Compilation of Exercises
Compilation of Exercises
Compilation of Exercises
In the space provided for, indicate whether the statement relates to a Constitutional Limitation (C) or Inherent
Limitation (I). If it is not a limitation to the taxing power, indicate (N).
Drill 2. Indicate the appropriate classification for each of the following taxpayers:
DC-Domestic corporation RC- Resident citizen
RFC- Resident foreign corporation NRC- Non-resident citizen
NRFC- Non-resident foreign corporation RA-Resident alien
NRA-ETB- Non-resident alien engaged in trade or business NT- Not a taxpayer
NRA-NETB- Non-resident alien not engaged in trade or business
Drill 3. Check the box that properly corresponds to the taxability of the following taxpayers:
Taxpayer World income Philippine income
1. Resident citizen /
2. Resident foreign corporation /
3. Non-resident alien engaged in trade or business /
4. Resident alien /
5. Non-resident citizen /
6. Non-resident foreign corporation /
7. Non-resident alien not engaged in business /
8. Taxable trusts established by a Filipino citizen
in the Philippines /
9. Taxable state of a non-resident citizen judicially
Administered Abroad /
10. Domestic corporation /
2. Mr. Joe started business on July 15, 2021. What should be the coverage of his 2021 income tax return?
a. July 15, 2021 to December 31,2021
b. July 16, 2021 to July 15,2022
c. January 1 to July 15,2021
d. January 1 to December 31,2021
3. Stormborn Co. started business on April 5,2021 and opted to report income tax on a fiscal year ending every
October 31. Stormborn’s first income tax return shall cover
a. April 5, 2021 to April 5,2022
b. April 5,2021 to December 31,2021
c. April 5,2021 to October 31,2021
d. April 6,2021 to October 31,2021
4. Myra Co. reports on a calendar year. On August 15,2021, it stopped business due to persistent losses. Myra Co.’s last
income tax return shall cover
a. 1 to August 15,2021
b. January 1 to December 31,2021
c. August 15, 2020 to August 15,2021
d. August 15 to December 31,2021
5. Effective July 2,2022, Paraiso Co. changed its fiscal year ending every march 31 to anther fiscal year ending
every August 31. An adjustment return shall be filed covering the period
a. July 3 to August 31,2022
b. April 1 to July 2,2022
c. April 1 to August 31,2022
d. April 1 to July 1,2022
6. Tokyo Co. reported the following data for 2021:• Total net sales made to customers were P2,000,000 in cash.•
Goods purchased for sale totaled P1,200,000 in cash. Beginning and ending inventory of goods for sale, respectively,
were P200,000 and P300,000.• 1-year advanced rent of P30,000 to apply for 2022 was received from sublease
contract.• P40,000 total interest income from customers promissory note earned. P30,000 of this was collected.•
Unrealized foreign exchange gains from foreign currency receivables totaled P60,000.Using cash basis, compute the
total income subject to income tax.
a. P990,000
b. P960,000
c. P690,000
d. P750,000
Cash income:
Net sales P 2,000,000
Advanced rent 30,000
Interest income-collected portion only 30,000
Total gross income 2,060,000
Cash expenses:
1,100,000
Net income 960,000
7. Tokyo Co. reported the following data for 2021:• Total net sales made to customers were P2,000,000 in cash.•
Goods purchased for sale totaled P1,200,000 in cash. Beginning and ending inventory of goods for sale, respectively,
were P200,000 and P300,000.• 1-year advanced rent of P30,000 to apply for 2022 was received from sublease
contract.• P40,000 total interest income from customers promissory note earned. P30,000 of this was collected.•
Unrealized foreign exchange gains from foreign currency receivables totaled P60,000. Using accrual basis, compute
the total income subject to income tax
a. P1,000,000
b. P1,060,000
c. P970,000
d. P960,000
Cash income:
Net sales P 2,000,000
Advanced rent 30,000
Interest income 40,000
Total gross income 2,070,000
Cash expenses:
1,100,000
Net income 970,000
8. Gab is a dealer of household appliances. He reported the following in 2021 and 2022:
Gab’s 2022 collection is inclusive of P100,000 accounts from 2021.
Using the installment method, compute Gab’s gross income subject to income tax in 2022.
a. P250,000
b. P275,000
c. P360,000
d. P320,000
2021 2022
Installment sales P 500,000 P 800,000
Cost of installment sales 250,000 440,000
Gross profit 250,000 360,000
Percent of installment
(Collection/Contract price) x Gross profit
Collection from 2021 (100,000/500,000) 250,000
Collection in 2022 (500,000/800,000) 360,000
50,000
225,000
TOTAL Gross Income under installment method (50,000+225,000) 275,000
9. Gab is a dealer of household appliances. He reported the following in 2021 and 2022
Using the accrual basis of accounting, compute Gab’s gross income subject to income tax in 2022.
a. P320,000
b. P360,000
c. P275,000
d. P250,000
10. Parrot Inc. constructs residential properties for clients and reports income by the percentage of completion method.
In 2021, Parrot Inc. started a P2,000,000 construction contract. Details of his 2021 and 2022 construction follow
11. Max entered into a 40-year lease contract with Perlas. Per agreement, Max will construct a building on Perlas lot and
operate the same for 40 years. Ownership of the building will transfer to Perlas upon the termination of the lease.
The lease will not commence until the building is completed. Max completed the building at a total cost of
P40,000,000 on January 1,2022. The building is expected to be used over 50 years. Compute Perlas income form the
leasehold improvement to be reported in 2022 using the spread-out method.
A. P32,000,000
B. P200,000
C. P8,000,000
D. P4,000,000
12. In the immediately preceding problem, assume that the building was completed on July 1,2022, what is
the income using outright method.
a. P 32,000,000
b. P8,000,000
c. P4,000,000
d. P 40,000,000
Solution:
User Years of usage Allocation Cost
Lessee 40 40/50x40,000,000 32,000,000
Lessor 10 10/50x40,000,000 8,000,000
50 40,000,000
13. A taxpayer received a notice from the BIR to file his 2020 income tax return not later than January 15,2022. The tax
due per his return is P100,000. What is the total surcharge penalty?
a. 25,000
b. P 20,000
c. P0
d. P 50,000
Solution:100,000 x 50% = 50,000
Note: 50% surcharge apply. There is a prior BIR notice so this is a case of willful neglect
Classify if the following are subject to final tax in the Philippines. Use the code below:
T - Taxable
NT - Non-taxable
Income within Income outside
1. Resident citizen /
2. Resident alien /
3. Nonresident citizen /
4. Nonresident alien engaged in trade /
or business
5. Nonresident alien not engaged in /
trade or business
Identify the applicable rate for the following items of income for individuals:
1. Interest on peso bank deposit – 20%
2. Prizes above P10,000 -20%
3. Winnings -20%
4. Lotto Winnings above 10,000 -20%
5. Dividends from Domestic Co -10%
6. Royalties on Inventions -20%
7. Royalties on literary works -10%
8. Interest on foreign currency deposit -15%
Tony Fopalan, a resident citizen, received the following income during the year. Compute for the final tax for each of the
items and write your answer in this format: 10,000 (no peso sign, no spacing, with comma). Write 0 if final tax is not
applicable.
Problem II: Indicate whether the item is subject to capital gains tax or not
1. Troy Foz has a merchandising business. The Gross Income, net of creditable withholding taxes of P20,000, of the
business totaled P860,000. Total expenses incurred by the business totaled P420,000 (P100,000 cannot be allowed
for deduction). He also received a prize from a competition in the amount of P50,000
2. Florence Marie, a mixed income earner, obtained the following for the quarters of 2020.
Items Q1 Q2 Q3 Annual
Gross income from business 910,000
Allowable deductions 580,000
Net income from operation 60,000 50,000 50,000 330,000
Taxable income from previous quarters
Non-operating income 60,000
Total taxable business income to date 125,000 220,000 390,000
Taxable compensation income 470,000
Total taxable income 60,000 860,000
Tax due 0 0 0 148,000
Tax credits 47,500
Tax payable 100,500
3. Fritz, a mixed income earner, reported a taxable compensation income of P400,000. His taxable business income is
P800,000. The cost of services and allowable deductions from the business are P1,000,000 and P500,000,
respectively. Answer the following independent questions.
COMPENSATION INCOME:
Taxable Compensation Income 400,000
TAX DUE 30,000
BUSINESS INCOME:
Taxable business income 800,000
Add back: Allowed deductions 500,000
Gross income form business 1,200,00
Add back: Cost of sales 1,000,000
Gross sales 2,300,000
2. How much is the total tax due if Fritz chooses to be taxed at graduated rates?
ANSWER: 250,000
Progressive Table:
130,000 + 30% of excess over 800,000
130,000 + 30% (1,200,000-800,000)
130,000 + 120,000
3. Ignore the compensation income. How much is the tax due if Fritz chooses to be taxed at8%?
ANSWER: 164,000
A. Alba insured his life with his estate as beneficiary. In 2020, after Mr. Alba had paid P165,000 in premiums, he
assigned the policy to Mr. Simon for P160,000, and Mr. Simon collected the total proceeds of P2,000,000. Mr.
Simon, after the assignment, and before Mr. Alba’s death, paid total premiums of P180,000.
1. Compute for the exempted amount:
ANSWER: 340,000
A rank and file employee received the following benefits from his employer:13th month pay P 50,000; 14th month pay
50,000; Christmas bonus 30,000 = Total 13th month and other benefits P130,000
- How much was the taxable benefits? 40,000
The following were received by a resident citizen employee, married, and with four (4) qualified dependent children for
the year 2020: Salary (net of P30,000 withholding tax; P5,000 SSS contribution; P4,000 union dues), P496,000; 13th
month pay, P50,000; 14th month pay, P50,000.
- How much was the taxable compensation income? 536,000
Based on the following data, compute the total exclusions from gross income:
Answer: 117,400
A resident citizen, 50 years old, married, with three (3) qualified dependent children asks you to assist him in computing
his taxable net income for the year 2020:
- How much was the total amount of excluded or exempted income? 2,560,000
- How much is the final withholding tax on certain income? 120,000
- How much is the taxable net income? - 948,947
A resident citizen, widower, with a dependent minor brother, had the following data on income and expenses: Gross
business income, P500,000; Business expenses, P200,000; Interest from savings deposit, BPI-Makati, Philippines,
P50,000; Prize in a literary contest he joined, P10,000; Prize received for achievement in literature (did not join the
contest), P10,000; Gain from sale of bonds(maturity is 6 years), P5,000; Separation pay from his former job (resigned),
P250,000; Cash he inherited from his uncle, P300,000; Proceeds of his wife’s life insurance (irrevocable
beneficiary),P1,000,000; Amount received as return of premium (premium paid, P150,000), P200,000; Tax Informer’s
Reward, P500,000; Interest income from Government bonds, P20,000; Winnings from illegal gambling, P10,000.
- How much was the total amount of excluded or exempted income? 1,485,000
- How much was the total final withholding tax from certain income? 60,000
- How much was the taxable income subject to Regular Income Tax? 620,000
Exercise 9-Inclusions in Gross Income
Anthony, an amateur boxer, represented the Philippine team in Beijing Olympics. He received the following income:
P200,000 cash prize from the Olympic association; P500,000 cash award donated by Rubberworld Philippines; P400,000
talent fee as model of Nike Shoes and P1,000,000, professional fee as an actor. On the other hand, Pacman a
professional boxer won in a non-titled bout between him and El Terrible held at Mandalya Bay, Las Vegas, Nevada.
Pacman received the following: P25 million as cash prize in the fight; P30 million from Pay per view; P12 million talent
fee as commercial of San Miguel Beer.
3. Moana has the following royalties during the year. From mining properties in the Philippines 550,000; From musical
compositions in the Philippines 450,000; From books published abroad 250,000; From licensing earned by her
domestic business 800,000. How much is to be included in the gross income?
ANSWER: 1,600,000
4. A portfolio of equity investments held by a resident citizen taxpayer received cash dividends from the following
during the year: Domestic Corporation 400,000; Resident Foreign Corporation 300,000; Non-Resident Foreign
Corporation 200,000. The pre-dominance test on the Resident Foreign Corporation revealed a 60% rate.
ANSWER: 500,000
A taxpayer incurred P60,000 bad debt expense in 2018 out of which P35,000 was recovered in2020:
- How much should be the taxable net income for 2020? 155,000
A taxpayer incurred P90,000 bad debt expense in 2018 out of which P60,000 was recovered in2020.
ANSWER: 10,000
Mr. Mario Matiyaga, 50 year old, rendered service as a security guard of Anscor Corporation. He had a monthly salary of
P5,000 before retirement in October 31, 2021. During the same taxable year he received P500,000 retirement benefits
in accordance with reasonable private benefit plan maintained by Anscor Co.
1. Required: Compute for the amount to be included in the gross income of Mr. Matiyaga for 2021 based on
the following independent assumptions: 1. He received the retirement benefit for the first time after serving
for 10 years2.
ANSWER:
5,000 X 10 = 50,000
2. He received the retirement benefit for the second time
ANSWER: 550,000
Retirement benefits P500,000
Salary earned 50,000
Gross income P550,000