BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 52

SUGGESTED ANSWERS
Chapter 7: BUSINESS TAXES

CHAPTER 7
BUSINESS TAXES
Problem 7-1
1. True
2. False this is a casual sale not a business.
3. True
4. True
5. False not business because contrary to law.
6. False employment is not business.
7. False importation for personal use is subject to VAT, which is a business tax.
8. True
9. False NonVAT business is subject to VAT if its annual gross sales or receipts exceeds
P1,919,500.
10. False Only one TIN is issued to every taxpayer regardless of the number of his business.
11. True
12. False the registration is after the end of the year on or before January 31.

Problem 7-2
1. False the surcharge is 50%.
2. True
3. True
4. False irrevocable for a period of 3 years.
5. True
6. True
7. False Input VAT is charged as cost of purchases which is a product cost.
8. True
9. False treated as tax credit as Input VAT.
10. True
11. False This is a description of official receipt.
12. True

Problem 7-3
1. False shown as a separate item, not time.
2. False Still need to acquire approval from BIR to become non-VAT.
3. True
4. False Commercial activity is business.
5. False Nonresident alien/foreign person is not subject to the rule of regularity, hence,
considered engaged in business.
6. False liable to VAT without the benefit of creditable input VAT.
7. False Compensation from employment is not subject to VAT.
8. False now more than P1,919,500 per year.
9. False Not in the case of VAT person. VAT paid on purchases can be claimed as creditable
input VAT.
10. False employees are also required to register to BIR by obtaining their TIN.
11. True
12. False only one TIN per person.
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 53
SUGGESTED ANSWERS
Chapter 7: BUSINESS TAXES

Problem 7-4
1. True
2. False P500 for each establishment
3. False Cooperatives are also exempt from P500 registration fee
4. True
5. True
6. False Required to become VAT if total gross sales/receipts exceed P1,919,500 a year.
7. True
8. True
9. False should issue official receipt for the amount received. Commercial invoice is sales
invoice.
10. False the 3 year period is applicable only to those who registered first as VAT. A non-VAT
person can shift anytime to VAT system.
11. True
12. True

Problem 7-5 Problem 7-6 Problem 7-7

1. D 1. B 1. A
2. C 2. D 2. D
3. B 3. C 3. A
4. A 4. A 4. D
5. C 5. B 5. C
6. A 6. D 6. D
7. A,B,C & D 7. A 7. D
8. B 8. A 8. A
9. C 9. B 9. D
10. C 10. D 10. B

Problem 7-8 C
Annual registration fee = P500

Problem 7-9 B
Registration fee of:
Au Chemical Supplies P 500
Gusto Eatery 500
Total annual registration fee P1,000

Problem 7-10 A
Nonresident foreign persons are not required to register to the BIR. It is the obligation of the
entity obtaining their services to pay the VAT and withhold the related income tax.

Problem 7-11 A
Cooperatives are exempt from registration fee.

Problem 7-12 C
Total amount in the invoice [P50,000 + (P12% of P50,000)] P56,000

Problem 7-13 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
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 54
SUGGESTED ANSWERS
Chapter 7: BUSINESS TAXES

Problem 7-14 A
Business tax payable (P2,000,000 x 12%) P240,000

Problem 7-15 D
Business tax payable (P200,000 x 3%) P6,000

Problem 7-16 A
Output VAT (P300,000 x 12%) P36,000
Less: Input VAT (P200,000 + P100,000) x 12% 36,000
VAT payable P - 0 -

Problem 7 17 D
Zero. M is merely a collecting agent of the BIR, not a direct payee of the VAT. VAT is an indirect
tax.

Problem 7 18 D
Business tax (P1,500,000 x 3%) P45,000

Problem 7-19 C
Equity shares (P100,000 x 0.005) P 500
Long distance (P10,000 x 10%) 1,000
Total business tax P1,500

Problem 7-20 C
Output VAT (P1,000,000 x 12%) P120,000
Less: Input VAT purchases from VAT supplier (P800,000 x 12%) 96,000
Net business tax payable or net VAT payable P 24,000

Problem 7-21 B
Output VAT (P300,000 x 12%) P 36,000
Less: Input VAT (P268,800/9.3333) 28,800
Net business tax payable or net VAT payable P 7,200

Problem 7-22 B
b. Purchases 150,000
Input VAT 18,000
Cash 168,000

Problem 7-23 A
a. Purchases 112,000
Cash 112,000

Problem 7-24 D
Surcharge (P120,000 x 50%) P60,000

Problem 7-25 A
Sales invoice 0024:
OPT (P100,000 x 3%) P 3,000

Sales invoice 0025:

OPT (P200,000 x 3%) P 6,000
Add: VAT P24,000
Surcharge (P24,000 x 50%) 12,000 36,000 42,000
Total amount to be paid to the BIR P45,000
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Problem 7-26 C
Output VAT (P2,500,000 x 12%) P300,000
Less: Input VAT on purchases from:
VAT supplier inclusive of VAT (P1,120,000/9.333) P120,000
Non-VAT supplier inclusive of VAT (P560,000/9.333) 60,000 180,000
Net VAT payable P120,000

Problem 7-27
1. Letter C
Purchases, excluding VAT [P1,680,000 - (P1,680,000/9.333)] P1,500,000
Add: Beginning inventory 200,000
Total P1,700,000
Less: Ending inventory, excluding VAT
Beginning inventory P200,000
Increase in inventory, excluding VAT [P112,000 (P112,000/9.333)] 100,000 300,000
Cost of sales P1,400,000

2. Letter A
Sales P2,000,000
Less: Cost of sales 1,400,000
Gross income P 600,000
Less: Operating expenses (P268,000 P18,000) 250,000
Net taxable income P 350,000
Multiplied by normal corporate income tax rate 30%
Income tax due P 105,000

3. Letter D
Output VAT (P2,000,000 x 12%) P240,000
Less: Input VAT on purchases (P1,680,000/9.333) P180,000
Input VAT on expenses 18,000 198,000
Net VAT payable P 42,000

Note: The input VAT on the increase in inventory is already included in the total
input VAT per purchases. Hence, not to be used again as input tax credit.

Problem 7-28
1. Letter A
Purchases from nonVAT supplier P600,000
Add: Purchases from VAT supplier, including VAT P224,000
Decrease in inventory 150,000 374,000
Cost of sales P974,000

2. Letter B
Sales, excluding VAT [P1,344,000 (P1,344,000/9.333) P1,200,000
Less: Cost of sales 974,000
Gross income P 226,000
Less: Operating expenses 76,000
Net income P 150,000
Less: Basic personal exemption 50,000
Net taxable income P 100,000

3. Letter D
OPT (P1,200,000 x 3%) P 36,000
Add: VAT collected (P1,344,000 P1,200,000) P144,000
Surcharge (P144,000 x 50%) 72,000 216,000
Total amount of business taxes including surcharges P252,000
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Chapter 7: BUSINESS TAXES

Problem 7-29
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 P1,919,500.

Problem 7-30
Yes, the cooperative is required to register to the BIR. No registration fee or annual registration
fee shall be collected from cooperatives.

Problem 7-31
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 7-32
1. The business should be registered as nonVAT because the sales do not exceed P1,919,500
in a year.

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

3. Official receipts.

Problem 7-33
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 7-34
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 7-35
1. Percentage tax (P1,680,000/1.12) x 3% P 45,000
Add: VAT (P1,680,000/9.333) P180,000
Surcharge (P180,000 x 50%) 90,000 270,000
Total business tax and surcharges P315,000

2. Percentage tax (P2,800,000/1.12) x 3% P 75,000

Add: VAT (P2,800,000/9.333) P300,000
Surcharge (P300,000 x 50%) 150,000 450,000
Total business tax and surcharges P525,000

Problem 7-36
Input VAT from VAT supplier (P280,000/9.333) P30,000
Input VAT from non-VAT supplier (P56,000/9.333) 6,000
Creditable input VAT P36,000

Note: A VAT-registered buyer is allowed to report input VAT on purchases from a non-VAT
supplier collecting VAT.
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 57
SUGGESTED ANSWERS
Chapter 7: BUSINESS TAXES

Problem 7-37
1. As depreciable capital goods.
Capital gain (P4,424,000 P2,700,000) P1,724,000
Multiplied by corporate tax rate 30%
Income tax due P 517,200
Add: Other taxes paid:
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 revenue contributed to government P2,041,200

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 capital asset P2,700,000

Note: The input VAT of depreciable capital goods used in business (not as inventory) shall be
amortized within 60 months or the estimated useful life of the asset, whichever is lower.

2. As ordinary asset
Gross income (P4,424,000 P2,700,000) P1,724,,000
Less: OSD (P1,724,000 x 40%) 689,600
Net income P1,034,400
Multiplied by corporate tax rate 30%
Normal tax P 310,320
Add: Other taxes paid
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 revenue contributed to government P1,834,320

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

Note: The input VAT of ordinary asset (inventory) shall be allowed as input tax credit against the
output VAT during the taxable quarter.

Problem 7-38
1. VAT-registered business
a. Inventory, beginning 300,000
Input VAT 36,000
Cash 336,000

Inventory, beginning 200,000

Cash 200,000
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b. Purchases 500,000
Input VAT 60,000
Cash 560,000

Purchases 300,000
Cash 300,000

c. Cash 56,000
Purchase returns 50,000
Input VAT 6,000

Cash 20,000
Purchase returns 20,000

d. Cash 1,680,000
Sales 1,500,000
Output VAT 180,000

e. Sales returns 150,000

Output VAT 18,000
Cash 168,000

f. Output VAT 162,000

Input VAT 90,000
VAT payable/cash 72,000

2. Non-VAT business
a. Inventory, beginning 336,000
Cash 336,000

Inventory, beginning 200,000

Cash 200,000

b. Purchases 560,000
Cash 560,000

Purchases 300,000
Cash 300,000

c. Cash 56,000
Purchase returns 56,000

Cash 20,000
Purchase returns 20,000

d. Cash 1,500,000
Sales 1,500,000

e. Sales returns 150,000

Cash 150,000

f. Business tax expense (P1,350,000 x 3%) 40,500

Business tax payable/cash 40,500