EXERCISES

1-1
D
1.
F, K
2.
I
3.

EXERCISES 12
11 K
.
12 J
.
13 A
.

F
1.
F
2.
F
3.

J

F

4.

4.
J

F

5.

5.
B

F

6.

6.
E

F

7.

7.
H

F

8.

8.
C

9.
10
.

T
9.
10 T
.

M

EXERCISES 1 –

11
.
12
.
13
.
14
.
15
.
16
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17
.
18
.
19
.
20
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T
T
F
F
F
F
T
T
T
T

21
.
22
.
23
.
24
.
25
.
26
.
27
.
28
.
29
.
30
.

F
T
T
T
T

31
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32
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33
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34
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35
.

F
F
T
T
T

T
F
F
F
T

EXERCISES 1
–4

3
1.

B

11.

A

1.

A

2.

C

12.

B

2.

A

3.

C

13.

D

3.

D

4.

B

14.

A

4.

B

5.

C

15.

A

5.

B

6.

D

16.

C

6.

C

7.

A

17.

C

7.

B

8.

C

18.

C

8.

C

9.

C

19.

D

9.

B

10.

C

20.

C

10 C

11
.
12
.
13
.
14
.
15
.
16
.
17
.
18
.
19
.
20

B
A
A
C
C
B
D
A
C
B

2
1.
2
2.
2
3.
2
4.
2
5.
2
6.
2
7.
2
8.
2
9.
3

A
A
D
D
C
D
C
D
B
C

31
.
32
.
33
.
34
.
35
.

D
C
B
A
A

.

.

0.

EXERCISE 1 – 5

The claim of the Commissioner should be denied.
Rule-making power must be confined to details for regulating the mode or
proceedings in order to carry into effect the law as has been enacted, and it cannot
be extended nor can it expand the statutory requirements or to embrace matters
not covered by the statute.
Administrative regulations must always be in harmony with the provisions of
the law because any resulting discrepancy between the two will always be resolved
in favor of the basic law.
EXERCISE 1 – 6
YES. Double taxation means taxing twice the same property twice when it should be
taxed only once; that is “taxing the same person twice by the same jurisdiction for the
same thing.” Otherwise described as “direct duplicate taxation,” the two taxes must be
imposed on the same subject matter, for the same purpose, by the same taxing authority,
within the same jurisdiction, during the same taxing period; and the taxes must be of the
same kind or character.
There is indeed double taxation if respondent is subjected to the taxes under both
Sections 14 and 21 of Tax Ordinance No. 7794, since these are being imposed: (1) on the
same subject matter – the privilege of doing business in the City of Manila; (2) for the same
purpose – to make persons conducting business within the City of Manila to contribute to
city revenues; (3) by the same taxing authority – the City of Manila; (4) within the same
taxing jurisdiction –within the territorial jurisdiction of the City of Manila; (5) for the same
taxing periods – per calendar year; and (6) of the same kind or character – a local business
tax imposed on gross sales or receipts of the business.
Moreover, Section 143(h) may be imposed only on businesses that are subject to
excise tax, VAT, or percentage tax under the NIRC, and that are “not otherwise specified in
preceding paragraphs.”

EXERCISE 1 – 7
1.
2.
3.
4.
5.
E

Excise
Community
Due process
Donor’s tax
Shifting

S
H
I
F

L
I
F
E

6.
7.
8.
9.

L
C

O
X

M

M

U

Lifeblood
Toll
School
Revenue
10. Tax amnesty

L
N

O
I

T
R

Y
T

August 31. 3. Based on the provision of the NIRC. Thus. To award such refund despite the . The claim for refund should be denied on ground of prescription. 2008. 2. It is therefore an exercise in futility to forego with the case against him.T I N G S C O D B L O O D H N S E S O R O L S E C A X E V E N U E T O R P E U S E N M A X A T D EXERCISE 2–1 1. The query should be addressed to the Commissioner of Internal Revenue because the power to interpret the provisions of the National Internal Revenue Code (NIRC) and other tax laws is under the exclusive and original jurisdiction of the Commissioner. The Commissioner may not grant the refund when there is a deficiency tax assessment against the claimant-taxpayer. Bank of Communications vs. interpretation of officers. is entitled to great respect and have in their favor a presumption of legality (Anscor Container Corporation v. Recovery of taxes erroneously paid or illegally collected are allowed only when filed within the two-year prescriptive period. The two-year period should be computed from the time of actual filing of the Adjustment Return and final payment of the tax (Phil. I will request for a compromise of the assessed tax on ground that the financial position of the taxpayer demonstrates clear inability to pay the assessed tax. Moreover. and b. 6. CTA. the two year prescriptive period lapsed on April 5. 302 SCRA 241). Clearly. it cannot be subject to compromise anymore. I will inform him that a compromise is not allowed anymore because the case has already been filed in court. 38052. 5. even if the case is decided against the taxpayer. When a taxpayer applies for a compromise of his tax liability by reason of financial incapacity. Piolo is correct. CIR. GR No. 1998). The moment the case is filed in court. Under RA 1405 the BIR Commissioner’s power to inquire into a taxpayer’s bank deposit is not in conflict with the Bank Secrecy Law. subject to review by the Secretary of Finance. the Commissioner is authorized to inquire into bank deposit: a. 4. of laws which are entrusted to their administration. he will not have the money to pay the assessed tax. To determine the gross estate of a decedent.

The Bureau of Local Government Finance is under the Department of Interior and Local Government. the BIR is not empowered to review the decision of a superior court. he has until July 12. the two-year period for the filing of claim for refund or credit shall be counted from the date of the filing of the annual corporate income tax return (Commissioner vs. Thus. D 6. or the day following the receipt of the decision. 205 SCRA 184). EXERCISE 2-2. The Overseas Communication Tax and the Gross Receipts Tax are business taxes under Section 120 and 121. C The power to decide tax cases is more of a power and duty of the Commissioner rather than the Bureau of Internal Revenue. 7. 2011. B The Community Tax is levied under the Local Government Code of 1991. he has until June 14. He is given 30 days from receipt of the CIR’s decision but not exceeding 2 years from the date of final payment. C 2. 4. B 5. TMX Sales. A The BIR is inferior to the Court of Tax Appeals in terms of tax cases. b. A The National Bureau of Investigation and the Bureau of Immigration are under the Department of Justice. Augusto has thirty days from receipt of the decision of the CIR to file an appeal with the CTA. 2011 to file his appeal with the CTA. a. the prescriptive period will end on July 9. to file an appeal with the CTA. Since it was received on May 15. Where a corporation paid quarterly corporate income taxes in any of the first three quarters during the taxable year but incurs a net loss during the taxable year. 2011. 2009. respectively. Hence. 8. Yes. of the National . CA and Citytrust Banking Corp.existence of the deficiency assessment is an absurdity and a polarity in conceptual effects (Commissioner vs. MULTIPLE CHOICE 1. The counting of the two (2) year period commences to run from the date of final payment. 2011. Considering that the final payment was made on July 9. 7. 3. 234 SCRA 348). c.

To determine the gross estate of the decedent. etc. 9. Revenue Regulations are more detailed interpretation of the tax laws. Where the taxpayer has filed an application for compromise of his tax liability by reason of financial incapacity. It is issued by the Secretary of Finance. D Under RA 1125. penalties. 12 . 10 . The documentary stamp tax is levied under Title VII of the NIRC. Revenue Special Order and Revenue Travel Assignment Order are not exercises of legislative power. upon the recommendation of the Commissioner of Internal Revenue. 11 C Revenue Audit Memorandum Order. D The case cannot be compromised anymore if the case is filed already before the courts of justice and if the case involves fraud. fees and other charges. is appealable only to the Court of Tax Appeals. as amended. 13 . . the decisions of the Commissioner of Internal Revenue on cases pertaining to disputed assessments. D The limited power of the Commissioner does not conflict with RA 1405 because the provision of the Tax Code granting this power is an exception to the Secrecy of Bank Deposits Law. When there is a waiver duly signed by the taxpayer. b. 8. The Commissioner or his duly authorized representative may be allowed only to inquire into the bank deposits of the taxpayer on the following cases: a. subject to review by the Secretary of Finance. B Corporations are not allowed to be registered by the Securities and Exchange Commission for the purpose of practice of public accountancy (RA 9298). refunds of taxes. and c. A The power to interpret the provisions of the NIRC is under the exclusive original jurisdiction of the Commissioner of Internal Revenue.Internal Revenue Code. B 14 .

15 . 18 . 17 . 20 . The claim for refund must be filed with the CIR before any suit in Court of Tax Appeals is commenced. A Taxpayers are given 30 days from receipt of BIR decision but within two (2) years from the date of payment. the suit or proceeding must be started in the Court of Tax Appeals without awaiting for the decision of the Commissioner. or seek a refund of an indirect tax is the statutory taxpayer. D When the 2-year period is about to lapse. to appeal the decision to the Court of Tax Appeals. 19 . The computation of the two-year period starts from the filing of the final adjustment return because it was only then that it could be ascertained whether the taxpayer made profits or incurred losses in its business operations. C The best action is to file an appeal with the Court of Tax Appeals before the lapse of the 2-year prescriptive period. EXERCISE 2–3 The proper party to question. 2009 or two (2) years from the date of final payment. D The counting of the 30 day prescriptive period for appeal starts from the date of receipt of the decision because it would be unfair on the part of the taxpayer to include in the counting the date while the decision is still in the table of the Commissioner or it is still in transit. without waiting for the decision of the Commissioner of Internal Revenue. or the 30-days reglementary period from receipt of decision to appeal to the CTA. the person on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to another. Even if Petron passed on to Silkair the burden of the . 16 . D The last day to claim refund is June 30. C A withholding agent is a party in interest having sufficient legal interest to bring a suit for refund of taxes illegally collected from him.

Face value Less: Discount (100.000 80. Petron.000 20.000 . The increase in the net assets was caused by the additional contribution of P10. When Petron removes its petroleum products from its refinery in Limay. the statutory taxpayer is the proper party who can claim the refund. legislative and the judiciary. a. ultimately bears the tax burden. however. 2. since an excise tax is an indirect tax. is the person liable for the payment of the excise tax as shown in the Excise Tax Returns filed with the BIR. it pays the excise taxes due on the petroleum products thus removed. Although excise taxes can be considered as taxes on production. Petron can transfer to its customers the amount of the excise tax paid by treating it as part of the cost of the goods and tacking it on to the selling price. directly and legally liable for the payment of the excise taxes. Income taxation for the members of the judiciary give substance to the equality among the three branches of the government consisting of the executive. Petron is the taxpayer that is primarily. they are really taxes on property as they are imposed on certain specified goods. Stated otherwise. The excise taxes are collected from manufacturers or producers before removal of the domestic products from the place of production. Silkair as the purchaser and end consumer. An excise tax is an indirect tax where the tax burden can be shifted to the customer but the tax liability remains with the manufacturer or producer. as manufacturer or producer.tax. Payment of income tax by judges is not covered by the constitutional protection against diminution of their salaries during their continuance in office. Petitioner should invoke its tax exemption to Petron before buying the aviation jet fuel.000 by the partners. but this does not transform petitioner’s status into a statutory taxpayer. remains the statutory taxpayer on those excise taxes. The partnership is not liable to pay income tax considering that no income was earned during the year. Bataan. the additional amount billed to Silkair for jet fuel is not a tax but part of the price which Silkair had to pay as a purchaser.000 x 20%) Income subject to tax/Fair discounted value P 100. In the refund of indirect taxes. Petron. 3. However. CHAPTER 3 EXERCISES 31 1. The contention of Judge Nitafan is wrong.

2008 P 20.taxable . 7. g. i. it is subject to income tax. a.000 c.not taxable .taxable if claimed as deduction .taxable . Larry is not required to report income on the condonation considering that the condonation of debt was given without requiring him to render services. whenever a bad debt is claimed as deduction from gross income and it resulted to a reduction in its tax liability. the amount that has been beneficial to PAMCO. If Rodolfo is the creditor while Dial Corporation is the debtor and the former decides to condone the debt of the latter.000. Yes the amount of P30. e. d.000 constitutes more as a taxable gift rather than as a taxable income. j. the condonation made by Dial Corporation to Rodolfo is in effect a payment of dividend by Dial Corporation to Rodolfo. 6. f. the amount is considered as an additional investment by Rodolfo to the corporation. there was a corresponding reduction in the tax liability.000 Whenever a stockholder is indebted to the corporation and said creditor corporation decides to condone the debt.not taxable . h. such condonation has the effect of a payment of dividend to the stockholder. the recovery of such is subject to tax.000 x 50%) P 10. Thus.not taxable . Income reportable in 2009 ( P20.000 is in the nature of a remuneratory donation.not taxable . Discount x Due in 2008 Income subject to tax. It being the case. The P50. the recovery of such debt is taxable to PAMCO but only up to P90.taxable . b. 8.4. when Pamco wrote off the accounts and claimed it as deduction from gross income.taxable . 5.000 50% 10. c. b. Therefore. Value-added tax Real property tax Income tax Stock transaction tax Special assessment Occupation tax Estate tax Income tax paid to a foreign country Community tax Excise tax .not taxable . Under the tax benefit rule.

Dividends received by resident foreign . the lessor is required to report as income the fair market value of the improvement at the time of completion.5 x ½ ) P 48.000. They are not subject to tax. 11. 12.000 / 18. Dividends received by nonresident foreign corporation from domestic – 15% final tax if the country in which the nonresident foreign corporation is domiciled shall allow tax credit of 17% in its income tax payable in such foreign country. Dividends received from domestic – not taxable b. Thus. Under Outright Method.70 .5) Book value.not taxable from domestic c. Since 10% of the value of the smuggled goods is P10. Although some stockholders were paid stock dividends.000. Sips is subject to a final withholding tax of 10%. b. Mr.000 x 10%). a.000 (P1. Sips is entitled to 10% of the value of confiscated smuggled goods but not exceeding P1. Mr. b. a. since others were paid cash. such declaration and payment resulted to a change in proportionate interest.000 x 12) Add: Income on leasehold improvement Cost of improvement Less: Accumulated depreciation (100. the amount of tax to be withheld in favor of the government is P100. Yes. They are subject to a final tax of 10% c. b.000 (P100.000. Thus.000 26.000 (P4. Rent (P4.000 on the leasehold improvement and P48. or a total amount of P148. a.000. The reward received by Mr.000.000 P 100. both the stockholders who were paid stocks and cash dividends are subject to final tax.000.000 74. The dividends paid are actually stock dividends. 10.000/25 x 18.000 703 48.000 x 12) on the rent. she has to report an income of P100. d.9. Hence. The dividends paid are in effect property dividends. the dividends are subject to a final tax of 10%. a.000 x 10%). Sips is entitled only to P1 million as tax informer’s reward. end of lease (26.

000 40.000 Less: Depreciation .000 x 6) P24.00 0 830.1: Case 1 – P 40.000 / 25) 4. TAX BENEFIT RULE 3ANSWER: B 2.00 0 340.000 120.3: P 50.00 0 95.000 440.40.000 P 80.3 c. Rent ( 4.000 Less: Amount already reported as 703 income Income of lessor in 2010 3-2.0 00 Leasehold improvement: Cost P 100.000 (85.20.2 97 . 2009 to June 30.000 Case 3 .000 Case 2 .000 490.000 – 15.000) 32.2 97 119.000 Book value upon termination 96.July 1.00 0 Add: Bad debts recovered Total Less: Accounts writtenoff Deductible expenses Net income before income tax 32. 2010 (100.2: (1) ANSWER: D Gross profit 800.000 Case 4 70.0 00 30.00 0 (2) ANSWER: D Gross income before taxes Less: Deductible taxes Amusement tax Local business taxes P 90.

000 60.1: 1.800. 11 above on tax benefit rule.500 88. there was a corresponding reduction in the income tax liability of the taxpayer.500 EXERCISES 3 – 2. 3.863.4. The community tax paid by a corporation is a deductible item from gross income. 33.000 . including the value-added tax. while the tax paid on inter vivos donation is a donor’s tax. ANSWER: C See the explanatory notes in No. the refund received from these taxes are not subject to tax.000 1.00 0) ANSWER: B Amusement tax Local business taxes Taxable income 80. a refund received is taxable.000 x 12) Leasehold improvement Tax paid by lessee Income to be reported under outright method 120. Hence. LEASEHOLD IMPROVEMENT ANSWER: B Cash received Tax paid by lessee Income to be reported in 2006 ANSWER: D Rent income (5. are not deductible from gross income from purposes of computing the income tax. 2.000 3.000 1. 2. Thus.Net loss ( 30.000 123.0 00 8. These taxes. ANSWER: C This is an application of the “tax benefit rule. MULTIPLE CHOICE THEORY 1.” Under this principle.000 3. ANSWER: D The capital gains tax is an income tax. the recovery of bad debt previously deducted is taxable if at the time it was claimed as deduction.

000 x 3) Leasehold improvement: Cost Less: depreciation Accumulated 15.00 0 .000/17.857 162.000 102.857 ANSWER: B Cash received Leasehold improvement (750.0 00 750.429 84.5) Deductible expense 60. ANSWER: C Cash received (5.00 0 Book value.5) x 6/12 Income to be reported under spread-out method 4. 2009. directly and exclusive for educational purpose. Local Government Code of 1991). 21. 221.800.000/17.000 1. directly and exclusively for educational purpose. 6. 7.000 3. end of lease (750. the land and the building shall be exempt from real estate tax because it is now being used actually.000 1.429 ANSWER: C Effective January 1.857 Note: No real property tax will be shouldered by the lessee starting 2009 because the land and the building shall be exempt from real estate tax considering that it is now being used actually. ANSWER: A Rent income Tax paid by lessee Leasehold improvement: Cost 60.000/17.5) 60.800.000/30 x 17. ANSWER: B Rent expense Depreciation (1.050.800.The lessor shall apply cash method on prepayment of rental even if it is using accrual method of accounting 3. 5.5) 1. All assessments or reassessments made after the 1st day of January of any year shall take effect on the 1 st day of January of the succeeding year (Sec.000 42.857 102.800.0 00 Less: Accumulated depreciation (1.

429 42.00 0 Book value upon termination Less: income Amount declared as 2008 2009 2010 2011 21.425. of years of reporting Loss incurred by Bryant 61.00 1.11 1 ____ 1 61.00 0 1.0 00 1.000.000/30 x 3.111 85.0 0 00 1.000.440. ANSWER: C Rent (2.575.000. 000 450.00 0 61.000 x 12) Leasehold improvement: Cost Depreciation for 9 years (1.0 00 EXERCISE 3-3.(1.000/ 9 years) Income under spread-out method 3. ANSWER: A Rent (2.857 42.111 Note: It is presumed that Bryant had already reported his entire .800.00 0 1.111 ANSWER: C Annual income reportable x No.000/20 x 9) Book value. 24.2: 1.0 00 1.857 42.000 x 12) 24.75) 225.857 Total 150.024.0 00 Leasehold improvement Income using outright method 2.0 00 550. end of lease Annual income (550.

0 00 1 20.000 210.00 0 300.000/50 x 8) Book value. ANSWER: C Cost of improvement Less: Depreciation for 8 years(P2. while the amount given as loan is not because there was no gain realized by Vic in this transaction.00 0 1.000.0 00 600. ANSWER: D EXERCISE 3–4.000/30 x 15) Book value.680.4 1.680. end of lease Rent income Income from leasehold improvement (P1. there was no gain realized whether as payment for services.00 0 EXERCISE 3–3.0 00 300. EXERCISE 3–3. As a matter of fact.000 220.00 0 P 10.000 / 8) Total income using spread-out method 3. 2011.00 0 320. interest or profit from investment. ANSWER: A The income from rent received by Vic is taxable to him.00 5 0 56.income on leasehold improvement for the taxable year 2010 but not his income from January to February 28.000.3: ANSWER: B Rent income Income on leasehold improvement: Cost of improvement Less: Depreciation for 15 years (600. 2.000 .1: P 2. end of lease Divide by remaining term of lease (years) Annual income to be reported 36.

000 24. 2008 2.2: 1. ANSWER: C Payment for services rendered by promissory note which can be discounted.000 x 25%) Taxable income.000 37. ANSWER: D Value of promissory note Less: Discount (P120. It is distinguished from global system in the sense that the latter is employed where the tax system views indifferently the tax base and generally treats in common all categories of taxable income of individual (Tan vs. MULTIPLE CHOICE 1.500 12.1. P 50. is taxable to the payee at its fair discounted value. ANSWER: C Value of promissory note Less: Discount (P50.000 ANSWER: D Discount Less: Income to be reported in 2008 (24.000 x 20%) Taxable income. 237 SCRA 324.000 12. Del Rosario. 2009 P 50.500 EXERCISE 3–4. 2007 2.000 EXERCISE 3–4. P 120.000 x 50%) Taxable income. EXERCISE 3 – 5. 2009 24.3: 1. .000 12.000 96. 331).00 0 12.500 ANSWER: B Value of promissory note Less: Amount already declared as income Taxable income. ANSWER: B A schedular system of taxation is a system employed where the income tax treatment varies and is made to depend on the kind or category of taxable income of the taxpayer.500 37.

000 raised by Mon is a gift which should be excluded from gross income because when a financial aid is asked.2. ANSWER: C Dividends received by a domestic and resident foreign from a domestic corporation are not subject to income tax. ANSWER: C The amount received by Ceidi and Ador fall within the ambit of “income from whatever source derived” because these are income not expressly excluded or exempted from the class of taxable income. other percentage taxes and excise tax on certain goods are taxes found under Titles IV. express or implied of an obligation to repay and without restriction as to their imposition (James vs. whereas. ANSWER: C Value-added tax. income taxation is discussed in Title II of the same code. V and VI. 7. 65). 366 US 213). irrespective of voluntary or involuntary action of the taxpayer in producing the income (Gutierrez vs. Dividends received by a domestic corporation from a foreign corporation are subject to ordinary income tax. that means that there is no legally demandable obligation on the part of other people to give him money. 3. 5. 4. US. 6. CTA Case No. respectively of NIRC. without consensual recognition. . ANSWER: D Income refers to earnings. CIR. which contain the provisions on business taxation. lawfully acquired. ANSWER: B The amount of P3. ANSWER: C Winnings in lotto are tax exempt. Dividends received by a resident citizen from a domestic corporation are subject to a final tax of 10%. The above phrase is so broad that it includes all income not expressly excluded or exempted from the class of taxable income.

8.000 ANSWER: A Selling price (115 x 200) Less: Cost (100 x 200) Gain on sale Date Cost per share 23. 1 2 ANSWER: C Tips Liability condoned after rendering service Taxable income 1 3 5. ANSWER: C The money value of accumulated leave credits not exceeding 10 days is not taxable to the employee.000 Shares Total Cost It is . Rev. No. subject to income tax. deemed an income. 9. 1 1 ANSWER: B The money given to Lazaro is a remuneratory donation.0 00 25.000 3.000 20. Regs. the transaction has the effect of a payment of dividend (Sec.000 30. 2). It is just like paying an employee by an amount equivalent to the services he had rendered to his employer-creditor. ANSWER: D The amount of indebtedness cancelled due to services rendered by the debtor is considered as compensation income. 1 0 ANSWER: D If a corporation to which a stockholder is indebted forgives the debt. Travelling expenses received by an employee who was sent on a business trip are not taxable to the employees provided that these employees are required to liquidate said expenses. 5. Tips received by waitresses directly from customers which are not accounted for by the employer to the employer are considered taxable income.

000 New Cost per Share New 1 5 200 210 P 95.00 0 19.046 3.000 22.000 ( 250) Amount Number Shares P 5. of Shares Date Old Cost 1-24-2008 P20.000 D Selling price (115 x 200) 23.000 ANSWER: D Market value of stocks dividends per share Stock dividend received by Rosa (1..1-24-2008 200 P 100 2-05-2008 200 110 4-12-2008 (400 x 5%) 20 420 New cost per share (42.000 .000 x 20%x10%) Dividend income 1 7 30 20 600 ANSWER: A Selling price (30 x 25) Less: Cost (5.23 ANSWER: C Market value of shares .Mina Company x No. of Common shares Property dividend 1 6 120 150 18.23 x 200) Gain on sale No.000 -.000/420) P 100 1 4 ANSWER: P 20. 42.954 Less: Cost (95.000/125) x 25 Loss 750 1.

000) 450.000/220) x P40 2.00 0 35.000 400 Gain on sale 1 9 ANSWER: A Total sale (P400.0 00 -.000 + 50.0 00 (11.50 0 187.000 125 1 8 ANSWER: D Sale of dividends (P60 x 40) 2.00 0 12. CROSSWORD PUZZLE 2 1 5 2 % D Y T 4 W E R 5 A R E 3 L V L E M N K & F I N E .50 0 EXERCISE 4–1.00 0 175.40 0 Less: Cost 200 (200 20 (200 x P55) x 20%) 220 11.100 Dividend (100 x 25%) - 25 Total 5.00 0 Less: Cost 240. 11.0 00 Book value of farm equipment Gain on sale Add: Other income Gross income 275.

” 3 . The purpose of the piggery farm in providing Kulas a room inside the premises is for the convenience of Habang Bata Pa Piggery Farm. b Salary . . Money stolen from mother’s purse g Rice subsidy of P325 per . it is exempt from income tax.000 of the rice allowance is considered as a de minimis benefit which is exempt from income tax. Thus. .S G 3 C 8 L O 6 S 7 I S M T H 0 EXERCISES 4-2 1 a Interest on corporate bonds . and rice subsidy of P1. the matter falls squarely within the “convenience-ofthe-employer rule. e Winnings in jueteng . Hence. The equivalent value of the living quarter is not taxable to Kulas under the convenience-of-the-employer rule.000. month I N G S Taxable Taxable Taxable Not taxable (expressly exempt under the law) Taxable (income from whatever source derived) Taxable (income from whatever source derived) Not taxable (de minimis benefit) 2 . f. d Winnings in lotto . The value of the free meals and lodging is not taxable to Yaya. The P1. Otherwise. . No.000 a month fall under the “de minimis benefits” which are exempt from income tax. It is very clear that the couple required her to stay in their house for their own benefit. c Tips . courtesy discounts. The excess of P200 over the P1.000 ceiling per employee is part of “Other Benefits” which maybe subject to income tax if the total other benefits exceed P30. 4 . it is neither subject to creditable withholding tax nor to fringe benefit tax. 5 The free parking.

the same shall be deducted from the gross income of the school. ANSWER: C Fringe benefit expense Fringe benefit tax expense Deductible expense 2. Accounting clerks.000 A The fringe benefit tax is imposed only if the fringe benefit is given to managerial or to supervisory employees.” The rental value of the residential property is subject to fringe benefits tax which is subject to final tax.0 00 68% 50. Therefore. The cost of the educational assistance extended by the University of Saint Anthony to its teachers are supposed to be treated as part of the teacher’s gross compensation income considering that the teachers are neither classified as managerial nor supervisory employees. However. Only the company’s general manager is a managerial . The cost of the tuition fees are attributable to the operation and conduct of business of the employer. ANSWERS TO EXERCISE 4–3 1.00 0 16. it is not part of the gross compensation income of the employees.000 34. not part of the gross income. they are still classified as rank-and-file employees. Therefore.000 ceiling for “other benefits. the expenditure shall be considered as for the convenience of the employer’s trade or business. since there is a condition that they should remain in the employ of the employer for at least ten years after graduation. ANSWER: 34.The excess of the laundry allowance in the amount of P450 (P750300) is part of gross income if such excess is beyond the P30. ANSWER: C Fringe benefit expense Divide by Grossed-up monetary value 3. janitors and the security guards are rank-andfile employees. Therefore. whether the granting of the benefit is extended through a qualifiying or competitive examination or not. 6 .000 50.

4.840 . EXERCISE 4-4 1. ANSWER: B Fees in civic club Life insurance premium Monetary value Divide by Grossed-up monetary value Rate of tax Fringe benefit tax 2. the excess maybe also be exempt if forming part of the other benefits not exceeding P30.000. ANSWER: B The one sack of rice is not subject to fringe benefit tax on the first P1. though exempt from tax.600 ANSWER: B To rank and file employees: Christmas bonus Loan benefits [96.400 20.000 x (12%-8%) Medical allowance Uniform allowance 32.400 20.400 68% 30.or supervisory employee. The employer’s share in the GSIS contribution is not subject to income tax.400 68% 30. The equivalent value of free lodging given to a driver of an obstetrician falls under convenience of the employer rule which is not subject to fringe benefit tax.600 ANSWER: B Fees in a civic club Life insurance premium Total Divide by Grossed-up monetary value Rate of tax Fringe benefit tax 3. 5.000 3. A corporation. 5.000 32% 9.000 15.000 per employee per month.000 32% 9.840 16. the fringe benefit tax must have been given to him.000 63. Therefore.000 15.000 12. is not exempt from the payment of fringe benefit tax.

free meals and lodging furnished by the employer to the employees are taxable to the latter.000 15.) Uniform allowance (max: 3. ANSWER: C As a general rule.000 5.m.000 p.000 65.000 / employee 12.500 because his employer’s residence is not the place of business where the employer conduct a significant portion of his business.000 / employee 32.) Medical allowance (max: 150 per employee 14.400 91.000 3. ANSWER: 4.60 0 100. On the other hand.000 p.000 p. However.a.) Supervisor: Christmas bonus Uniform allowance Total de minimis benefits 5. ANSWER: 4. ANSWER: C Tony’s gross income is P9. allowances furnished for and as a necessary incident to the property performance of his duties are not taxable because they fall under the “convenience of the employer rule.240 9.000 A EXERCISE: 45 1.To the supervisor: Christmas bonus Fees in civic club Life insurance premium Uniform allowance Fringe benefit expense Fringe benefit tax expense Total deductions 4.a.400 3.” 2.84 0 C Rank and file: Christmas bonus (max: P 5. Bert’s gross income should not include the .000 27.

However. The free meals and lodging given to Col. 3. ANSWER: B De minimis benefits are of relatively small value that they are exempt from the payment of fringe benefits tax and ordinary income tax. Moreover. ANSWER: D The grossed-up monetary value includes the monetary value of the fringe benefit received by the employee from his employer and the amount of fringe benefits tax due thereon which was paid by the employer. The uniform allowance falls under de minimis benefits which are exempt from the fringe benefits tax. These benefits are obviously furnished for the benefit of the employees and not to the advantage of the employer. while the free lodging are provided because they do not want the workers to find difficulty in looking for boarding houses. Corporal are specifically exempt from fringe benefits tax. 7. ANSWER: D The free meals are given by the employer to provide sanitary meals to its employees. 4. since they are given to ordinary workers which fall within the classification of rank-and-file employees. . 6. ANSWER: D The use of aircraft owned and maintained by the employer shall be treated as business use and not subject to fringe benefits tax.monthly value of his free meals and living quarters because the provision enables Cristy to avail of the services of Bert at her convenience (RAMO 1-87). the benefits are taxable to them and are includible in the computation of their respective gross income. it is also furnished for the convenience of the employer (the Philippine Government) so that the military officer shall be readily available when his services are required. apparent that the allowances furnished are in the form of fringe benefits. ANSWER: D Sikyo is a rank-and-file employee. 5. It is therefore. All fringe benefits given by his employer are not subject to fringe benefits tax.

4. EXERCISES 4-6 1.500 . ANSWER: B Fringe benefits given to rank and file employees are exempt from fringe benefits tax. ANSWER: A Monthly salary Free meals and living quarters (P1. 10.8.000 ANSWER: D Cost of first class ticket $ 2. 9.500 ANSWER: B Salary 4. ANSWER: C Purchase of groceries Divide by Grossed-up monetary value Rate of tax Fringe benefit tax 2.941 4.441 32% 4. 10.50 0 68% 15.500 6. ANSWER: D A residential property owned by the employer and assigned to an employer for use as his residence is subject to fringe benefits tax based on the 5% of the fair market value of the land and improvements.000) Monthly gross compensation income 3.500 + 1. ANSWER: D Unlike other individual taxpayers.00 0 2. nonresident aliens not engaged in trade or business are subject to fringe benefits tax at a rate of 25% of the grossed-up monetary value. there are benefits which are subject to regular income tax depending upon the nature of benefits the employees have received from their employer. However.

000/5) x 50% 6. 65 32 % 14. 65 ANSWER: D Monetary value (P800.000 6.117.000 68% 2.64 7 32% 37.000 x 9% x 8/12) Interest foregone/value of benefit Divide by Grossed-up monetary value Rate of tax Fringe benefit tax 8. Divide by Grossed-up monetary value Rate of tax Fringe benefit tax Divide by Grossed-up monetary value Rate of tax Fringe benefit tax 5.352 32% 2.000 x 50%) 7.000 ANSWER: A 8. 80.941.000 2.353 ANSWER: C Interest at benchmark rate (P100. 30 % 750 40 30.647 ANSWER: B Monetary value (P10.1 8 32% 941.00 0 68% 7.Rate subject to fringe benefit tax Fringe benefit Exchange value in Philippine currency Fringe benefit subject to fringe benefit tax Divide by Grossed-up monetary value Rate Fringe benefit tax 5. 68% 44.00 0 68% 117.000 x 12% x 8/12) Less: Interest at special rate (P100.18 .117.

500 32% 800 3.500.4 71 32 % 1. ANSWER: D Salary of driver and housemaid (P4. Divide by Grossed-up monetary value Rate of tax Fringe benefit tax ANSWER: D Monetary value (P3.Total expenses incurred Divide by Grossed-up monetary value Rate of tax Fringe benefit tax 9. 16.000) Membership fees and dues (P75.676.00 0 6.000 .400 3.200 D Fringe benefit to supervisory employees Divide by Grossed-up monetary value 170.176.70 0 68% 2. 6.000 68% 250.765 ANSWER: A Fair market value (higher) 11.00 0 68% 23.529 ANSWER: 2.000/12) Monetary value of benefit Divide by Grossed-up monetary value Rate of tax Fringe benefit tax 10.000 + 2.250 68% 18.400 x50%) Divide by Grossed-up monetary value Rate Fringe benefit tax Add: Monthly rental Fringe benefit to clerk Deductible expense 12.529 32% 7.000 7.015 32% 5.4 71 1.250 12.00 0 68 % 3.

Rate Fringe benefit tax 32% 80.000 .

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