BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 37

SUGGESTED ANSWERS
Chapter 7: BUSINESS TAXES

CHAPTER 7
BUSINESS TAXES
Problem 7-1
1. False this is a transfer not in the conduct of business
2. False such rule is applicable only to nonresident foreign or alien persons
3. False Merchandising business is engaged in buying and selling of goods, not
manufacturing
4. False Only one TIN is allowed.
5. True
6. False On or before January 31
7. False P500 for each establishment
8. False exempt from P500 registration fee
9. True
10. True
11. True
12. True

Problem 7-2
1. False treated as tax credit
2. True
3. False This is a description of receipt.
4. True
5. True
6. False Required to become VAT if total gross sales/receipts exceed P1,500,000 a year.
7. True
8. False Commercial activity is business.
9. False Nonresident alien/foreign person is not subject to the rule of regularity, hence,
considered business.
10. False liable to VAT without the benefit of creditable input VAT.

Problem 7-3
1. False A business could be a servicing business.
2. False This is compensation from employment.
3. False Both are merchandising.
4. False This is a servicing business.
5. True
6. False Not in the case of VAT person. VAT paid on purchases can be claimed as creditable
input VAT.
7. False employees are also required to register to BIR
8. True
9. False only one TIN per person
10. True
11. True
12. False should issue official receipt for the amount received

Problem 7-4 Problem 7-5

1. B 1. D
2. B 2. D
3. A 3. B
4. A 4. D
5. A 5. D
6. B 6. A
7. A
8. C
BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 38
SUGGESTED ANSWERS
Chapter 7: BUSINESS TAXES
9. D

Problem 7-6 B
Annual registration fee = P500

Problem 7-7 B
Registration fee of:
Au Chemical Supplies P 500
Gusto Eatery 500
Total annual registration fee P1,000

Problem 7-8 A
Cooperatives are exempt from registration fee.

Problem 7-9 A
Gross sales or receipts not exceeding P100,000 per year.

Problem 7-10 C
Total amount in the invoice [P50,000 + (P12% of P50,000)] P56,000

Problem 7-11 B
Business tax (P1,600,000 x 12%) P192,000

Problem 7-12 B
Cost (P84,000/1.12) P 75,000
Add: Profit margin (P75,000 x 20%) 15,000
Sales price (120% of cost) P 90,000
Add: VAT (P90,000 x 12%) 10,800
Total VAT sales invoice amount P100,800

Problem 7-13 C
Output VAT (P300,000 x 12%) P 36,000
Input VAT (P268,800/9.3333) 28,800
Net business tax payable or net VAT payable P 7,200

Problem 7-14
Form of business operation = Manufacturing

Form of business organization = Corporation

Problem 7-15
The cooperative is required to register to the BIR. No registration fee or annual registration fee
shall be collected from cooperatives.

Problem 7-16
1. Annual registration fee for main store (P500) + (P500) for sales outlet P 1,000

2. No, because the total sales during the year do not exceed P1,500,000.
BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 39
SUGGESTED ANSWERS
Chapter 7: BUSINESS TAXES

Problem 7-17
Annual registration fee (1 + 50 + 10) x P500 P 30,500
Add: Interest (P30,500 x 20% x 8/12) P4,067
Surcharge (P30,500 x 25%) 7,625 11,692
Total amount to be paid to the BIR P 42,192

Note: Registration shall be made on or before the last day of January of the following year

Problem 7-18
1. The business should be registered as VAT because the sales exceeded P1,500,000 in a
year.

2. Sales invoice because official receipts are issued only when there are collections.

3. Official receipts.

Problem 7-19
Net VAT payable P 180,000
Add: Input VAT (P5,040,000 x 12%) 604,800
Output VAT P 784,800 (1
Divide by 12% )
Sales P6,540,000
(2
)

Problem 7-20
1. Satur Nino is not subject to VAT because the sale is a casual sale of personal property.
2. Assuming that the FMV remains the same, the VAT of ROX Realty would be twelve percent
(12%) of the FMV (higher value), hence, P4,200,000 or (P35,000,000 x 12%).

Problem 7-21
1 Percentage tax (P1,344,000/1.12) x 3% P 36,000
.
Add: VAT (P1,344,000/9.333 P144,000
Surcharge (P144,000 x 50%) 72,000 216,000
Total business tax and surcharges P252,000

2 Percentage tax (P1,792,000/1.12) x 3% P 48,000

.
Add: VAT (P1,792,000/9.333 P192,000
Surcharge (P192,000 x 50%) 96,000 288,000
Total business tax and surcharges P336,000

Problem 7-22
1 As capital asset
.
Capital loss (P3,000,000 P3,024,000) (P 24,000)
Multiplied by corporate tax rate 30%
No income tax loss P 0
Add: Other taxes paid:
Custom duties (P1,500,000 x P 750,000
50%)
Excise tax (P2,250,000 x 20%) 450,000
Input VAT (P2,700,000 x 12%) 324,000 1,524,000
Total revenue contributed to government P1,524,000
BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 40
SUGGESTED ANSWERS
Chapter 7: BUSINESS TAXES
Supporting Computation:

Purchase value P1,500,000

Add: Custom duties (P1,500,000 x 50%) P 750,000
Excise tax (P2,250,000 x 20%) 450,000
Input VAT (P2,700,000 x 12%) 324,000 1,524,000
Total landed cost if capital asset P3,024,000

2 As ordinary asset
.
Gross income (P3,000,000 P2,700,000) P 300,000
Less: OSD (P300,000 x 40%) 120,000
Net income P 180,000
Multiplied by corporate tax rate 30%
Normal tax P 54,000
Add: Other taxes paid
Custom duties (P1,500,000 x P 750,000
50%)
Excise tax (P2,250,000 x 20%) 450,000
Input VAT (P2,700,000 x 12%) 324,000 1,524,000
Total revenue contributed to government P1,578,000

Supporting Computation:
Purchase value P1,500,000
Add: Custom duties (P1,500,000 x 50%) P 750,000
Excise tax (P2,250,000 x 20%) 450,000 1,200,000
Total landed cost if ordinary asset P2,700,000