtodet
ail
sforregulati
ngthemodeorpr oceedi
ngs
i
nor dertocarr
yintoeff
ectthel
awashasbeenenacted,anditcannotbeextendednorcanit
expandthestat
utoryr
equir
ement
sortoembracematt
ersnotcov er
edbythest
atute.
Admini
strat
iveregulat
ionsmustal
waysbei
nharmonywi
tht hepr
ovi
sionsoft hel
aw
becauseanyresult
ingdiscr
epancybet
weenthet
wowil
lal
way
sberesolv
edinf
av oroft
hebasic
l
aw.
EXERCI
SE1–6

YES.Doubletaxationmeanst axi
ngtwicethesamepr opert
ytwicewhenitshoul
dbetaxedonl y
once;thatis“t
axingthesameper sont wi
cebyt hesamej uri
sdict
ionforthesamet hi
ng.
” Otherwise
descri
bedas“directdupli
catet
axati
on,”thetwotaxesmustbei mposedont hesamesubjectmatter
,for
thesamepur pose,byt hesamet axingauthor
ity
,withi
nt hesamej uri
sdi
cti
on,dur
ingthesamet axi
ng
peri
od;andthetaxesmustbeoft hesameki ndorcharact
er.

Thereisindeeddoubletaxati
onifrespondenti ssubj ect
edt othetaxesunderbot hSect i
ons14
and21ofTaxOr dinanceNo.7794,sincethesearebei ngimposed:( 1)ont hesamesubj ectmat t
er–t he
pri
vi
legeofdoingbusi nessi
ntheCityofMani l
a;(2)forthesamepur pose–t omakeper sonsconduct i
ng
busi
nesswi thi
ntheCi tyofManil
at ocontri
butetoci t
yr evenues;(3)byt hesamet axi
ngaut hori
ty–t he
Cit
yofMani l
a;(4)wi t
hinthesamet axi
ngjuri
sdicti
on–wi thinthet er
ri
tor
ialj
uri
sdict
ionoft heCi tyof
Manila;(
5)forthesamet axi
ngperiods–percal endary ear
;and( 6)oft hesameki ndorchar acter–a
l
ocalbusinesstaximposedongr osssalesorreceiptsofthebusi ness.

Moreov
er,
Secti
on143(h)maybeimposedonlyonbusi
nessest
hatar
esubjectt
oexci
setax,
VAT,
orper
cent
agetaxundert
heNIRC,andt
hatar
e“ notot
herwi
sespeci
fi
edi
nprecedi
ngparagr
aphs.
”

EXERCI
SE1–7

1. Exci
se 6. Li
feblood
2. Communi t
y 7. Toll
3. Dueprocess 8. School
4. Donor’
stax 9. Revenue
5. Shif
ti
ng 10.Taxamnest
y

E L
S L L
H I O
I F C O M M U N I T Y
F E X R T
T B E X E S
I L A V E
N O T E N
G O S N M
D R U A
S C H O O L E X
N A
O T
D S S E C O R P E U D
EXERCI
SE2–1

1.Thequer yshouldbeaddr essedt otheCommi ssionerofInt

ernalRevenuebecausethepower
tointerprett
hepr ovi
sionsoft heNat i
onalI
nternalRevenueCode( NI RC)andothertaxl
aws
isundert heexclusi
veandor iginalj
uri
sdi
cti
onoft heCommi ssi
oner
, subj
ecttor
ev i
ewbythe
SecretaryofFi
nance.
Moreover
,int
erpr
etati
onofof
fi
cers,ofl
awswhichareentrust
edtothei
radmini
str
ati
on,
i
sentitl
ed to gr
eatrespectand hav
ei nthei
rfavorapr esumpti
on oflegal
i
ty(Anscor
Cont
ainerCorpor
ati
onv .CTA,
GRNo.38052,August31,
1998).

2.Iwil
linform hi
mt hatacompr
omi
seisnotal
l
owedanymorebecausethecasehasalr
eady
been fil
ed in court. Themomentt
hecaseisfi
led i
n cour
t,itcannotbesubjectto
compr omiseany more.
3. Pi
oloi
scorr
ect
.UnderRA1405t heBI
RCommi ssioner
’spowert
oinqui
rei
ntoataxpay
er’
s
bankdeposi
tisnotinconfl
i
ctwiththeBankSecrecyLaw.Basedont heprov
isi
onofthe
NIRC,t
heCommi ssi
oneri
sauthor
izedt
oinqui
rei
ntobankdeposit
:
a.Todet er
minethegr
ossest
ateofadecedent
;and
b. Whenat axpay
erappl
i
esforacompr omiseofhi
staxl
i
abi
l
itybyr
easonoff
inanci
al
incapaci
ty.

4. Iwi
l
lrequestforacompr omiseoftheassessedtaxongroundt hatt
hefi
nancialposi
ti
onof
t
hetaxpayerdemonstratesclearinabil
i
tytopaytheassessedtax.Clear
ly,ev
eni ft
hecase
i
sdecidedagainstthetaxpay er
,hewi l
lnothavethemoneyt opaytheassessedt ax.Iti
s
t
her
eforeanexercisei
nf uti
li
tytoforegowit
hthecaseagainsthi
m.

5. Theclai
mf orrefundshoul
dbedeni edongr oundofprescr
ipt
ion. Recover
yoft axes
er
roneously paidorill
egal
lycollect
edar eall
owedonlywhenf i
ledwithi
nthet wo-
year
pr
escript
iveper
iod.Thetwo-yearperiodshoul
dbecomput edfr
om t het
imeofactualf
il
ing
oftheAdjustmentRetur
nandf inalpaymentofthetax(Phil
.BankofCommuni cati
onsv s.
CI
R, 302SCRA241).
Thus,
thet
woy
earpr
escr
ipt
iveper
iodl
apsedonApr
il5,
2008.

6. TheCommi ssionermaynotgr antt

her ef
undwhent her
ei sadefi
ciencytaxassessment
againstthecl
aimant-
taxpayer
.Toawardsuchr ef
unddespi
tetheexi
stenceofthedef
ici
ency
assessmenti sanabsurdit
yandapolari
tyinconcept
ualeff
ects(
Commi ssi
onervs.CAand
Cit
ytrustBankingCor
p,234SCRA348) .

7. Yes.Wher eacor porat

ionpaidquarterl
ycorpor
ateincometaxesinanyoft hefi
rstt
hree
quart
ersduri
ngt hetaxableyearbutincur
sanetl ossduri
ngthetaxabl
ey ear
,thetwo-
year
peri
odforthefil
i
ngofcl aimforr ef
undorcredi
tshallbecount
edfrom t
hedateofthefil
ing
oftheannualcor
porateincomet axret
urn(Commissionerv
s.TMXSales,205SCRA184) .

8.a.Thecounti
ngoft hetwo(2)yearper
iodcommencest
orunfrom t
hedateoffi
nalpayment
.
Consi
der
ingthatthefi
nalpaymentwasmadeonJuly9,2009,t
heprescr
ipt
iveperi
odwil
l
endonJuly9,2011.
b.August
ohasthi
rt
yday sfr
om r
ecei
ptoft
hedeci
sionoft
heCIRtofil
eanappealwit
hthe
CTA.Sincei
twasrecei
vedonMay15,2011,
hehasunti
lJune14,
2011tofi
lehisappeal
 wi
tht
heCTA.
c. Heisgi
ven30daysfrom r
ecei
ptoftheCI
R’sdeci
sionbutnotexceedi
ng2year
sf r
om the
dat
eoffi
nalpayment.Hence,hehasunt
ilJul
y12,2011,orthedayfol
lowi
ngtherecei
pt
oft
hedeci
sion,
tofi
leanappealwit
htheCTA.

EXERCI
SE2-
2.MULTI
PLECHOI
CE

1. C

2. A

TheNati
onalBureauofI
nvest
igat
ionandt
heBur
eauofI
mmi
grat
ionar
eundert
he
Depart
mentofJust
ice.
TheBureauofLocalGov
ernmentFi
nancei
sundert
heDepar
tmentofI
nter
iorand
LocalGov
ernment
.

3. A
TheBI
Risinf
eri
ortot
heCourtofTaxAppeal
si nter
msoft
axcases.Thus,
theBI
Risnot
empower
edtorevi
ewthedeci
sionofasuper
iorcour
t.

4. B

5. D

6. C
Thepowert
odecidetaxcasesi
smor eofapoweranddut
yoft
heCommi
ssi
onerr
ather
thant
heBur
eauofInt
ernal
Revenue.

7. B
TheCommuni
tyTaxi
slev
iedundert
heLocal
Gov
ernmentCodeof1991.
TheOverseasCommunicat
ionTaxandt heGr
ossReceipt
sTaxarebusinesst
axes
underSect
ion120and121,
respecti
vel
y,oft
heNati
onal
Int
ernalRev
enueCode.
Thedocument
aryst
ampt
axi
slev
iedunderTi
tl
eVI
Ioft
heNI
RC.

8. A
The powertoint
erpr
etthe pr
ovi
sions ofthe NI
RC is underthe excl
usi
ve or
igi
nal
j
uri
sdict
ionoft
heCommissi
onerofInter
nalRev
enue,subj
ecttorevi
ewbyt heSecret
ary
ofFi
nance.

9. D
UnderRA1125,asamended,thedecisi
onsoftheCommi ssionerofI
nter
nalRev
enueon
casesper
taini
ngtodisputedassessment
s,refundsoftaxes,feesandotherchar
ges,
penal
ti
es,
etc.i
sappeal
ableonl
ytotheCourtofTaxAppeals.

10. D
 Thelimit
edpoweroft
heCommi ssi
onerdoesnotconf
li
ctwithRA 1405becauset
he
prov
isi
onoftheTaxCodegr
ant
ingthispowerisanexcept
iontot
heSecrecyofBank
Deposit
sLaw.
TheCommissi
onerorhi
sdul
yauthori
zedrepresentat
ivemaybeal
l
owedonl
ytoi
nqui
re
i
ntot
hebankdeposi
tsoft
het
axpayeronthefoll
owingcases:
a.Todeter
minethegrossest ateofthedecedent
.
b.Wherethetaxpayerhasf iledanappl i
cati
onforcompr
omi
seofhi
staxl
i
abi
l
ityby
r
easonoffi
nanci
alincapacity;
and
c.Whentherei
sawai verdulysignedbythetaxpayer
.

11 C
Revenue Audi
t Memorandum Or der
,Rev enue Speci
alOr
der and Rev
enue Tr
avel
AssignmentOr
derar
enotexer
cisesoflegi
slat
ivepower.
RevenueRegul
ati
onsaremoredet
ail
edi
nter
pret
ati
onoft
hetaxl
aws.Iti
sissued by
theSecretar
yofFinance,upont
herecommendati
onoftheCommissi
onerofInter
nal
Revenue.

12. D
Thecasecannotbecompromisedanymor
eift
hecasei
sfi
l
edal
readybef
oret
hecour
ts
ofj
usti
ceandift
hecasei
nvolv
esf r
aud.

13. B

14. B
Cor
por
ations ar
e notallowed to be regi
ster
ed by the Secur
it
ies and Exchange
Commissionf
orthepur
poseofpract
iceofpubl
icaccount
ancy(RA9298).

15. C
Awithhol
dingagenti
sapartyini
nter
esthav
ingsuf
fi
cientl
egali
nter
estt
obr
ingasui
tfor
r
efundoftaxesil
l
egal
lycol
l
ectedfr
om him.
Thecl
aimf
orref
undmustbef
il
edwi
tht
heCI
Rbef
oreanysui
tinCour
tofTaxAppeal
s
i
scommenced.
Thecomputat
ionofthetwo-yearper i
odstart
sfrom t
hefi
l
ingofthefi
naladjust
ment
retur
nbecauseitwasonlythenthati tcoul
dbeascertai
nedwhet
herthetaxpay
ermade
profi
tsori
ncur
redlossesi
nitsbusinessoperati
ons.

16. D
Thelastdayt
ocl
aimr
efundi
sJune30,2009ort
wo(
2)y
ear
sfr
om t
hedat
eoff
inal
pay
ment .

17. A
Taxpay
ersar
egiven30day sf
rom r
eceiptofBIRdeci
sionbutwi
thi
ntwo(
2)y
ear
sfr
om
thedat
eofpayment
,toappeal
thedeci
siontotheCour
tofTaxAppeal
s.

18. D
 Whent he2-
yearper
iodisabouttolapse,t
hesuitorproceedi
ngmustbestar
tedinthe
CourtofTaxAppeal
swi t
houtawait
ingforthedeci
sionoftheCommissi
oner
,orthe30-
daysregl
ementar
yperi
odfrom r
ecei
ptofdecisi
ontoappealt
otheCTA.

19. C
Thebestact i
onistofi
l
eanappealwiththeCour
tofTaxAppeal
sbef
oret
helapseof
t
he2- yearprescri
pti
veper
iod,wi
thoutwai
ti
ngforthedeci
sionoft
heCommissi
onerof
I
nternalRevenue.

20. D
Thecountingofthe30dayprescri
pti
veperi
odforappealstar
tsf r
om thedateofreceipt
ofthedecisi
onbecauseitwouldbeunfaironthepartofthet axpayertoincl
udeinthe
count
ingthedatewhil
ethedeci
sionisst
il
linthet
ableoftheCommi ssi
oneroriti
ssti
llin
tr
ansi
t.

EXERCI
SE2–3
Theproperpartytoquesti
on,orseekar efundofanindi
recttaxist hestat
utor
ytaxpayer
,the
persononwhom t hetaxisi
mposedbyl awandwhopai dthesameev enifheshift
stheburdenther
eofto
another.EvenifPetr
onpassedont oSilkai
rtheburdenoft
hetax,theadditi
onalamountbil
ledtoSil
kai
r
forjetf
ueli
snotat axbutpar
tofthepri
cewhi chSi
lkai
rhadtopayasapur chaser
.
Anexci
set
axisanindi
recttaxwheret
hetaxbur
dencanbeshi
ft
edt
othecust
omerbutt
het
ax
l
i
abi
l
ityr
emai
nswit
hthemanufactur
erorpr
oducer
.
Theexciset
axesarecol
lect
edfrom manufact
urersorproducer
sbefor
eremovaloft
hedomesti
c
productsfr
om thepl
aceofproducti
on.Alt
houghexcisetaxescanbeconsider
edastaxesonpr
oduct
ion,
theyarereal
lyt
axesonproper
tyastheyareimposedoncer t
ainspeci
fi
edgoods.
WhenPet r
onremov esitspetroleum productsf r
om itsr
efi
neryinLimay ,
Bataan,itpayst heexcise
taxesdueont hepetr
oleum pr oductst husremov ed.Petron,asmanuf actur
erorpr oducer,istheper son
l
iableforthepay mentoft heexci set axasshowni ntheExciseTaxRet ur
nsf i
ledwi t
ht heBI R.Stated
otherwi
se,Petronisthetaxpay erthatisprimaril
y,directl
yandlegal
lyli
ableforthepay mentoft heexci se
taxes.Howev er,si
nceanexci setaxisani ndir
ectt ax,Petroncantr
ansfertoitscustomer stheamountof
theexcisetaxpaidbytreat
ingi taspartoft hecostoft hegoodsandt ackingitontot hesell
ingpr i
ce.
Si
lkai
rast hepurchaserandendconsumer ,ul
ti
mat
elybear
sthet
axbur
den,butt
hisdoesnot
t
ransf
orm pet
it
ioner’
sst
atusintoastat
utor
ytaxpay
er.
I
nther
efundofi
ndi
rectt
axes,
thest
atut
oryt
axpay
eri
sthepr
operpar
tywhocancl
aimt
her
efund.
Peti
ti
onershoul
dinvokeit
staxexempti
ont oPetr
onbefor
ebuy
ingt
heav
iat
ionj
etf
uel
.Pet
ron,
howev
er,remainst
hestat
utoryt
axpay
eronthoseexci
setaxes.

CHAPTER 3
EXERCI
SES3-
1
1. Thepar t
nershi
pisnotli
abl
et opayi ncomet axconsi
der
ingthatnoincomewas
earnedduri
ngtheyear
.Theincreasei
nt henetasset
swascausedbytheaddi
ti
onal
contri
but
ionofP10,
000bythepartner
s.
2. Thecont enti
onofJudgeNi t
afaniswr ong.Pay mentofi
ncometaxbyj udgesisnot
coveredbyt heconsti
tutionalpr
otecti
onagai nstdimi
nut
ionoftheirsalar
iesduring
thei
rcont i
nuanceinof f
ice.Incomet axati
onf orthemembersoft hejudici
arygive
substancetot heequali
tyamongt hethreebranchesofthegov
er nmentconsi st
ing
oftheexecutive,l
egi
slati
veandt hejudici
ary
.

3. a.Faceval
ue P100,
000
Less:Di
scount(
100,
000x20%) 20,
000
Incomesubj
ectt
otax/
Fai
rdi
scount
ed 80,
000
val
ue

b.Di
scount P20,
000
xDuein2008 50%
I
ncomesubjectt
otax,
2008 10,
000

c.Incomer
epor
tabl
ein2009(P20,
000x P10,
000
50%)

4. Whenevera st ockholderisindebted t
ot he corporat
ion and sai
d credit
or
cor
porati
ondecidest ocondonethedebt,suchcondonationhast heeff
ectofa
paymentofdi
videndt othest
ockholder
.Theref
ore,t
hecondonat i
onmadebyDi al
Corpor
ati
ontoRodol foisineff
ectapay mentofdividendbyDialCorporat
ionto
Rodolf
o.

I
fRodolfoisthecr
edi
torwhil
eDialCorporati
onisthedebt
orandthefor
mer
deci
des t
o condone t
he debtofthe l
atter
,t he amounti
s consi
der
ed as an
addi
ti
onali
nvest
mentbyRodolf
otothecorporati
on.

5. Larr
yi snotrequi
redtoreportincomeont hecondonati
onconsideri
ngthatthe
condonati
onofdebtwasgi v
enwi t
houtrequir
inghimt orenderservi
ces. The
P50,000const
it
utesmoreasat axabl
egif
tratherthanasataxabl
eincome.

6. YestheamountofP30,
000i
sint
henat
ureofar
emuner
ator
ydonat
ion;
iti
ssubj
ect
toi
ncometax.

7. Underthetaxbenefi
trul
e,wheneverabaddebtisclaimedasdeductionfrom gr
oss
i
ncomeandi tresul
tedtoar educti
oni nit
staxliabil
i
ty,therecov
eryofsuchi s
subj
ecttot ax. Thus,whenPamcowr oteofftheaccount sandcl ai
medi tas
deduct
ionf r
om grossincome,t her
ewasacor r
espondingreducti
oni nthetax
l
iabi
li
ty.Itbei
ngthecase,therecoveryofsuchdebtistaxabl
et oPAMCObutonl y
uptoP90,000,t
heamountt hathasbeenbenefi
cialt
oPAMCO.

8. a. Val
ue-
addedt
ax -nott
axabl
e
 b. Realpropertytax -taxabl
e
c. I
ncomet ax -nottaxabl
e
d. Stocktransacti
ontax -nottaxabl
e
e. Specialassessment -nottaxabl
e
f. Occupat i
ontax -taxabl
e
g. Estat
et ax -nottaxabl
e
h. I
ncomet axpaidtoafor
eigncount
ry -taxabl
eifcl
aimedas
deducti
on
i
. Communit
ytax -taxabl
e
j
. Exci
set
ax -taxabl
e

9. a.Yes,thedivi
dendsaresubjecttoaf inalt
axof10%.
b.Thedi vi
dendspaidar ei
nef fectpropert
ydi v
idends.Theyar esubjecttoaf i
nal
taxof10%
c.Thedi v
idendspai
dar eactuall
ystockdividends.Theyar enotsubj
ecttotax.
d.Alt
houghsomest ockholderswerepai dstockdividends,si
nceotherswerepai d
cash,suchdecl arati
onand pay mentr esul
ted to achangei npr oport
ionate
int
erest.Thus,boththestockholder swhower epaidstocksandcashdi vi
dends
aresubjecttofi
naltax.

10. a. Divi
dendsrecei
vedf rom domestic –nott axabl
e
b. Divi
dendsreceiv
edbyr esi
dentf
oreignfrom -nottaxable
domesti
c
c. Dividendsrecei
v edbynonr esi
dentf or
eigncorporati
onf rom domesti
c–15%
fi
naltaxift
hecount ryi
nwhi chthenonresidentf
oreigncorporati
onisdomici
led
shal
l al
l
owt axcreditof17%i ni
tsincomet axpayableinsuchf or
eigncount
ry.

11. a. Mr.Sipsi sent

it
ledt o10%oftheval
ueofconfi
scatedsmuggledgoodsbutnot
exceedingP1,000,000. Since10% ofthevalueoft hesmuggledgoodsi s
P10,000,000(P100,000,
000x10%),Mr.Si
psisenti
tledonl
ytoP1mi l
l
ionastax
i
nformer ’
sreward.

b. Therewardr
ecei
vedbyMr.Si
psi
ssubjectt
oaf i
nalwit
hholdi
ngt
axof10%.
Hence,t
heamountoft
axt
obewit
hhel
dinfav
orofthegover
nmenti
sP100,
000
(P1,
000,
000x10%).
12. a. UnderOut ri
ghtMethod,thel essori
sr equiredtoreportasincomet hefai
r
mar ketv
alueoftheimprovementatt hetimeofcompl eti
on.Thus,shehasto
reportanincomeofP100, 000ont hel easehol
dimpr ovementandP48,000
(P4,000x12)ontherent,orat ot
alamountofP148,000.

b. Rent(P4,
000x12) P 48,
000
Add:Incomeonleasehol
d
i
mpr ovement
Costofi
mprovement P100,
000
Less:Accumul
ateddepr
eci
ati
on
 (100,
000/
25x18.5) 74,
000
Bookv
alue,
endofl
ease 26,
000
(
26,
000/18.
5x½) 703
48,
703

c. Rent(4,
000x6) P24,
00
0
Leaseholdimpr ovement :
Cost P100,
000
Less:Depr eciat
ion-Jul y1,2009toJune
30,2010( 100,000/25) 4,
000
Bookvalueupont er
mi nati
on 96,
000
Less:Amountal readyr eportedas 703
i
ncome 95,
297
Incomeofl essorin2010 119,
29
7

3-
2.TAXBENEFI
TRULE
3-
2.1: ANSWER:B
Case1–P40,
000
Case2- 20,
000
Case3- 40,
000
Case4- 70,
000(
85,
000–15,
000)

3-
2.2: (
1)ANSWER:D
Gr
osspr
ofi
t
800,
000
Add:Baddebt srecover
ed 30,
000
Total 830,
000
Less:Accountswr i
tt
en-
off P 50,
000
Deduct
ibl
eexpenses 440,
000 490,
000
Netincomebeforeincome 340,
000
tax

3-
2.3: (
2)ANSWER:D
Gr
ossi
ncomebef
oret
axes P
90,
000
Less:Deducti
bletaxes
Amusementt ax P 80,
000
Local
businesstaxes 40,
000 120,
000
Netloss (30,
000
 )

ANSWER:B

Amusementt
ax
80,
000
Localbusi
nesst
axes 8,
500
Taxablei
ncome 88,
500

EXERCI
SES3–2.
4.MULTI
PLECHOI
CETHEORY
1. ANSWER:C
Thi
sisanappli
cat
ionofthe“t
axbenef i
trul
e.”Underthi
spri
nci
ple,t
herecov
er y
ofbaddebtprevi
ousl
ydeductedistaxabl
eifattheti
mei twascl
aimedasdeduction,
ther
ewasacor r
espondi
ngreduct
ionintheincometaxli
abil
i
tyoft
hetaxpayer
.

2. ANSWER:C
Seet
heexpl
anat
orynot
esi
nNo.11abov
eont
axbenef
itr
ule.

3. ANSWER:D

Thecapi talgai
nstaxisanincometax,
whil
ethetaxpai
donintervi
vosdonation
i
sadonor ’
stax .Thesetaxes,i
ncl
udi
ngtheval
ue-
addedtax,
arenotdeducti
blefr
om
grossincomef r
om purposesofcomputi
ngthei
ncometax.Thus,t
herefundrecei
v ed
fr
om theset axesarenotsubjectt
otax.

Thecommuni
tyt
axpai
dbyacor por
ati
oni
sadeduct
ibl
eit
em f
rom gr
ossi
ncome.
Hence,
aref
undr
ecei
vedi
staxabl
e.

3- LEASEHOLDI
MPROVEMENT
3.
1:

1. ANSWER:B
Cashrecei
ved 120,
000
Taxpaidbylessee 3,
000
I
ncomet ober epor
tedi
n2006 123,
000

2. ANSWER:D
Rentincome( 5,000x12) 60,
000
Leaseholdimprov ement 1,
800,
000
Taxpaidbyl essee 3,
000
Income t o be r epor
ted under out
ri
ght 1,
863,
000
met hod

Thel
essorshal
lappl
ycashmet
hodonpr
epay
mentofr
ent
alev
eni
fiti
susi
ngaccr
ual
 met
hodofaccount
ing

3. ANSWER:A
Rentincome 60,
000
Taxpai dbyl essee 3,
000
Leaseholdi mprovement :
Cost 1,
800,
000
Less:Accumul at
eddepr eci
ati
on
(
1,800,000/30x17. 5) 1,
050,
000
Bookv alue,endofl ease 750,
000
(750,000/17.5)x6/12 21,
429
Income t o be r eported underspr
ead-
out 84,
429
met hod

4. ANSWER:C
Eff
ecti
veJanuar
y1,2009,
thel
andandt
hebuildi
ngshallbeexemptf r
om realestat
etax
becausei
tisnowbei
ngusedact
ual
ly
,di
rect
lyandexcl
usivel
yforeducati
onalpurpose.
Allassessmentsorreassessment
smadeaf
t he1stdayofJanuar
ert yofanyy ear
st
shal
ltakeef fectonthe1 dayofJanuaryofthesucceedi
ngyear(Sec.221,Local
Gover
nmentCodeof1991) .

5. ANSWER:B
Rentexpense 60,
000
Depreci
ati
on(1,800,
000/
17.
5) 102,
857
Deducti
bleexpense 162,
857

6. ANSWER:B
Cashrecei
ved 60,
000
Leasehol
dimprov
ement(
750,
000/
17.
5) 42,
857
102,
857
Note:
Norealpropert
ytaxwil
lbeshoul
deredbythelesseest ar
ti
ng2009becauset
heland
andt hebui
ldi
ngshal lbeexemptfr
om realestat
et axconsideri
ngthati
tisnow bei
ng
usedactual
ly,
direct
lyandexcl
usi
veforeducat
ionalpurpose.

7. ANSWER:C
Cashrecei v
ed( 5,000x3) 15,
000
Leaseholdimpr ov ement :
Cost 1,
800,
000
Less:Accumul ateddepr eci
ati
on
(1,800,000/30x3. 75) 225,
000
Bookv alueupont erminati
on 1,
575,
000
Less:Amountdecl aredasincome
2008 21,
429
2009 42,
857
2010 42,
857
2011 42,
857 150,000 1,
425,
000
 Tot
al 1,
440,
000

EXERCI
SE3-
3.2:
1. ANSWER:A
Rent(
2,000x12)
24,
000
Leasehol
dimpr
ovement 1,
000,
00
0
I
ncomeusi
ngout
ri
ghtmet
hod 1,
024,
00
0

2. ANSWER:C
Rent(2,
000x12) 24,
000
Leasehol
dimpr
ovement
:
Cost
1,
000,
0
00
Depr
eciati
onf or9years(1,000,
000/20
x9) 450,
000
Bookvalue,endoflease 550,
000
Annualincome( 550,000/9years) 61,
111
I
ncomeunderspr ead-outmet hod 85,
111

3. ANSWER:C
Annualincomer epor
table 61,
111
xNo.ofy earsofreport
ing __
__1
LossincurredbyBryant 61,
111

Not
e:ItispresumedthatBryanthadalreadyr
epor
tedhi
sentir
eincomeon
l
easeholdimprov
ementf ort
het axabl
eyear2010butnothisincome
f
rom Januaryt
oFebruar
y28,2011.

EXERCI
SE3–3.
3:
ANSWER:B
Renti
ncome
36,
00
0
I
ncomeonl easehol dimprov
ement:
Costofimpr ovement 600,
000
Less:Depreciati
onfor15y ear
s 300,
00
(
600,000/30x15) 0
Bookv al
ue,endofl ease 300,
00
0
Di
vi
debyr
emai
ningt
erm ofl
ease(
year
s) 1520,
000
 Annual
incomet
ober
epor
ted 56,
000

EXERCI
SE3–3.
4
1. ANSWER:A
Theincomef rom rentrecei
vedbyVicist
axabletohi
m,whil
etheamount
gi
venasloanisnotbecauset her
ewasnogainr
eali
zedbyVici
nthi
stransact
ion.
Asamat t
eroff act,t
herewasnogai nreal
i
zedwhetheraspay
mentforservi
ces,
i
nter
estorprof
itfrom i
nvestment.

2. ANSWER:C
Costofi
mpr
ovement P
2,
000,
000
Less:Depreciat
ionfor8year
s(P2,
000,
000/
50x 320,
000
8)
Bookvalue,endoflease 1,
680,
000
Renti
ncome P 10,
000
I
ncomef rom l
easehol
dimprovement(
P1,
680,
000 210,
000
/8)
Total
incomeusingspread-
outmethod 220,
000

3. ANSWER:D

EXERCI
SE3–4.
1:
1. ANSWER:D
Val
ueofpr
omi
ssor
ynot
e P
120,
000
Less:Discount(
P120,
000x20%) 24,
000
Taxabl
eincome,2007 96,
000

2. ANSWER:D
Discount 24,
000
Less:Incometoberepor
tedi
n2008(
24,
000x 12,
000
50%)
Taxableincome,
2009 12,
000

EXERCI
SE3–4.
2:
1. ANSWER:C
Val
ueofpr
omi
ssor
ynot
e P
50,
000
Less:Discount(
P50,
000x25%) 12,
500
Taxabl
eincome,2008 37,
500
2. ANSWER:B
Val
ueofpr
omi
ssor
ynot
e P
50,
000
Less:Amountal
readydecl
aredasi
ncome 37,
500
Taxabl
eincome,
2009 12,
500

EXERCI
SE3–4.
3:
1. ANSWER:C
Pay
mentforser
vicesrendered bypr
omissor
ynot
ewhi
ch can bedi
scount
ed,i
s
t
axablet
othepay
eeati
tsfai
rdiscount
edval
ue.

EXERCI
SE3–5.MULTI
PLECHOI
CE
1. ANSWER:B
Aschedularsystem oft axati
onisasy stem employedwher etheincomet ax
tr
eatmentvari
esandi smadet odependont hekindorcategoryoftaxabl
eincome
ofthetaxpay
er.Itisdistinguishedfrom gl
obalsy st
em i
nt hesensethatthelatt
er
i
sempl oyedwher ethet axsy stem vi
ewsindiff
erentl
ythet axbaseandgener all
y
tr
eatsincommonal lcat egoriesoftaxableincomeofi ndiv
idual(Tanv s.Del
Rosari
o,237SCRA324, 331) .

2. ANSWER:C
Di
vi
dendsrecei
vedbyadomesticandr
esi
dentf
orei
gnf
rom adomest
ic
cor
porat
ionar
enotsubj
ectt
oincomet
ax.
Di
vi
dendsrecei
vedbyaresi
dentci
ti
zenf
rom adomest
iccor
por
ati
onar
e
subj
ectt
oafinal
taxof10%.
Di
vi
dendsreceiv
edbyadomest
iccor
por
ati
onf
rom af
orei
gncor
por
ati
onar
e
subj
ectt
oordi
naryincomet
ax.

3. ANSWER:C
Wi
nni
ngsi
nlot
toar
etaxexempt
.

4. ANSWER:C
Val
ue-addedtax,otherpercent
agetaxesandexcisetaxoncert
aingoodsare
taxesf oundunderTi t
lesIV,V andVI,respecti
vel
yofNI RC,whi
chcontainthe
provisi
onsonbusi nesstaxat
ion;wher
eas,incometaxat
ionisdi
scussedi
nTitl
eII
ofthesamecode.

5. ANSWER:B
TheamountofP3,
000r
aisedbyMoni
sagi
ftwhi
chshoul
dbeexcl
udedf
rom
 gr
ossincomebecausewhenaf i
nanci
alaidisasked,thatmeanst
hatther
eisno
l
egal
l
ydemandableobli
gat
iononthepartofotherpeopl
etogiv
ehim money.

6. ANSWER:D

I
ncomeref
erst
oearnings,l
awful
l
yacqui
red,
wit
houtconsensualr
ecogni
ti
on,
expr
essorimpl
iedofanobl i
gati
ontorepayandwithoutr
estr
ict
ionastotheir
i
mpositi
on(
Jamesvs.US,366US213).

7. ANSWER:C

Theamountr ecei
vedbyCei diandAdorfal
lwit
hint
heambitof“i
ncomefr
om
whateversourcederiv
ed”becauset hesear
eincomenotexpr
esslyexcl
udedor
exemptedfrom t
heclassoftaxableincome.
Theabov ephrasei ssobr oadthati tincl
udesal li
ncomenotexpr essly
excl
udedorexemptedfrom theclassoftaxableincome,irr
espect
iveofvol
untary
orinvol
unt
aryact
ionoft hetaxpayeri
npr oducingtheincome( Gut
ier
rezvs.CIR,
CTACaseNo.65).

8. ANSWER:D
Theamountofindebt
ednesscancel
ledduet oser
vicesrender
edbyt hedebt
or
i
sconsider
edascompensati
oni ncome.I tisj
ustli
kepay i
nganempl oy eebyan
amountequi
val
entt
otheserv
iceshehadr ender
edtohisempl oy
er-
credi
tor.

9. ANSWER:C
Themoneyvalueofaccumul
atedl
eav
ecr
edi
tsnotexceedi
ng10day
sisnot
t
axablet
otheemployee.
Tr
avell
ingexpensesrecei
vedbyanempl
oyeewhowassentonabusi
nesstr
ip
arenottaxabl
et otheempl oy
eesprovi
dedt
hattheseempl
oyeesar
erequi
redto
l
iqui
dat
esai dexpenses.
Ti
psrecei
vedbywai
tr
essesdir
ectl
yfr
om customerswhicharenotaccount
ed
f
orbyt
heemployert
otheemploy
erareconsi
deredtaxabl
eincome.

1 ANSWER:D
0
Ifacorpor
ati
ontowhichastockhol
derisindebtedforgi
vesthedebt,t
he
t
ransact
ionhast
heeff
ectofapay
mentofdi
vidend(Sec.5,
Rev.Regs.No.2)
.

1 ANSWER:B
1
ThemoneygiventoLazar
oisar
emuner
ator
ydonat
ion. I
tisdeemedan
i
ncome,
subj
ectt
oincomet
ax.
1 ANSWER:C
2
Ti
ps
5,
000
Li
abil
it
ycondonedaf
terr
ender
ingser
vice 25,
000
Taxabl
eincome 30,
000

1 ANSWER:A
3
Sell
i
ngprice(115x200) 23,
000
Less:Cost(100x200) 20,
000
Gainonsale 3,
000

Date Shares Costper Tot

alCost
share
1-
24-2008 200 P100 P20,
000
2-
05-2008 200 110 22,
000
4-
12-2008(400x5%)20 -
-.
420 42,
000
Newcostpershar
e(42,
000/
420) P
100

1 ANSWER:D
4
Sell
i
ngprice(115x200) 23,
000
Less:Cost(95.23x200) 19,
046
Gainonsale 3,
954
No.ofShar
es NewCost
Dat e Old New perShar
e
Cost
1-
24-
2008 200 210 P95.
23
P20,
000

1 ANSWER:C
5
Marketval
ueofshar
es-MinaCompany 120
xNo.ofCommonshar es 150
Pr
opertydi
vidend 18,
000

1 ANSWER:D
6
Marketv
alueofst
ocksdi
vi
dendsper 30
shar
e
 Stockdi
vi
dendr
ecei
vedbyRosa(
1,000x 20
20%x10%)
Divi
dendi
ncome 600

1 ANSWER:A
7
Sell
i
ngprice(30x25) 750
Less:Cost(5,000/
125)x25 1,
000
Loss (250)
Number Amount
Shares 100 P5,000
Div
idend(
100x25%) 25 -
Total 125 5,000

1 ANSWER:D
8
Saleofdi
vi
dends(
P60x40) 2,
400
Less:Cost
200 (
200xP55)
11,
00
0
20 (
200x20%) -
-.
220 11,
00
0
(
11,
000/
220)xP40 2,
000
Gai
nonsal
e 400

1 ANSWER:A
9
Totalsal
e(P400,
000+50,000) 450,
000
Less:Cost 240,
000
Bookval
ueoffar
m equipment 275,
000
35,
00
0
Gainonsale 175,
000
Add:Otherincome 12,
500
Grossi
ncome 187,
500

EXERCI
SE4–1.CROSSWORDPUZZLE

1 2 3
2 5 % D
4
Y T W E L V E

E M
 5
R A N K & F I L E

R N
6
S G S I S
7
3 M
8
C L O T H I N G

0 S

EXERCI
SES 4-
2
1 a. I
nterestoncor
porat
ebonds - Taxabl
e
.
b. Sal
ary - Taxable
c. Ti
ps - Taxable
d. Winningsi
nlot
to - Nottaxabl
e(expr
esslyexemptunderthe
l
aw)
e. Wi
nni
ngsi
njuet
eng - Taxable(i
ncomefrom whatev
ersource
deri
ved)
f. Moneyst olenf
rom mother
’s - Taxable(i
ncomefrom whatev
ersource
purse deri
ved)
g. RicesubsidyofP325per - Nottaxabl
e(deminimisbenefi
t)
month

2 Thev al
ueofthefreemeal
sandl odgingisnottaxablet
oYay a.I
tisverycl
eart
hat
. thecouplerequi
redhertostayint heirhouseforthei
rownbenef it
.Hence,the
matterfal
l
ssquarelywi
thi
nthe“conv eni
ence-of
-t
he-employ
errul
e.”

3 No.Theequival
entv al
ueoftheliv
ingquar
teri
snottaxabletoKulasunderthe
. conveni
ence-
of-
the-empl
oyerr
ule.Thepurposeofthepigger
yfar
mi nprovi
ding
Kulasar oom i
nsidethepremisesisfortheconv
enienceofHabangBat aPa
Pigger
yFarm.

4 TheP1, 000oft her i

ceallowanceisconsideredasademi ni
mi sbenefi
twhichis
. exemptf rom incomet ax.Thus,itisneit
hersubj ectt
ocredi
tabl
ewithholdi
ngtax
nortofringebenef i
ttax.
TheexcessofP200ov ertheP1,000cei l
i
ngperempl oyeeispartof“ Ot
her
Benefi
ts”whi chmay besubjecttoincomet axi fthetot
alotherbenefi
tsexceed
P30,
000.Ot herwise,i
tisexemptfrom i
ncomet ax .

5 Thef
reepar
king,cour
tesydi
scount
s,andr
icesubsi
dyofP1,
000amont
hfal
l
. undert
he“
demi
nimi
sbenef
it
s”whi
char
eexemptf
rom i
ncomet
ax.
 Theexcessofthel
aundryal
l
owancei
ntheamountofP450(P750-300)i
spart
ofgrossi
ncomeifsuchexcessi
sbey
ondtheP30,
000cei
li
ngfor“
otherbenef
its.
”
Therent
alval
ueoft her
esident
ialproper
tyi
ssubj
ectt
ofri
ngebenef
it
stax
whi
chi
ssubj
ecttofi
nal
tax.Theref
ore,notpar
toft
hegr
ossi
ncome.

6. Thecostoft heeducati
onalassistanceextendedbyt heUni v
ersit
yofSaint
Ant
honyt oitst
eacher
sar esupposedtobet reatedaspartoftheteacher’
sgross
compensationincomeconsideri
ng thatt heteacher
sar eneitherclassi
fi
ed as
managerialnorsuper
visor
yempl oyees;theyarest i
l
lclassi
fi
edasr ank-
and-
fil
e
employees.
However,si
ncether
eisacondi t
ionthatt
heyshoul dremai
ni ntheemployof
theemployerforatleastteny ear
saf t
ergraduati
on,theexpenditur
eshallbe
consi
der
edasf ort
heconvenienceoftheempl
oy er
’str
adeorbusiness.
Ther
efore,whet
herthegrant
ingofthebenef
iti
sext
endedthr
oughaquali
fi
yi
ng
orcompetit
iveexaminat
ionornot,
iti
snotpartoft
hegrosscompensat
ioni
ncome
oftheemployees.
Thecostofthet
uit
ionfeesareat
tri
but
abl
etot
heoperati
onandconductof
busi
nessoftheempl
oyer.Ther
efor
e,t
hesameshal
lbededuct
edfrom t
hegross
i
ncomeoftheschool
.
ANSWERSTOEXERCI
SE4–3

1. ANSWER:C
Fr
ingebenef
itexpense 34,
000
Fr
ingebenef
ittaxexpense 16,
000
Deduct
ibl
eexpense 50,
000

2. ANSWER:C

Fr
ingebenef
itexpense
34,
000
Di
vi
deby 68%
Gr
ossed-
upmonet
aryv
alue 50,
000

3. ANSWER:A
The f
ri
nge benef
ittaxisi
mposed onl
yift
he f
ri
nge benef
iti
sgi
ven t
o
manager
ialort
osupervi
sor
yemploy
ees.
Accounti
ng clerks,janit
ors and the secur
it
y guards arer ank-
and-fi
l
e
employees.Onl
yt hecompany ’sgener
almanagerisamanagerialorsuper
visory
employee.Ther
efore,thefr
ingebenefi
ttaxmusthavebeengi
vent ohim.
4. ANSWER:B
 Theonesackofriceisnotsubj
ectt
ofr
ingebenef
itt
axonthef
ir
stP1,
000per
empl
oyeepermonth;theexcessmay bealsobeexemptiff
ormi
ngpartofthe
ot
herbenef
it
snotexceedingP30,
000.
Acorpor
ati
on,thoughexemptf
rom t
ax,i
snotexemptf
rom t
hepay
mentof
f
ri
ngebenef
itt
ax.
Theequi
valentval
ueoffr
eelodgi
nggiv
entoadriv
erofanobst et
ri
cianfall
s
underconv
enienceoftheempl
oyerr
ulewhi
chi
snotsubjectt
ofr
ingebenefi
ttax.
Theempl
oyer
’sshar
eint
heGSI
Scont
ri
but
ioni
snotsubj
ectt
oincomet
ax.

EXERCI
SE4-
4

1. ANSWER:B

Feesincivi
cclub 5,
000
Li
feinsurancepremi
um 15,
400
Monetaryv al
ue 20,
400
Divi
deby 68%
Grossed-
upmonet ar
yval
ue 30,
000
Rateoftax 32%
Fri
ngebenef i
ttax 9,
600

2. ANSWER:B

Feesinaci v
icclub 5,
000
Li
feinsurancepremium 15,
400
Total 20,
400
Divi
deby 68%
Grossed-
upmonet aryval
ue 30,
000
Rateoftax 32%
Fri
ngebenef i
ttax 9,
600

3. ANSWER:B

Tor
ankandf
il
eempl
oyees:
Chri
stmasbonus 32,
000
Loanbenefi
ts[
96,
000x(
12%-
8%) 3,
840
Medical
all
owance 16,
000
Unif
orm al
l
owance 12,
000 63,
840
Tot hesuper vi
sor
:
Christmasbonus 4,
000
Feesi ncivi
cclub 5,
000
Li
fei nsurancepr
emium 15,
400
Uniform all
owance 3,
000 27,
400
 Fri
ngebenef
itexpense 91,
240
Fri
ngebenef
ittaxexpense 9,
600
Total
deduct
ions 100,
840

4. ANSWER:C

Rankandfi
le:
Chri
stmasbonus(max:P5,000/empl
oyeep.
a.) 32,
000
Medicalal
l
owance(max:150perempl
oyeep.
m. ) 14,
000
Unif
orm al
lowance(
max:3,
000/employeep.
a.) 12,
000
Supervi
sor:
Chr i
stmasbonus 4,
000
Uniform al
l
owance 3,
000
Totaldeminimi
sbenef
it
s 65,
000

5. ANSWER:A

EXERCI
SE:4-
5
1. ANSWER:C

Asagener alrul
e,f
reemeal sandl odgi
ngf urni
shedbyt heempl
oyertothe
employeesaretaxablet
ot helat
ter.Howev er,
allowancesfurni
shedf
orandasa
necessaryinci
denttothepr opert
yper for
manceofhi sdut i
esarenottaxabl
e
becausetheyfall
underthe“convenienceoftheempl oyerr
ule.
”

2. ANSWER:C

Tony’
sgr
ossincomeisP9,
500becausehisempl
oyer’
sr esi
denceisnott
he
pl
aceofbusinesswheretheemployerconductasigni
ficantporti
on ofhi
s
busi
ness.
Ontheot herhand,
Bert’
sgrossincomeshoul
dnotincludethemonthlyv
alue
ofhisf
reemeal sandli
vingquart
ersbecauset
heprovi
sionenablesCr
ist
ytoavai
l
oftheser
vicesofBertatherconv ence(
eni RAMO1-87).

3. ANSWER:D
Thef reemeal saregiv
enbyt heemployertoprovi
desanit
arymealstoits
empl oyees,whil
et hefr
eelodgingareprovidedbecausetheydonotwantt he
workerst ofinddiffi
cul
tyinlooki
ngf orboardi
nghouses. Thesebenef
itsare
obviouslyfur
nishedfort
hebenef i
toft
heempl oyeesandnottotheadv
antageof
theempl oyer
.
I
tist
herefor
e,apparentthattheal
l
owancesfur
nishedar
ei nthef
orm of
f
ri
ngebenef
its. However,si
ncetheyaregi
ventoordinar
yworker
swhichfal
l
 wi
thi
nt hecl
assi
fi
cati
onofrank-
and-
fi
leempl
oyees,thebenefi
tsar
etaxabl
eto
t
hem andarei
ncl
udibl
eint
hecomputati
onoft
heirrespect
ivegr
ossi
ncome.

4. ANSWER:D
Thegr ossed-
upmonetaryval
ueincl
udesthemonetaryval
ueofthef
ri
nge
benef
itreceivedbytheemploy
eefrom hi
semployerandtheamountoff
ri
nge
benef
it
st axduether
eonwhichwaspaidbytheempl
oyer.

5. ANSWER:D
Theuseofair
craf
townedandmai nt
ainedbytheempl
oyershal
lbet
reat
ed
asbusi
nessuseandnotsubj
ectt
ofr
ingebenefi
tst
ax.

6. ANSWER:D
Si
kyoisar ank-
and-f
il
eemployee.Al
lfr
ingebenef
it
sgi
venbyhi
sempl
oyer
ar
enotsubjecttofr
ingebenef
it
stax.
Thef r
eemealsandl odginggi vent oCol .Corporalarespecifi
call
yexempt
fr
om fr
ingebenef
it
st ax.Moreov er,i
ti sal
sof urni
shedf ort
heconv eni
enceoft he
employ
er( t
hePhi
li
ppi neGov ernment )sot hatthemili
taryoffi
cershallbereadil
y
avai
l
ablewhenhisser v
icesarer equired.Theuni form all
owancef al
lsunderde
mini
misbenefi
tswhichar eexemptf rom thefri
ngebenef i
tstax.

7. ANSWER:B

Demini
misbenefi
tsareofrel
ati
vel
ysmallval
uethatt
heyar
eexemptf
rom
t
hepay
mentoffr
ingebenef
it
staxandordi
nar
yincometax.

8. ANSWER:B
Fr
ingebenefi
tsgiventorankandf i
leemployeesareexemptf r
om fri
nge
benefi
tstax.However
,ther
earebenefi
tswhicharesubj
ectt
or egul
ari
ncometax
dependinguponthenatureofbenef
it
st heemployeeshavereceiv
edfrom t
hei
r
employer.

9. ANSWER:D
Aresident
ialproper
tyownedbyt heemployerandassi
gnedt
oanemployer
f
oruseashi sresidenceissubj
ectt
of r
ingebenefi
tst
axbasedonthe5%oft
he
f
airmarketval
ueoft helandandi
mprovements.

10. ANSWER:D
Unli
keotheri
ndivi
dualt
axpay
ers,nonresi
dental
i
ensnotengagedi
nt r
adeor
busi
nessaresubjecttofri
ngebenefi
tstaxatar at
eof25% ofthegrossed-
up
monetaryv
alue.
EXERCI
SES4-
6
1. ANSWER:C
Purchaseofgr
oceri
es 10,
500
Divi
deby 68%
Grossed-
upmonetaryval
ue 15,
441
Rateoftax 32%
Fri
ngebenefi
ttax 4,
941

2. ANSWER:A
Mont
hlysalar
y 4,
000
Fr
eemealsandliv
ingquar
ters(P1,
500+1,
000) 2,
500
Mont
hlygrosscompensat
ionincome 6,
500

3. ANSWER:B
Sal
ary 4,
000

4. ANSWER:D
Costoff
ir
stcl
asst
icket $ 2, 50
0
Ratesubj
ecttofr
ingebenef i
ttax 30%
Fri
ngebenefi
t 750
Exchangeval
ueinPhi l
i
ppinecurrency 40
Fri
ngebenefi
tsubjecttofr
ingebenefi
ttax 30,000
Divi
deby 68%
Grossed-
upmonet aryval
ue 44,117.6
5
Rate 32%
Fri
ngebenef
itt
ax 14,117.6
5

5. ANSWER:D
Monetaryval
ue(P800,
000/5)x50% 80,
000
Divi
deby 68%
Grossed-
upmonetaryval
ue 117,
647
Rateoftax 32%
Fri
ngebenefi
ttax 37,
647

6. ANSWER:B
Monet
aryv
alue(
P10,
000x50%) 5,
000
 Divi
deby 68%
Grossed-
upmonetar
yval
ue 7,
352
Rateoftax 32%
Fri
ngebenefi
ttax 2,
353

7. ANSWER:C
I
nterestatbenchmarkrat
e(P100,000x12%x 8,
000
8/12)
Less:Inter
estatspeci
alrat
e(P100,000x9%x 6,
000
8/12)
I
nterestfor
egone/val
ueofbenefi
t 2,
000
Divi
deby 68%
Grossed-upmonetaryval
ue 2,
941.
18
Rateoftax 32%
Fri
ngebenef i
ttax 941.
18

8. ANSWER:A
Totalexpensesincur
red 16,
000
Divi
deby 68%
Grossed-upmonet ar
yval
ue 23,
529
Rateoftax 32%
Fri
ngebenef i
ttax 7,
529

9. ANSWER:D
Salar
yofdr i
verandhousemaid(P4,
000+ 6,
000
2,
000)
Member shipfeesanddues(P75,
000/12) 6,
250
Monetaryvalueofbenefi
t 12,
250
Divi
deby 68%
Grossed-upmonetaryval
ue 18,
015
Rateoftax 32%
Fri
ngebenef i
ttax 5,
765

10. ANSWER:A
Fairmarketv
alue(
higher
) 2,
500,
000
Divi
deby 68%
Grossed-upmonet
aryval
ue 3,
676,
471
Rateoftax 32%
Fri
ngebenefi
ttax 1,
176,
471

11. ANSWER:D
Monet
aryv
alue(
P3,
400x50%) 1,
700
Di
vi
deby 68%
 Grossed-
upmonet ar
yv al
ue 2,
500
Rate 32%
Fri
ngebenefitt
ax 800
Add:Mont hl
yrental 3,
400
Fri
ngebenefitt
oclerk 3,
000
Deducti
bleexpense 7,
200

12. ANSWER:D
Fri
ngebenef
itt
osuper
visoryempl
oyees 170,
000
Divi
deby 68%
Grossed-
upmonet
aryvalue 250,
000
Rate 32%
Fri
ngebenef
itt
ax 80,
000