INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS CHAPTER 5

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Chapter 5: Exclusion from Gross Income

EXCLUSION FROM GROSS INCOME

Problem 5 1 TAXABLE 1. Nontaxable 2. Taxable 3. Nontaxable 4. Nontaxable with IT 5. Taxable 6. Taxable 7. Nontaxable 8. Nontaxable 9. Taxable 10. Nontaxable OR 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. NONTAXABLE with income tax Taxable 21. Taxable Nontaxable 22. Nontaxable Taxable Nontaxable Nontaxable Nontaxable Taxable Taxable Nontaxable Taxable

Problem 5 2 TAXABLE OR NONTAXABLE with income tax 1. Nontaxable 12. Nontaxable, if not exceeding 10 days 2. Nontaxable 13. Taxable 3. Nontaxable 14. Taxable (based on proceeds or selling price or zonal value, whichever is higher). 4. Nontaxable 15. Taxable 5. Nontaxable 16. Taxable 6. Nontaxable 17. Taxable, except when BIR registered with 50 year old retiree; 10 years service and first time to avail. 7. Nontaxable 18. Taxable 8. Taxable 19. Nontaxable if Philippine Sweepstakes and Lotto 9. Nontaxable 20. Taxable 10. Taxable 21. Taxable 11. Taxable 22. Nontaxable Problem 5 3 TRUE OR FALSE 1. False nontaxable 2. True 3. True 4. False Proceeds of life insurance is not taxable regardless of whoever would be the recipient, except when the insured person outlived his life insurance and received the proceeds. The excess of proceeds over premium paid is taxable. 5. False include in gross income 6. False Bequest is a personal property. 7. True 8. True 9. True 10. False Nontaxable 11. True 12. False Nontaxable 13. False Some prizes and awards are not taxable. Eg. Ramon Magsaysay Awards 14. True 15. True 16. False Include in gross income because income from gift is subject to income tax. 17. False Exempt from income tax. 18. True Problem 5 -4 1. A 2. D 3. C 4. D 5. D 6. B 7. A 8. A 9. C 10. C 11. A 12. D 13. D 14. A 15. B Problem 5 6 D Availed 10-day sick leave pay Problem 5 -5 1. B 2. D 3. A 4. D 5. C 6. D 7. C 8. C 9. C 10. C

P1,500

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS

23

Chapter 5: Exclusion from Gross Income

Problem 5 7 C Take home pay Nontaxable 13th month pay Withholding tax Other income subject to normal tax Taxable income

P212,000 ( 17,500) 13,500 20,000 P228,000

In general, a MWE is not subject to WTW and income tax on his compensation income. But if he has other income that is subject to normal tax, his entire income during the year will be subject to income tax, his compensation income, however, will not be subject to WTW. Problem 5 8 C Taxable P265,000 50,000 6,000 (27,000) ( 5,000) . P289,000 Taxable P13,000 Nontaxable

Net pay Withholding tax Advances 3th month pay Christmas bonus (de minimis) SSS contribution Totals Problem 5 9 C

P27,000 5,000 4,000 P36,000 Tax-exempt P300 100 100

Net take home pay SSS contributions PAG-IBIG contributions Union dues contributions Office party contributions Charitable contribution (deductible only from business income) Withholding income tax Totals Problem 5 10 Monthly salary Problem 5 11 Rent of apartment Reimbursement Taxable benefits Problem 5 12 Reportable taxable income D

75 25 400 P13,500

. P500 P15,000

A P 50,000 20,000 P70,000 D P - 0 P500,000 40,000 (490,000) P 50,000

Problem 5 13 B Proceeds of life insurance received by insured person Return of premium Total premium paid Taxable income Problem 5 14 Problem 5 15 D D Nontaxable Actual damages for unrealized profit Interest on non-taxable damages Actual damages for lost products Exemplary damages Moral damages Actual liquidated damages Total P200,000 50,000 50,000 80,000 P380,000
Zero, because, the P270,000 cash surrender value is just a return of contribution of P360,000.

Taxable P100,000 20,000

. P120,000

Problem 5 16 Taxable income Problem 5 17

A P -0D Taxable Nontaxable

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS
Terminal pay Life insurance SSS death benefit Donations Totals Problem 5 18 A The termination is due to cause within the control of Jalosjos. Problem 5 19 D Last pay ujpon resignation from his first employer Problem 5 20 A Zero, all items enumerated are not subject to income tax. Problem 5 21 D P50,000 business income for year 4 Problem 5 22 C Interest income from bank savings deposit Problem 5 23 D Zero. All gifts enumerated are not subject to income tax. Problem 5 24 D Total income (P100,000 x 10 months) Total average expenses (P20,000 x 10 months) Income subject to income tax

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Chapter 5: Exclusion from Gross Income

. P - 0 -

P 60,000 500,000 10,000 40,000 P610,000

P100,000

P4,000

P1,000,000 ( 200,000) P 800,000

Problem 5 25 D Zero. All winnings received by Miss Lara are subject to tax because she has entered into a contest as Miss International. Problem 5 26 Lotto Philippine winnings A P10,000,000 50,000 100,000 500,000 250,000 1,000,000 100,000 P2,000,000 P

Problem 5 27 B Ramon Magsaysay award Athlete of the year award Prize for winning the silver Olympic medal Gift from Mr. Lim Gift from Nissan Winnings Philippine sweepstakes Total winnings/ awards not subject to income tax

Problem 5 28 D Zero. Interest and gain on sale of investment in a 5-year government bonds is exempt from income tax. Problem 5 29 B Interest received from bond investment Problem 5 30 B Interest income Multiplied by final tax rate on interest income Income tax Problem 5 31 D Interest on expanded foreign currency deposit P 120,000 P120,000 20% P 24,000 P100,000

Problem 5 32 A Income from sale of invented products Sale of technology Total revenue Less: Research and development costs Nontaxable income

P5,000,000 2,000,000 P7,000,000 800,000 P6,200,000

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS
Note: The cost of product produced need not to be deducted anymore because of the term income from sale of invented products. Problem 5 33 C Interest income on bank savings deposit Problem 5 34 C Interest income from foreign currency deposit (P2,000,000 x 7.5%) Interest income from time deposit (P1,000,000 x 20%) Income tax paid by BBC Problem 5 35 1. Compensation income (P5,000 x 10) 2. Retirement benefits Salary earned Gross income

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Chapter 5: Exclusion from Gross Income

P10,000 P150,000 200,000 P350,000 P 50,000 P500,000 50,000 P550,000 P 50,000

3. Same answer with No. 1 Problem 5 36 Winnings from charity horse race sweepstakes from PCSO Interest on government debt securities Damages for breach of contract (P1,000,000 x 60%) Gains from redemption of shares in mutual fund Gain from sale of bonds with maturity of more than five years Gifts from friends Total exclusion from gross income Problem 5 37 Proceeds of his life insurance (P2,000,000) (P15,000 x 25) Proceeds of his mothers life insurance Cash gift Inheritance Rent income Total Exclude P 375,000 1,000,000 50,000 3,000,000 . P4,425,000

P 500,000 100,000 600,000 300,000 60,000 200,000 P1,760,000 Include P1,625,000

100,000 P1,725,000

Problem 5 38 No, the P1,500,000 transfer to be received by Miss Tandana is to be included for income taxation because the transfer is in recognition of her services rendered. It is not to be included as a part of estate tax. Problem 5 39 All enumerated items are not subject to normal (tabular) tax.