TAKE HOME QUIZ. Summarize your final answers using the following format. Solution on the next page.

No solution, no point.
:
1. 11. 21. 31
2. 12. 22. 32 .

10. 20. 30. 40

James, a British citizen, and Lily, a natural born half-German and half-Filipino elected to be recognized as a
Filipino citizen, had a child named Harry on July 31, 1997 at London Bridge in an ambulance when there was a
traffic jam. On the 8th birthday of Harry, they have opted to immigrate to Angeles City, Pampanga, Philippines
after the divorce of James and Lily on Harry’s 7 th birthday. Harry elected to be a Filipino when he is in his legal
age. However, because of the lack of support of James for the mother and son, they have experienced
struggles particularly in their financial capacity. For college, he was able get a scholarship from BDP
Foundation and has entered City College of Angeles for a degree in Bachelor of Science in Accounting
Technology. During his college years, he was also working part-time in McDonald’s as a service crew member
until he graduated in 2016.
Immediately, right after graduation he transferred to Manila to look for a better job with a good salary in
order to help his mother to experience a good life, escaping poverty. However, he was not able, to land a job
immediately as an accountant and had to work as a porter in a shipping company until June 2017. On July 31,
2017, he was hired as a bookkeeper in Hogwarts Inc. as a minimum wage earner and using this chance he
had looked out for a college that offers a degree in Bachelor of Science in Accountancy with a low tuition fee.
In year 2017 he was able to earn his basic salary of P200,000 gross of P13,000 worth of statutory deductions.
Before the year ended he received news that the minimum wage in the National Capital Region will increase
by 10% as the new minimum wage to be effective January 1, 2018. In 2018, simultaneously with his work as a
bookkeeper he has started his schooling at Cube College for his degree in Accountancy where he had incurred
expenses for his tuition for the year amounting to P30,000; his new lodging, a boarding house with a monthly
rent of P3,700 for 2018 starting the month of August; and other living expenses amounting to P11,500 were
incurred by Harry for the year.
Hogwarts Inc., has provided Harry with a uniform allowance worth P8,000 and other fringe benefits
amounting to P15,000. Lily called Harry asking for some monetary support for her medicine and a small
business she would like to start-up. Upon hearing the need for monetary support of his mother, he worked
extra hours earning him overtime pay of P15,000 and even worked during the holidays earning P8,000 in order
to send P22,000 to his mother. Harry also received his 13th month pay and a Christmas bonus each amounting
to a month’s worth of salary.
On January 8, 2019, Harry went to StarBox to exchange the stickers for a planner, on his way out of the
store, Harry bumped into a woman in tears due to a recent heartbreak. Harry, felt sorry for the girl and had her
talk to him about her problem, Harry came to know the woman as Ginny, and immediately befriended her. After
going out on some friendly dates, Ginny found Harry attractive having good looks, muscular body, ambitious
and is hardworking – which is why Ginny wanted to make Harry hers. On the fated day of February 14, 2019
Ginny invited Harry to a dinner date, to which Harry naively yet happily accepted for a free dinner offered by his
friend. Unknown to Harry, Ginny fervently wanted to make sure that Harry becomes hers, which is why she
purchased and poured bottles of love potion in Harry’s drinks, soup, dishes, and desserts and she also wiped
some of the potion on the utensils so that Harry will be completely attracted to her and have him completely
head over heels for her. After that, they went on many dates that would normally end with them going to Sago,
one of the best places to eat barbeque hotdogs and steaks. On March 7, they found out that Ginny was
already one week pregnant so they tried to look for an abortionist but failed. After a few days of pondering over
their predicament, they decided to keep the child. On March 15 of the same year, they got married in Batanes.
Harry found out that Ginny is the daughter of the Chief Executive Officer of Hogwarts. Albeit, hesitant to
give in to the wedding due to its rashness, Ginny’s father had to consider his reputation as well as that of the
company, which is why he yielded to the wedding. As such with hesitation he had prepared gifts for the
wedding of Harry and Ginny in order for them to secure a proper and decent living.
In line with the upcoming occasion, Ginny’s father gave them four (4) apartment units, cash of P500,000 and
$100,000 (Out of the P500,000, 60% was deposited in a long term trust fund and the remaining 40% was
deposited in a current bank account; the $100,000 was deposited in a bank authorized by BSP to operate as

/ETD
an FCDU), shares of stock of Hogwarts Corp. worth P3,000,000, and best of all a promotion from bookkeeper
to assistant to the head accountant a rank and file position.
On December 30, 2019, they received the greatest blessing of the taxable year, a bouncing baby boy! He was
named Albus Severus Potter.
Harry had been able to earn his keep in Hogwarts earning him a gross monthly income of P20,000 however,
this will be subjected to statutory deduction for SSS, Philhealth, and Pag-ibig Contribution amounting to a total
of P10,000 for the year and with a total withholding tax of P18,300. Along with the compensation earned is the
mandatory 13th month pay and a midyear bonus that totaled to P45,000. Along with his promotion into an
assistant of the head accountant Harry received other provisions from the company such as subsidy for rice,
P21,000; medical benefits of P12,500; and because the father of Ginny would not want his daughter to be
exhausted from house work he gave Harry a laundry allowance of P4,000. Also, in order to be presentable as
his son-in-law, Ginny’s father provided a uniform and clothing allowance for Harry amounting to P8,000.
Ginny has also practiced her profession as a CPA during the year earning her income of P540,000 while
incurring a total of P200,000 as expenses for her practice of her profession.
Harry also received other blessing for the year and accounted those blessings as follows:
Harry Ginny Couple
Monetized unused vacation leave-15
days 12,000
Employee achievement award-cash 14,000
Rental value of the house and lot within
the company compound used by the
couple as residence which necessary
for the business for them to reside
therein so that Harry could be
available to the company anytime 180,000
Yield from the long-term trust funds, net 38,250
Interest, current account, net 6,400
Interest, dollar account, net 103,600
Dividend income, net 330,000
Rent income, net 300,000

In 2020, Harry decided to take the October CPA Licensure Examination. As such he has reviewed in a CPA
review center in Manila in order to refresh his mind of the accounting concepts and sharpen his thinking
abilities in order to pass the Certified Public Accountant Licensure Examination. During those months of review
in the review center, where he incurred a total of P15,000 as enrollment for his review, he had studied during
sessions and during his working hours whenever circumstances permit him to do so. Fortunately, this did not
hinder him form fulfilling his responsibilities as a father and as a husband. Also in order to release some stress
from work and review for the CPALE, he decided to write about his life, which he published as book entitled
“Harry from Rugs to Riches,” which became a best seller for inspiring readers to work hard despite all the
struggles in life. He received royalties from the sale of his book totaling P450,000.
After months of review, the day of the licensure examination has finally come. Harry was able to take the
exam, however, he noted that it was an exam that made him shiver from the thought that he might not pass
considering the subjects of taxation, regulatory business framework and transactions, and management
advisory services, as extremely difficult examinations. The results of the board examination passers were
expected to be released five (5) working days after the last day of the examination. In a series of events, the
transportation was hindered due to a three-day transportation strike that caused the government to cancel
government work thus hindering the release of the results. This was followed by a five-day convention
attended by the Board of Accountancy. Furthermore, such delay was prolonged by the ASEAN Summit, which
was subsequently held right after the convention of the Board of Accountancy. These are some reasons that
prolonged the agony of the examinees and candidates and hopefuls to become CPAs. This resulted to a
month-long delay, and after a long delay the results were finally released. While waiting for the result Harry
went to a mall to relax in order to relieve himself from the agony of waiting, and on a whim, Harry went on to
the lottery station and won from a PCSO scratch-it coupon winning him P750,000.
Immediately after hearing that the results were released, Harry immediately opened his Google Chrome in
order to look for the site where the results were posted. However, due to some technical reasons or possibly
traffic of the users of the site, it took a long while to load the results, wherein out of 15,128 takers, only 2,211
passed, or a national passing percentage of 14.62%. Harry, with God’s grace, was one of 2,211 passers.

/ETD
Overfilled with joy upon hearing the good news, Ginny’s father immediately promoted Harry as the Head
accountant in the company’s accounting department, a managerial position.
A few days after the release of results, Ginny has decided to stop working in order to allot more time for her
family, her husband and their first-born child. Another reason was for her to rest in order to safely deliver her
second-born child which was expected to be born in less than two weeks. In order to celebrate the results they
have decided to visit the Land of the Rising Sun, Japan, on where they were able to tour Osaka, and on their
last day at Osaka, the couple decided to try their luck with the Japanese lottery, luckily enough Harry won the
lottery prize amounting to P450,000.
On Christmas day of year 2020, they have decided to have a date while walking at a park, however they have
seen a baby that is about two-to three months old. Feeling merciful for the child, they have decided to adopt
the baby, but due to the fact that it was already the start of the busy season for their company, they had no
time to immediately prepare the papers for the adoption, as such in the long run they have forgotten to prepare
the legal documents and requirements for adoption.
The year was a blessed year for the couple. Aside from the favorable result of the CPA licensure examination
they were able to purchase a two-story commercial building on where Harry has decided to establish his own
accounting firm. The firm was able to generate a gross income of P125,000 and incurred expenses to a total of
20 percent of the firm’s gross income. The couple purchased a new principal residence that cost them
P5,000,000, this residence had a zonal value of P5,100,000.
The couple have decided to establish a merchandising business selling different kinds of products, such as
balot-in-a-bottle, powdered water, roll-on eye drops, etc., and also put up their a spa as another source of
revenue. Also, they sold one half of their interest in Hogwarts Corp. directly to their friend with goddess-like
beauty, at a gain of P400,000.
Being a business minded individual Ginny encouraged Harry to create a corporation in the same year, thus
with the convincing power of Ginny, they have been able to establish their own closely held corporation name
Fantastic Beast Corporation with the following accounts:
Gross Income P10,000,000
Cost of sale of goods 5,000,000
Salaries of employees (net of payroll deductions) 1,800,000
Fringe Benefits given to:
Rank and File employees 520,000
Managerial Employees 680,000
Representation and entertainment expenses (business connected) 100,000
Rent expenses 200,000
Depreciation expenses 40,000
Bad debts expenses 20,000
Interest received from bank
Local Currency 20,000
Foreign Currency 30,000
Prizes from a competition 100,000
Treasury Shares 200,000

Payroll deductions:
Creditable withholding tax of employees 100,000
SSS premiums contributions 20,000
Philhealth premiums contribution 10,000
Pag-ibig premiums contribution 8,000
Union dues 2,000
Other income:
Cash dividend received from domestic corporations:
70% of its income came from Philippine source 90,000
30% of its income came from Philippine source 90,000
Cash dividend received from resident foreign corporations
70% of its income came from Philippine source 400,000
30% of its income came from Philippine source 40,000
Cash dividend received from a non-resident foreign corporation 20,000

The company did not declare dividends for that year which leads them to pay a penalty tax of improperly
accumulated earnings tax. Harry computed his Year-end financial blessings declared the following:
A. Rental Income-net of withholding 684,000
Expenses-rental 180,000
/ETD
B. Compensation income net of
SSS/Philhealth,pagibig contributions
of P20,000 and withholding tax of
P26,800 P362,550
C. Benefits given by Hogwarts company to Harry
 Uniform allowance P10,000
 Laundry allowance 5,000
 Rice subsidy 20,000
 Holiday pay 20,000
 Over time pay 22,000
 13 month pay
th
42,000
 Christmas cash gift 12,000
 Medical benefits of children 5,000
 Medical benefits of Harry 20,000
 Other fringe benefits 30,000
 Groceries for the family 50,500
 Salary increase,20,000 per month 240,000
 Tuition fee, shouldered by Hogwarts when Harry attended a computer crash course to learn about
the software being used in the company’s accounting department 30,000
 Brand new car, purchased by Hogwarts for Harry (the car was registered in the name of Harry) and
its purchase cost is P1,088,000
 Legitimate business meeting abroad
o Airfare 1st class- 50,000
o Lodging cost- $500 per day
o Meals- $400 per day
o Exchange rate $1=P52
 Three maids, each with a salary of 8000 per month
 A driver with a salary of 10,000 per month
D. Interest from long term trust fund, gross 100,000
E. interest from current account, gross 120,000
F. interest from foreign currency deposit, net 300,000
G. Sale of goods, net of withholding 2,000,000
H. Gross receipts from SPA, net of withholding 3,100,000
I. Sale of jewelry, acquired 2 years ago with a cost of 180,000 140,000
J. Sale of a family car acquired 6 months ago with a cost of 210,000 200,000
K. Nobel peace prize awardee 300,000
L. Dividend received from own company 30% of taxable income of fantastic beast

I. Cost of goods sold

From merchandising business 800,000
From SPA services 1,000,000

II. Expenses:
Expenses from merchandising business 500,000
Expenses from SPA 1,200,000
Taxes paid
 Real property tax 150,000
 Documentary stamp tax 200,000
 Business Permit 2,000
 Special Assessment 3,000
 Donor’s Tax 130,000

III. Payment for employee pension fund

 current service cost 200,000
 past service cost 500,000
IV. Bad debts written off 100,000
V. Loss from flood 300,000
VI. Donation to VERITAS accredited by DSWD 100,000

Due to the insistent demand of Ginny to stay at Baguio, Harry decided that it will be better to have a house at
Baguio rather than rent an apartment or a hotel, with that in mind he has decided to look for a house within the
vicinity near Burnham Park, fortunately enough he was able to locate a house that was recently vacated by its
owners due to some unknown reasons, and thus was able purchase their vacation house in Baguio, worth
P2,000,000.

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And when Harry though that his life couldn’t get any better, 2021 turned out to be an even more fruitful year for
Harry when he was going to buy their grocery provisions, it turned out that Jenra Supermarket was holding its
own raffle draw and Harry qualified for one raffle ticket due to the amount of his purchases, testing his luck he
submitted the ticket at the raffle booth. On his way home, he took his chance as well with the PCSO lottery
where he betted on one draw and chose six random numbers for his lottery ticket. Ginny however, called and
informed Harry of additional grocery items needed at their home, with that said Harry went to the nearest
supermarket, SM Hypermarket in order to purchase the additional items, and once again he was able to qualify
for a raffle that SM was holding.

Harry was a writer as well, that is why he wrote another book to publish entitled, “Tax Master” where he wrote
some inspiration and quick know-how for tax maneuvering. His book Rugs to Riches was no longer distributed
in the Philippines but was distributed in America where this earned him royalties amounting to P210,000. While
his Tax Master book earned him royalties of P250,000. Because of the book Tax Master, he was contacted by
a prospective client that wanted him to help with their planned tax evasion, whereas this will earn Harry
P300,000 as incentive for the help for the tax evasion, Harry accepted the engagement because he wanted to
earn more for his family. After receiving payment for the successful evasion, which went unnoticed by the BIR,
Harry saw from the news that his PCSO lottery ticket won the P1,000,000 prize.

Ginny was mischievous enough to submit the name of Harry in a contest Mr. Philippines 2021 where he won
2nd place, where he was required to render 1 year community service but in exchange he earned P500,000
gross of tax. And on the day of his coronation as Mr. Philippines 2021, he heard a news regarding his
estranged father passing away, despite their distance and no communication he still was his father which is
why Harry decided to go to his father’s funeral and there he was informed and had received proceeds from life-
insurance worth P1,500,000.

He learned that the death of his father maybe caused by foul play with which is why he wanted to avenge
James. Harry found out that the suspected culprit was Peter Pettigrew, a previous business partner of James,
however he did not want to be a murderer despite wanting revenge but still he wanted to make Peter Pettigrew
suffer, which is why he planned to kidnap Peter Pettigrew’s daughter. While planning the kidnapping he
received a mail from SM Hypermarket indicating that he won from the SM Hypermarket’s raffle of P25,000.
After meticulous planning of the kidnapping he successfully executed the scheme and asked for a ransom of
P200,000, where Peter had no choice but to quietly comply. After receiving the ransom and releasing the
daughter, he received a notice that he won from Jenra Supermarket’s raffle’s amounting to P10,000. Other
income received were:

A. Ramon Magsaysay award 100,000

B. Compensation income received from Hogwarts Inc in the form of cash
 Basic Salary net of statutory deductions 520,000
 Christmas Bonus 30,500
 Cash gift from major anniversary 23,000
 Uniform allowance 4,000
 13 month pay
th
30,500
 Midyear Bonus 12,000
 Hazard Pay 3,000
 Holiday Pay 4,900
 Productivity incentive 9,000
 Laundry allowance 3,000
 Medical allowance 8,000
 Employee Achievement Award 9,000
 Other fringe benefits 60,000
C. Rental Income (net of withholding) 550,000
D. Dividend earned from own company 800,000
E. Dividend income earned from Hogwarts company 70,000
F. Dividend income earned from two resident foreign corporations. The Gross income from the Philippines
for the past 3 years
 40% of its world income 90,000
 75% of its world income 135,000
G. Dividend income earned from non resident foreign corporation. 45,000
H. Interest income received
 From FCDU 19,000
 From bank-local currency (short term) 13,000
 From long term trust fund 180,000
 From notes receivable 250,000
I. income from merchandising business,net 5,000,000
J. Income from SPA 4,500,000
K. Income from practice of profession (net of withholding) 250,000
/ETD
 L. Recoveries on accounts receivable previously written off in 2016:
 Allowed by BIR as deduction 10,000
 Disallowed by BIR as deduction 22,000
M. Sale of capital assets:
 Shares of ABC (domestic) not traded:
Selling price P365,000 Cost (2016) P180,000
 Shares of DEF (domestic), traded:
Selling price P280,000 Cost (2016) P100,000
 Shares of XYZ (foreign)
Selling price P500,000 Cost (2014) P100,000
 Vacation house
Selling price P6,000,000 Cost (2016) P3,000,000
Fair market value 5,000,000
 Toyota car
Selling price P350,000 Cost (2014) P200,000
 Residential lot
Selling price P3,000,000 Cost (2014) P1,500,000
Fair market value 3,200,000
 Sale of jewelry
Selling price P24,000 Cost (2014) P20,000
 Sale of house and lot (principal residence)
Selling price P5,000,000 Cost (2014) P3,500,000
Fair market value 5,000,000
Note: the taxpayer bought a new house and lot two months after the date of sale for Php
6,000,000. This will serve as her new principal residence.

I. Expenses
Entertainment expenses 30,000
Pension Expense (see breakdown below) 85,000
Taxes (see breakdown) 49,000
Bad debts 56,000
Salaries expense (see information below)
Loss from typhoon 180,000
Depreciation expense 58,000
Donation to public school (adopt-a-school program) 60,000
Note: This is one of the priority activity of NEDA
Interest Expense 100,000
Cost of breastfeeding station 2,000,000
Note: Useful life is 5 years
Training expense for rank and file employees 40,000
Training expense for managerial positions 65,000
Extraordinary expense 10,000
Other information for Salaries:

Monthly Salaries:
Name of employee Monthly Salary
Rubius, Senior citizen below poverty level 10,000
Severus Lower by 5,000 from Voldemort
Harry Higher by 6,000 from Severus
Ron Equal to that of Rubius
Hermione Higher by 5,000 from Ron
Voldemort Lower by 2,000 from Sirius
Sirius,PWD Higher by 4,000 from Hermione

Fringe benefit given to employees:

Rank and file position 100,000
Managerial position 250,000
Supervisory position 340,000
Pension expense
Current service cost 50,000
Past service cost 35,000
Taxes
Special Assessment 20,000
Municipal tax 10,000
Documentary stamp tax 3,000
Other percentage tax 8,000
/ETD
 Donor’s tax 8,000

Probably the only sad event that occurred during the year was the death of their second born on January 2.
Though depressed, they still decided to look at the brighter side of life. A week after the death of the child, they
decided to unwind for a few days, going to some of their favorite places like Sago.

By the end of October, Ginny gave birth to healthy twins which they named Very and Easy. Also during the
year, his beloved aunt who is also his godmother (the sister of his mother), met an accident causing both her
arms and legs to be amputated. Looking back on all the things that his aunt has done for him, he decided to
take her in. Starting that year, her aunt relied on Harry for chief support because her condition prevented her
from being able to work.

To be continued…

Determine the following:

Year 2018
1. Taxable Income of Harry subject to Regular income tax
2. Regular Income Tax Due of Harry

Year 2019
3. Exempt De Minimis benefits received by Harry
4. Income subject to Final Taxation of Harry
5. Income subject to Final Taxation of Ginny
6. Final income tax due withheld by the payor of Harry
7. Final income tax due withheld by the payor of Ginny
8. Net taxable income subject to regular income taxation of Harry
9. Net taxable income subject to regular income taxation of Ginny
10. Regular income tax still due of Harry
11. Regular income tax due of Ginny

Year 2020
12. Income subject to final tax and final tax due of Fantastic beast Corporation
13. Income subject to regular income tax of Fantastic beast Corporation
14. Regular income tax due of fantastic beast corporation
15. Improperly accumulated earnings tax of fantastic beast corporation
16. Exempt de minimis benefits received by Harry
17. Excess 13th month pay and other benefits of Harry
18. Fringe Benefit tax due from the fringe benefits received by Harry
19. Income subject to final tax and final income tax due of Harry
20. Income subject to capital gains tax and capital gains tax due of Harry
21. Total Regular allowable deductions of Harry
22. Total deductible taxes
23. Net taxable income of Harry subject to regular income tax
24. Income tax still due of Harry

Year 2021
25. Exempt De minimis received by Harry
26. Fringe Benefit tax due from the fringe benefits received by Harry
27. Income subject to capital gains taxation
28. Capital gains tax deposited in escrow account
29. Capital gains tax due
30. Tax basis/cost of new principal residence
31. Final income tax due of Harry
32. Total deductible taxes
33. Total Regular allowable deductions
34. Total Special allowable deductions
35. Net income tax subject to regular income tax of Harry
36. Regular income tax still due of Harry
37. Net Capital gain/(loss)
38. Total Basic and personal exemptions
39. Net taxable income subject to regular income tax (If Harry is a non resident citizen)
40. Regular income tax due (if Harry is a non resident citizen)

Prepared by:
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EDNEL TANHUECO DATU

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