Name : _____________________________

Section : _____________________________
MULTIPLE CHOICE
1. Jerry has a contract starting January 1, 2009 to
construct a Supermarket that is expected to be
completed in December 2011. The total contract
price is P30, 000, 000. The following data pertaining
to the construction are as follows:
2009
2010
2011
Cost incurred to
date
P10M
P21.5M P28M
Percentage of
completion
35%
75%
100%
Jerry uses the percentage of completion method.
2. The gross income to be recognized in 2009 is:
a. P 500,000
c. P 1,000,000
b. P 1,500,000
d. P 2,000,000
Solution:
30M x 35%
10.5M
(10M)
500,000
3. The gross income to be recognized in 2010 is:
a. P 500,000
c. P1,000,000
b. P 1,500,000
d. P2,000,000
Solution:
30M x 75%
22.5 M
(21.5M)
1M
(0.5M)
500,000
4. The gross income to be recognized in 2011 is:
a. P 500,000
c. P1,000,000
b. P 1,500,000
d. P2,000,000
Solution:
30M
(28M)
2M
First year
(500,000)
Second year
(500,000)
1M
PROBLEM SOLVING
1. Nina, a resident citizen, had the following
incidental income in 2009:
Interest on Philippine currency
bank deposit
P 30,000
Interest on foreign currency
deposit under the Expanded
foreign currency deposit system 50,000
Royalty from invention
150,000
Royalty from musical compositions
80,000
Dividend from domestic corporation
60,000
How much is the total final taxes? __________
Solution:
Interest PCD (30,000 x 20%)
6,000
Interest FCD (50,000 x 7.5%)
3,750
Royalty invention (150,000 x 20%) 30,000
Royalty musical (80,000 x 10%)
8,000
Dividend (60,000 x 10%)
6,000
Total
53,750
2. Hershey, a hopeless romantic single taxpayer,
received the following incomes in 2016:
Within
Without
Interest Incomes:
Peso savings deposit
P 20,000
P 10,000

Foreign currency deposit

Loan to A, friend
Dividends:
Cash
Stocks
Liquidating
Prizes:
Supermarket Raffle
Amateur Singing Contest
Winnings:
Lotto winnings
Gambling
Royalties:
Books
Inventions
Franchise patent

10,000
30,000

20,000
-

30,000
40,000
60,000

20,000
-

8,000
20,000

10,000
17,000

50,000
35,000

10,000
20,000

30,000
40,000
70,000

20,000
30,000
60,000

Apart from the passive incomes above, Hershey is

also an employee of Dimasalang Corporation, a
domestic corporation. He received the following
during the year:
Salary (P20,000 x 12 mos.)
P 240,000
13th Month Pay
20,000
Productivity Bonus
10,000
Travel Allowances (not liquidated)
7,000
He also received and incurred the following items in
relation to his business during the year:
Gross Receipts from Rent
P 300,000
Gross Sales from Sari-Sari Store 250,000
Cost of Goods Sold
100,000
Repairs and Maintenance of the
Store
50,000
Various Expenses incurred
150,000
3. If the taxpayer is a resident citizen, compute:
a. The final tax from interests
__________
b. The final tax from dividends
__________
c. The final tax from prizes
__________
d. The final tax from winnings
__________
e. The final tax from royalties
__________
f. The gross taxable compensation
Income
__________
g. The gross taxable business
Income
__________
h. The total gross taxable income __________
Solutions:
a. Interests:
Peso 20,000 x 20%
Foreign 10,000 x 7.5%

4,000
750
4,750

b. Dividends
Cash 30,000 x 10%
3,000
c. Prizes
Contest 20,000 x 20%
4,000
d. Winnings
Gambling 35,000 x 20%
7,000
Lotto winnings are exempted.
e. Royalties
Books
30,000 x 10%
3,000
Inventions
40,000 x 20%
8,000
Patent
70,000 x 20% 14,000
25,000
f.

Salary
Travel allowances
Total

240,000
7,000
247,000

Travel allowances which are not liquidated are

compensation income of the employee, hence
taxable.
Bonuses and incentives which do not exceed
82,000 are also exempted.
g. Gross Receipts from Rent
P 300,000
Gross Sales from Sari-Sari Store 250,000
Less: Cost of Goods Sold
( 100,000)
Gross income
450,000

h. Incomes Not Subjected to Final Taxes:

Peso savings deposit
P 10,000
Foreign currency deposit
20,000
Loan to A, friend
30,000
Cash Dividend
Supermarket Raffle
Amateur Singing Contest
Lotto winnings
Gambling
Royalties Books
Royalties Inventions
Franchise patent
Total
Add: Gross Compensation
Gross Business Income
Total Gross Taxable Income

20,000
18,000
17,000
10,000
20,000
20,000
30,000
60,000
255,000
247,000
450,000
952,000

4. If the taxpayer is a non-resident citizen, compute:

a. The final tax from interests
__________
b. The final tax from dividends
___Same__
c. The final tax from prizes
___Same__
d. The final tax from winnings
___Same__
e. The final tax from royalties
___Same__
f. The gross taxable compensation
Income
___Same__
g. The gross taxable business
Income
___Same__
h. The total gross taxable income __________

Solutions:
a. Interests:
Peso 20,000 x 20%
4,000
Nonresidents are exempted from 7.5% final tax
on their foreign currency deposits.
Incomes Not Subjected to Final Taxes:
Loan to A, friend
30,000
Supermarket Raffle
8,000
38,000
The above passive incomes earned within the
Philippines are the only incomes not subjected to final
tax but are taxable subject to normal tax (5% - 32%).
NOTE: Nonresident citizens are taxable for their
incomes in the Philippines only.
Total Passive Incomes
Add: Gross Compensation Income
Gross Business Income
Total gross taxable income

38,000
247,000
450,000
735,000

5. Malaya, Filipino taxpayer, single, received the

following income for calendar year 2009:
Philippines
Cambodia

Salary
P 520,000
200,000
Interest on bank deposit
24,000
Royalty
52,000
Dividend
60,000
Prize from a raffle
12,000
Rent
22,000

P
72,000
48,000
96,000
24,000
18,000

a. If the taxpayer is a resident citizen, his

returnable
gross
income
is
__________________.
b. If the taxpayer is a non-resident citizen, his
returnable
gross
income
is
__________________.
SOLUTIONS:
a.
Cambodia
Salary
P 520,000
200,000
Interest on bank deposit
Royalty
Dividend
Prize from a raffle
Rent
22,000
542,000
542,000 + 458,000 = 1,000,000

Philippines
P
72,000
48,000
96,000
24,000
18,000
458,000

Passive incomes within are subject to final taxes.

Other incomes earned abroad are not subject to
final tax but added to gross income. Remember,
resident citizens are taxable globally.
b.
Salary
Rent

Philippines
P 520,000
22,000
542,000
Remember, Nonresident citizens are taxable
within the Philippines only. Moreover, passive
incomes earned within the Philippines are
subject to final tax, thus no longer added in
computing the gross returnable income.

6. On January 1, 2011, Marco leased his vacant lot

for a period of 12 years at P 240,000 per year to
Isabel, the lessee. It was agreed that the lessee
will pay the following:
a. Rent of P 480,000 (for 2011 and 2012)
b. Security deposit of P 240,000
c. Real property tax at P 20,000 per year until
the end of the lease period
The lease contract provides among others that the
lessee will construct a three-storey building for
parking purposes at a cost of P 3,600,000 which
shall belong to the lessor upon expiration or
termination of the lease. The building was
completed on July 1, 2011, and was readily
available for use. The estimated life of the building
is 15 years. Marco shall report for the year 2011,
using the spread-out method, a total income from
lease of ______________________.
Solutions:

a. Rent income (cash basis) P480,000

b. Real Property Tax

c. Income from Leasehold
36,522
Total
Cost
Lease Contract
Months expired upon completion
Remaining Years to Termination
Useful life
Remaining Useable years
after lease contract

20,000

P 536,522
3,600,000
12 years
6 months
11.5 years
15 years
3.5 years

Book value after lease contract:

Cost
3,600,000
Times:
(3.5 years / 15 years)
Book Value
P 840,000
The book value shall be considered as an income of
the lessor to be spread for 11.5 years.

Book Value
Divided by:
Annual income
Times: Months earned after completion
(6 months July to December)
Income earned in 2011

P 840,000
11.5 years
73,043.47
6/12____
P 36,521.74

7. Loreal leased her property to Purita on July 1,

2009. Purita made the following advances:

Advance rent of P600,000 for the period July

1, 2009 to June 30, 2010
Loan to Loreal, P150,000
Security deposit, P200,000
Assuming Loreal used accrual method, how much
was her taxable gross income in 2009?
_____________________
Only P600,000