FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT 2

Quarter 2 Weeks 4-5

Learning Competency:
1. Explain the procedure in the computation of gross taxable income and tax due
2. Explain the principles and purposes of taxations

TAX SCHEDULE is gross income minus the deductions allowed by law. Taxable
income is the amount on which the tax computed.
Tax Due - the amount of tax to be paid to the government by a taxpayer

ILLUSTRATION A: COMPENSATION INCOME

Mrs. Maldita payslip for the year shows the following:
Salary ₱250,000
SSS contribution 5,810
PhilHealth 3,250
Pag-ibig contribution 1,200

Solution:
Salary ₱250,000
SSS contribution (5,810)
PhilHealth (3,250)
Pag-ibig contribution (1,200)
Taxable Income ₱239,740

➢ Based on the Tax Table, Taxable Income of ₱239,740 is not over 250,000, which
means the tax due is zero.

ILLUSTRATION B: COMPENSATION INCOME WITH EXCESS

Salary ₱350,000
SSS contribution 6,972
PhilHealth 3,900
Pag-ibig contribution 1,200

Solution:
Salary ₱350,000
SSS contribution (6,972)
PhilHealth (3,900)
Pag-ibig contribution (1,200)
Taxable Income ₱337,928
➢ Based on the Tax Table, Taxable Income of ₱337,928 is over ₱250,000 but not
over ₱400,000. The tax due computed as follows:
 Tax Due 15% on ₱87,928 (excess on ₱337,928 – 250,000) ₱13,189

Rounding-off of Centavos
In computing for the taxable income or the tax due, cents are rounded-off as
follows:
(a.) For less than 0.50 centavos, drop or omit the centavos
(b.) For 0.50 centavos and above, round up to the next peso

ILLUSTRATION: COMPUTATION WITH OTHER FORMS OF COMPENSATION

INCOME

ILLUSTRATION 1:
An employee receives the following:
13th month pay ₱ 24,000
Christmas bonus (Non-performance based) 6,000
Rice subsidy 21,600
Uniform allowance 7,000
Laundry allowance 2,400
Productivity bonus (received under CBA and
productivity incentive schemes) 5,000

Requirement: Compute for the taxable portion of the amounts received.

Solution:
Step 1: Determine the excess de minimis benefits

(a) ₱1,500 limit per month x 12 months = ₱18,000

(b) ₱300 limit per month x 12 months = ₱3,600
Steps 2 & 3: Add excess de minimis benefits to 13th month pay and Other benefits and
determine the excess over the ₱90,000 limit:
Excess de minimis benefits ₱ 5,600
13th month pay 24,000
Christmas bonus (Non-performance based) 6,000
Total 13th month pay and Other Benefits 35,600
Limit 90,000
Excess – Taxable amount -0-

ILLUSTRATION 2:
Information on Mr. Adelle’s compensation is provided below:
Regular monthly salary:
Basic Monthly Salary ₱ 100,000
Cost of living allowance (COLA) per month 6,000
Medical cash allowance to employee’s dependents per month 1,500
Rice subsidy per month 2,000
Laundry allowance per month 1,000
Annual benefits:
13th month pay (equal to 1 month basic salary) 100,000
Christmas bonus (non-performance based) 50,000
Uniform allowance 6,000
Requirement: Compute for Mr. A’s tax due for the year.

Solution:
Step 1: Determine the excess de minimis benefits

(a) (Amount received: ₱1,500 per month x 12 months = ₱18,000);

(Non-taxable: ₱125 per month x 12 months = ₱1,500)
(b) (Amount received: ₱2,000 per month x 12 months = ₱24,000);
(Non-taxable: ₱1,500 per month x 12 months = ₱18,000)
(c) (Amount received: ₱1,000 per month x 12 months = ₱12,000);
(Non-taxable: ₱300 per month x 12 months = ₱3,600)
Steps 2 & 3: Add excess de minimis benefits to 13th month pay and Other benefits and
determine the excess over the ₱90,000 limit:

Excess de minimis benefits ₱ 31,900

13th month pay 100,000
Christmas bonus (Non-performance based) 50,000
Total 13th month pay and Other Benefits 181,900
Limit 90,000
Taxable 13th month pay and Other Benefits ₱ 91,900

Step 4: Gross Compensation Income/Taxable Income

Basic Salary (₱100,000/mo. X 12 mos.) ₱ 1,200,000
COLA (₱6,000 x 12) 72,000
th
Taxable 13 month pay and Other Benefits 91,900
Gross Compensation Income ₱ 1,363,900
Step 5: Tax due

Tax on ₱800,000 but not over ₱2,000,000 ₱130,000

Add: Tax on excess [30% x (1,363,900-800,000)] 169,170
Tax due ₱299,170

ILLUSTRATION 3:
Ms. Pinky has the following compensation income for the taxable year:
Basic salary ₱ 290,000
Overtime pay 9,200
Daily meal allowances for overtime pay
(3 meals at ₱50/meal; the basic minimum wage is ₱300) 150
Reimbursement for transportation costs in relation
to overtime work 210
Fees as a director 15,000
Honorarium as guest speaker 6,000
Paid vacant leaves taken during the year
(included in the salary) 8,000
13th month pay 25,000
Requirement: Compute for the tax due of Ms. A for the taxable year.

Solution:
Step 1: Determine the excess de minimis benefits

(a) (300 basic minimum wage x 25%) = 75 per meal x 3 meals = ₱225

Step 2: Add excess de minimis benefits to 13 months pay and

Other benefits and determine the excess over the ₱90,000 limit:

Excess de minims benefits -

13th month pay ₱ 25,000
Total 13th month pay and Other Benefits 25,000
Limit 90,000
Taxable 13th month pay and Other Benefits -

Step 3: Gross Compensation Income Taxable income

Basic salary ₱ 290,000

Overtime pay 9,200
Fee as a director 15,000
Honorarium as guest speaker 6,000
Gross Compensation Income ₱ 320,200

Additional Information:
➢ The ₱210 reimbursement for transportation costs in relation to overtime work is
omitted because this is not taxable.
➢ The ₱8,000 paid vacation leaves taken during the year are taxable. Because this
amount already included in the salary, no adjustment is necessary. Note that only
monetized unused vacation leaves considered de minims benefits; those used are
not.
Step 4: Tax due

Tax on ₱250,000 but not over ₱400,000 ₱ 0

Add: Tax on excess [20% x (320,200-250,000)] 14,040
Tax due ₱ 14,040

ILLUSTRATION: GROSS BUSINESS INCOME

Summary Table for Gross Business Income (Self-employed/Professionals)

Additional information:
The ending inventory per physical count is P60,000.
Requirements:
a Compute for the tax due assuming the taxpayer uses the itemized deductions
b. Compute for the tax due assuming the taxpayer avails the optional standard
deduction (OSD).
Alejo is an engineer of a construction company and earns a net of compensation income
of P550,000 in 2019. Alejo also has a registered business under his name that makes
P250,000 in 2019. He chose to be taxed at an 8% income tax rate for his business.
Requirement: Compute the income tax due.

Analysis: Alejo is a mixed-income earner who earns a compensation income and

business income. The tax due on compensation income computed using the graduated
income tax rate. While the tax due on revenue from the business calculated using the 8%
income tax rate because he opted to do so.
Solution on income from business:
Total business income - P250,000

Less: Amount allowed as a deduction - P0.00 (cannot claim the deduction since it was
applied in the taxable compensation income under the graduated income tax rate)

Total taxable business income - P250,000

Income tax due (8%): P250,000 x 8% = P20,000

Percentage Tax Due is 0 (zero). Alejo is not liable for any percentage tax on his
business income since he chose the 8% income tax rate. It was discussed in the
previous module under Gross Business Income Optional Eight percent (8%) Tax.

ILLUSTRATION FOR VALUE ADDED TAX (INPUT & OUTPUT VAT)

Sunflower Convenience Store, a sole proprietorship and a VAT- registered business,
has the following transactions during the month:

Sale of goods, exclusive of VAT P350,000

Purchases of goods, exclusive of VAT 130,000

Requirements:
a. Compute for the net amount of VAT to be remitted to the BlR

Solutions:
Notes: The VAT component of sales recorded in the "Output VAT" account. In contrast,
the VAT component of purchases recorded in the "Input VAT" account.

Output VAT (350,000x 12%) P42,000

Input VAT (130,000 x 12%) (15,600)
Net VAT to be remitted to the BIR (VAT PAYABLE) P26,400
ILLUSTRATION FOR PRICES INCLUSIVE OF VAT
You purchased a pair of shoes from a department store for a total purchase price of
P7,999. How much is the VAT component of the purchase price?
Solution:
Most often than not, prices charged to buyers are inclusive of VAT. The VAT
component of a price that is inclusive of VAT is Computed as follows:
Price, inclusive of VAT P 7,999
Divide by: (100% + 12% VAT) 112%
Price, exclusive of VAT 7,141.96
Multiply by: VAT rate 12%
VAT component P 857.03
Compute using Calculator: 7,999 x 12/112= 857.03

ILLUSTRATION FOR PERCENTAGE TAX DUE

Carlo started a shoe business last year. At the end of 2018, he earned a taxable income
of P350,000.00 in total. He did not choose the option of an 8% income tax rate. Compute
the taxes due.

Analysis: Carlo is earning purely from the business so that he can choose between
option A of 8% and option B, the graduated income tax rates. Carlo did not select the first
option; therefore, by default, his income tax due is computed based on the graduated
income tax rates.

Solution:
(1) Income Tax Due: Using the graduated income tax table, the income tax rate for the
first P250,000 is 0%. The excess is subject to a 20% income tax rate. Therefore,
Marco's income tax due is P20,000.00 or (P350,000.00 - 250,000.00) x 20%.

(2) Percentage Tax Due: Carlo is now subject to the 3% percentage tax on his gross
receipts. If Carlo did not incur any operating expenses and the gross receipts amounted
to P350,000.00, therefore, the percentage tax due is P10,500.00 or (P350,000.00 x 3%).
In the illustration above, the total tax due to be paid by Carlo is the sum of the income tax
and percentage tax due amounting to P30,500.00 in total.