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Losses: Income Taxation 6Th Edition (By: Valencia & Roxas) Suggested Answers
Losses: Income Taxation 6Th Edition (By: Valencia & Roxas) Suggested Answers
Chapter 9: Losses
CHAPTER 9
LOSSES
Problem 9 1 TRUE OR FALSE
1. True
2. True
3. True
4. True
5. True
6. True
7. True
8. False deductible only to either income or estate.
9. False NOLCO is not applicable when OSD is used.
10. False NOLCO is not applicable under MCIT.
11. True
12. False not deductible
13. False lower amount of the replacement cost or book value
14. True
15. True
16. False Deductible from gambling gains only.
Problem 9 2
1. A
2. C
3. D
4. C
5.
6.
7.
8.
D
A
D
A
9. A
10. C
11. B
12. C
Problem 9 3
Not in the choices = P10,000.
Account worthless and written-off
P10,000
P100,000
Problem 9 5
A
Loss on sale of capital assets is not deductible from business income.
Problem 9 6
C
Deductible loss Book value (P100,000 x 10% x 4)
Problem 9 7
D
Deductible loss book value lower than replacement cost
P 40,000
P 50,000
Problem 9 8
C
Acquisition cost
Less: Accum. Dpn. [(P600,000 x 90%)/10] x 2
Book value
Multiplied by percent of damaged portion
Damaged portion
P600,000
108,000
P492,000
30%
P147,600
P127,600
83
Chapter 9: Losses
Problem 9 9
No deductible loss at balance sheet date. On June 30, the reportable gain would be
P20,000, or (P120,000 P100,000).
Problem 9 10
P50,000
10,000
P40,000
Problem 9 11
D
Zero. An individual who claims the 10% optional standard deduction shall not simultaneously
claim deduction of the NOLCO.
Problem 9 12
P25,000. The lower between the carrying value and replacement cost.
Problem 9 13
Book value (P1,200,000) x10/20
Less: Insurance recovery
Scrap recovered
Deductible loss
P600,000
P200,000
20,000
220,000
P380,000
Problem 9 14
None, because the demolition cost, net of amount realized from scrap should be capitalized
as part of the factory building cost.
Problem 9 15
Net loss reported
Estimated bad debts
Warranty expense
Net loss carry-over
P 50,000
( 20,000)
( 10,000)
P 20,000
Problem 9 16
Gross profit year 1
Less: Other operating expenses
NOLCO for year 2
P500,000
580,000
P 80,000
Problem 9 17
Year 1
Sale
Less: Cost Notes receivable
Gain
Year 2
P1,800,000
1,500,000
P 300,000
No gain or loss on year 1 because there was no actual sale of foreclosed property.
Problem 9 18
None, because the loss should be recognized only upon actual sale of the property foreclosed.
Problem 9 19
None. There is no deductible loss from gross income. Gambling losses can only be deducted
from the gambling winnings. Gambling transactions are not ordinary business transactions,
but capital asset transaction. Accordingly, gambling losses are not an allowable deduction
from ordinary gross income.
84
Chapter 9: Losses
Problem 9 20
Loss on robbery (construction supplies)
Loss on pilferage of business supplies
Replacement cost of damaged portion of machine
Deductible loss
P50,000
10,000
150,000
P210,000
The compensatory and actual damages can be claimed under the classification of deductible
damages.
Problem 9 21
1.
OSD (P2,000,000 x 40%)
P800,000
2.
P600,000
Problem 9 22
1.
Gross income (P2,000,000 P1,000,000)
Multiplied by MCIT rate
Income tax due MCIT
2.
P1,000,000
2%
P
20,000
P - 0 -
Note: The 3-year reglamentary period for NOLCO shall not be suspended
even if MCIT has been used. NOLCO has expired effectively on
200D.
Problem 9 23
Ordinary
P5,000
Pilferage loss
Capital loss on sale of capital asset
Casualty loss
Total deductible loss
15,000
P20,000
Problem 9 24
Death of livestock previously purchased
Cost of property expropriated by the government
(P30,000 P10,000)
Total deductible farm loss
Problem 9 25
Cost of the building
Less: Accumulated depreciation (P10,000,000/30) x 5
Book value before additions and improvements
Add: Additions and improvements
Total
Less: Accum depn (P8,833,333/25) x 3
Book value
Less: Insurance collected
Salvage value
Deductible loss
Capital
P10,000
.
P10,000
P10,000
20,000
P30,000
P10,000,000
1,666,667
P 8,333,333
500,000
P 8,833,333
1,060,000
P 7,773,333
P5,800,000
300,000
6,100,000
P 1,673,333
Problem 9 26
P100,000
40,000
30,000
85
Chapter 9: Losses
P170,000
Loss on unrealized earnings is not deductible because it is not an actual loss (Sec.
96, Rev. Regs. No. 2). The casualty losses are fully compensated by insurance,
hence, not deductible. The excess of insurance compensation is a taxable gain and
should not be treated as a deduction of other losses (Sec. 5, Rev. Regs. No. 12-77).
Loss caused by embezzlement of funds by a known person can only be deducted
when the right of recovery becomes worthless (Talisay-Silay Milling Co. Inc., vs.
Commissioner, CTA Cases No. 1399 and 1406, December 29, 1965). Capital losses
are not deductible from business gross income. (Sec. 39(C), NIRC)