BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 11

SUGGESTED ANSWERS
Chapter 3: GROSS ESTATE

CHAPTER 3

GROSS ESTATE
Problem 3-1
1. True
2. False include all properties within and outside the Philippines.
3. True
4. False intangible personal properties
5. False properties of nonresident aliens. The properties within and outside the Philippines of
a resident alien is subject to Philippine estate tax.
6. True
7. False common stock only; preferred stock is measured at its par value.
8. True
9. True
10. False This is a donation mortis causa which is subject to estate tax.
11. True
12. False only proceeds of life insurance with revocable beneficiary is included for estate tax
purposes.
Problem 3-2
1. True
2. False amount receivable under R.A. 4917 shall be included as part of the gross estate
subject to deduction of its entire amount reported.
3. False only intangible properties are exempted from estate tax.
4. True
5. False the reciprocity exemption is granted only to nonresident alien.
6. True
7. True
8. True
9. False exclusive property.
10. True
11. True
12. True
Problem 3-3
1.
D
2.
C
3.
B
4.
D
5.
A
6.
C
7.
D
8.
B
9.
A
10. C
11. D
12. A

Problem 3-4
1.
B
2.
C
3.
A
4.
A
5.
B
6.
C
7.
A
8.
B
9.
A
10. D
11. C
12. A

ALL RIGHTS RESERVED BY VALENCIA EDUCATIONAL SUPPLY.

This solution manual is not for sale. Any person who sells it in photocopy, mechanical or
electronically is unauthorized and shall be prosecuted in accordance with law.

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 12
SUGGESTED ANSWERS
Chapter 3: GROSS ESTATE

Problem 3-5
1.

The reportable gross estate is P3,000,000 or (P2,500,000 + P500,000)

2.

P25,000,000. The properties left by a resident alien which are located within and outside the
Philippines are required to be reported for Philippine estate tax purposes.

3.

A has 20% in the book value of U Corporation. The book value of U Corp. is P2,000,000.
Therefore, the reportable gross estate of A would be P400,000 or (P2,000,000 x 20%).

4.

Zero. The beneficiary is irrevocable. Therefore, the P5,000,000 proceeds of life insurance
should be excluded from the gross estate.

5.

Since M is a resident alien, all of his properties within and outside the Philippines should be
reported as part of the gross estate for Philippine estate tax purposes. The reportable gross
estate should be P11,000,000.

6.

Zero. No amount is allowed as exemption because the rule of reciprocity is applied only on
the intangibles of nonresident alien.

7.

P10,000,000. Since Mr. T is a nonresident alien in this case, the gross estate is zero because
the rule of reciprocity can now be applied.

8.

None. The rule is to report the market value of the property at the time of the decedents
death. The compensatory damages of P900,000 are excluded since the accrued is made to the
decedents heirs after death. Payments for medical and funeral expenses are nontaxable
because they are considered contributions from symphatizers.

9.

Excluded from the gross estate is P3,000,000 or (P5,000,000 x 60%). As a rule, property
donated by the decedent to a nonprofit and nonstock educational institution is excluded from
the gross estate. Donations to the Philippine government is included as part of the gross
estate, but deductible in its full amount.

Problem 3 6
B
At market value of P750,000. The law provides that the valuation should be at the market value
of the property at the time of the owners death. The book value is irrelevant because the
properties left by the decedent are considered under liquidating concern.
Problem 3 7
C
Business, Daly City
Cars, Philippines
Condominium, Philippines
Mansion, Boracay, Philippines
Shares of stock, Hongkong
Accounts receivable
Gross estate of Molina
Problem 3-8
B
Real property in the Philippines
Personal properties in foreign country
Personal properties in foreign country
Amount to be included in the gross estate

P30,000,000
1,000,000
3,000,000
20,000,000
4,000,000
2,000,000
P60,000,000
P1,600,000
600,000
800,000
P3,000,000

ALL RIGHTS RESERVED BY VALENCIA EDUCATIONAL SUPPLY.

This solution manual is not for sale. Any person who sells it in photocopy, mechanical or
electronically is unauthorized and shall be prosecuted in accordance with law.

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 13
SUGGESTED ANSWERS
Chapter 3: GROSS ESTATE

Problem 3-9
A
P500,000. Since the alien is nonresident all of his properties outside the Philippines are
reportable for Philippine estate tax purposes. The investment in shares of stock of a resident
foreign corporation with 85% business situs in the Philippines is a property within the
Philippines.
Problem 3-10
1. Letter A
Real properties Philippines
Car Philippines
Collectibles Philippines
Franchise Taiwan
Taxable gross estate

P1,000,000
800,000
500,000
200,000
P2,500,000

2. Letter C
Real properties Philippines
Car Philippines
Taxable gross estate

P1,000,000
800,000
P1,800,000

Problem 3-11 A
P500,000. The gross estate shall be valued at its fair market value at the time of death.
Problem 3-12 C
Amount to be included in the gross estate [(P120+P150)/2] x 1,000
Problem 3-13 D
Equity in SMC book value (P100,000,000 x 40%)
Investment income (P20,000,000 x 40%)
Amount to be included in the gross estate

P135,000
P40,000,000
8,000,000
P48,000,000

Note: Investment income is considered because there is significant controlling interest.

Problem 3-14 B
Business establishments
Accrued income (P200,000 x 5 months)
Time deposit for 10 years
Accrued interest (P30,000,000 x 12% x 10/12)
5% equity in Jollibee Corporation
Car and mansion donated mortis causa to his son
Gross estate

P10,000,000
1,000,000
30,000,000
3,000,000
5,000,000
20,000,000
P69,000,000

The dividend is excluded because the declaration was made after death.
Problem 3-15 A
Commercial building
Rental income earned (P200,000 x 5 months)
Common shares (P120 + P130)/2 = P125 x 200,000 shares
Cash dividend (P20,000,000/200,000) = P100 x 10% x 200,000
Reportable gross estate
Problem 3-16 B
Revocable donation to the Ramon Magsaysay Foundation
Family home
Nontaxable benefits under R.A. 4917
Transfers in contemplation of death

P10,000,000
1,000,000
25,000,000
2,000,000
P38,000,000
P1,000,000
1,000,000
500,000
2,000,000

ALL RIGHTS RESERVED BY VALENCIA EDUCATIONAL SUPPLY.

This solution manual is not for sale. Any person who sells it in photocopy, mechanical or
electronically is unauthorized and shall be prosecuted in accordance with law.

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 14
SUGGESTED ANSWERS
Chapter 3: GROSS ESTATE

Donation to the government

Total reportable gross estate

1,000,000
P5,500,000

Problem 3-17 D
Zero, because the proceeds of life insurance is designated to an irrevocable beneficiary. The
P200,000 is also excluded because such amount in on account of physical injury and accrued
after death.
Problem 3-18 A
P500,000. The proceeds of life insurance are reportable because the beneficiary is revocable.
Problem 3-19 D
There is no inadequate consideration because the sale of real property classified as capital asset
is subject to a final capital gains tax of 6% based on the selling price or fair market value,
whichever is higher.
Note: If the cash P100,000 cash payment made by the son is available at the time of death; then
the amount should be included as part of the gross estate.
Problem 3-20 C
Fair market value date of death
Less: Selling price received by Singsong
Amount included in the gross estate

P2,000,000
1,300,000
P 700,000

Problem 3-21 C
P160,000. The entire amount of receivable, irrespective whether collectible or not, shall be
included as part of the gross estate.
Problem 3-22 B
Family home to Cell, his daughter
(Cancer used the house until his death)
Commercial building to Cyst, his son
(Cancer received the rental income)
Shares of stock to Aids, his wife
(Evidenced by oral donation)
Amount reportable for estate tax purposes

P 4,000,000
6,000,000
3,000,000
P13,000,000

Problem 3-23 D
The reportable estate of A in the Philippines is P10,000,000. Even if A is a nonresident Filipino,
his properties located outside the Philippines are reportable in the Philippines because he is a
Filipino citizen.
Problem 3-24 B
Condominium in Makati as a fiduciary heir
Cash as bequest to the University of the Philippines
Amount to be excluded from reportable gross estate

P5,000,000
2,000,000
P7,000,000

Problem 3-25 A
Zero. Only nonresident alien shall be subject to reciprocity.
Problem 3-26 B
P4,000,000 value of condominium located in the Philippines. Intangible properties are not subject
to estate tax in the Philippines when there is reciprocity and the decedent who owns them is a
nonresident alien.

ALL RIGHTS RESERVED BY VALENCIA EDUCATIONAL SUPPLY.

This solution manual is not for sale. Any person who sells it in photocopy, mechanical or
electronically is unauthorized and shall be prosecuted in accordance with law.

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 15
SUGGESTED ANSWERS
Chapter 3: GROSS ESTATE

Problem 3-27 D
P2,000,000. Properties acquired and brought into marriage on or after August 3, 1988 are
governed by absolute community property relation; hence, to be included as part of the gross
estate.
Problem 3-28
1. Letter C
Property brought into marriage before August 3, 1988 shall be classified as an exclusive
property but its fruits shall be classified as part of the conjugal property. The exclusive gross
estate is P12,000,000.
2. Letter A
Marriage on or after August 3, 1988 shall be governed by the absolute community regime of
property relation. Therefore, the exclusive gross estate of Mr. X is zero because his property
brought into marriage including its fruits shall be classified as part of the absolute
community property.
Problem 3-29
1. Conjugal partnership of gains = A
Conjugal properties:
Accum. income from boarding house
P3,000,000
Personal properties acquired during marriage
5,000,000
Exclusive property boarding house inherited from his parents during marriage
Total gross estate

P 8,000,000
4,000,000
P12,000,000

2. Absolute community of property = C

Absolute community properties:
Personal properties acquired during marriage
Farm land brought into marriage by his wife
Exclusive properties
Boarding house inherited from his parents during marriage
Accum. income from boarding house
Total gross estate

P5,000,000
6,000,000
P4,000,000
3,000,000

P11,000,000
7,000,000
P18,000,000

Problem 3-30
Case 1 Include. The donation is conditional. The donor reserved the power to own the car until
the latter passes the CPA exam.
Case 2 Include. The donation is revocable because the donor controls and enjoys the property
for himself until his death.
Case 3 Exclude. The donation is complete because control over the property by the donor
ended after 3 years.
Case 4 - Include. The donor predeceased the donee. Absolute control is transferred to the donee
upon the death of the donor.
Case 5 Exclude. The P60,000 (P80,000 P20,000) is subject to donors tax at the time of sale.
Case 6 Include. The sale is in contemplation of death. The P900,000 is subject to income tax.
Case 7 Exclude. The sale of real property is subject to a final tax of 6% based on the selling
price or fair market value, whichever is higher.
Case 8 Include. The transfer is an inheritance to be received at the time of death as evidenced
by a Will.
ALL RIGHTS RESERVED BY VALENCIA EDUCATIONAL SUPPLY.
This solution manual is not for sale. Any person who sells it in photocopy, mechanical or
electronically is unauthorized and shall be prosecuted in accordance with law.

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 16
SUGGESTED ANSWERS
Chapter 3: GROSS ESTATE

Case 9 Exclude. No transfer tax is to be paid because the property was transferred at the desire
of the predecessor, H. S has no power or control to appoint other successor.
Case 10 Include. The transfer is a general power of appointment.
Case 11 Exclude. Subject to donors tax because the actual transfer is inter vivos. The transfer
of proceeds of life insurance is deemed complete at during the life-time of the donor.
Case 12 Incude. Include as part of the gross estate if the beneficiary is revocable or the
decedents estate, his administrator or his executor.
Problem 3-31
Real properties in the Philippines
Car in the Philippines
Accounts receivable
Time deposit
Accrued interest on time deposit (P300,000 x 12% x 5/12)
Claims against insolvent person
Gross estate
Problem 3-32
Shares of stock Japanese Corporation 85% of business in the Philippines
Time deposit in Equitable-PCI Bank
Investments in bonds in Jollibee Corporation
Gross estate
Problem 3-33
House and lot
Investment in property
Car
Furniture
Gross estate

P2,000,000
800,000
500,000
300,000
15,000
35,000
P3,650,000
P120,000,000
500,000,000
4,000,000
P624,000,000
P6,000,000
2,000,000
600,000
300,000
P8,900,000

Problem 3-34
1. Listed in the local exchange
Common (P190/2) x 10,000 shares
2.

Not listed in the local exchange

Total stockholders equity
Less: Liquidating value of preferred stock
(P110 x 60,000 shares)
Revaluation surplus
Total book value to common shares
Divided by outstanding common shares
Book value per share
Multiplied by number of Mr. Tulogs
investment in common shares
Value of securities as part of gross estate

Problem 3-35
Real estate properties
Time deposit principal amount
Accrued interest on time deposit (P2,000,000 x 12% x 8/12)
Tangible personal properties
Other intangible properties
Gross estate

P 950,000
P15,000,000
6,600,000
200,000
P 8,200,000
100,000
P
82
P

10,000
820,000

P 3,000,000
2,000,000
160,000
1,000,000
500,000
P 6,660,000

ALL RIGHTS RESERVED BY VALENCIA EDUCATIONAL SUPPLY.

This solution manual is not for sale. Any person who sells it in photocopy, mechanical or
electronically is unauthorized and shall be prosecuted in accordance with law.

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 17
SUGGESTED ANSWERS
Chapter 3: GROSS ESTATE

Problem 3-36
1. Accrued interest (P1,000,000 x 6% x 9/12)
Transfers in contemplation of death car
Additions to the reportable gross estate
2.

45,000
1,500,000
P1,545,000

Family home
Time deposit
Proceeds of life insurance received by his wife
Claims against insolvent person
Additions to the reportable gross estate (see 1)
Total gross estate

P2,000,000
1,000,000
500,000
200,000
1,545,000
P5,245,000

Problem 3-37
Properties:
Acquired by decedent prior to marriage
Acquired by surviving spouse prior to marriage
Inherited by decedent during the marriage
Acquired during the marriage
Income derived from property inherited by surviving
spouse during the marriage
Time deposit
Accrued interest
Total gross estate of the decedent

Conjugal
Partnership

Absolute
Community

P600,000
800,000
1,000,000

P600,000
700,000
800,000
1,000,000

450,000
850,000
90,000
P3,790,000

850,000
90,000
P4,040,000

Problem 3-38
1. Filipino or resident alien
Within
Outside
Total
Condominium
P5,000,000
P5,000,000
Commercial building
P10,000,000 10,000,000
Shares of stock nonresident foreign corp.
3,000,000
3,000,000
Business transferred to his son, the decedent
enjoys the income until his death
8,000,000
8,000,000
Investments in lands:
Fair market value at time of death
5,000,000
2,000,000
7,000,000
Proceeds of life insurance, estate irrevocable beneficiary
2,000,000
2,000,000
Proceeds of property insurance
3,000,000
7,000,000 10,000,000
Cash in bank
2,500,000
4,000,000
6,500,000
Franchises
1,500,000
2,000,000
3,500,000
Total gross estate
P27,000,000 P28,000,000 P55,000,000
2.

Nonresident alien without reciprocity

Condominium
Business transferred to his son, the decedent
enjoys the income until his death
Investments in lands:
Fair market value at time of death
Proceeds of life insurance, estate irrevocable beneficiary
Proceeds of property insurance
Cash in bank
Franchises
Total gross estate

Within
P5,000,000
8,000,000
5,000,000
2,000,000
3,000,000
2,500,000
1,500,000
P27,000,000

ALL RIGHTS RESERVED BY VALENCIA EDUCATIONAL SUPPLY.

This solution manual is not for sale. Any person who sells it in photocopy, mechanical or
electronically is unauthorized and shall be prosecuted in accordance with law.

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 18
SUGGESTED ANSWERS
Chapter 3: GROSS ESTATE

3.

Nonresident alien with reciprocity

Condominium
Business transferred to his son, the decedent
enjoys the income until his death
Investments in lands:
Fair market value at time of death
Total gross estate

Within
P5,000,000
8,000,000
5,000,000
P18,000,000

ALL RIGHTS RESERVED BY VALENCIA EDUCATIONAL SUPPLY.

This solution manual is not for sale. Any person who sells it in photocopy, mechanical or
electronically is unauthorized and shall be prosecuted in accordance with law.