TAX2 3RD ED Solutions Manual PDF

SOLUTIONS MANUAL
TRANSFER & BUSINESS TAXATION, 3rd Edition

By: TABAG & GARCIA
CHAPTER 1 SUCCESSION & TRANSFER TAXES

TRUE OR FALSE
1. T 6. T 11. T
2. T 7. F 12. T
3. T 8. T 13. T
4. T 9. T 14. T
5. F 10. T 15. F
MULTIPLE CHOICE
1. D 12. C 23. D 34. D 45. B
2. A 13. C 24. B 35. B 46. C
3. D 14. B 25. D 36. B 47. D
4. C 15. D 26. D 37. D 48. D
5. C 16. C 27. B 38. B 49. A
6. A 17. B 28. D 39. D 50. B
7. B 18. D 29. A 40. D 51. A
8. A 19. C 30. D 41. B 52. D
9. B 20. B 31. B 42. D 53. D
10. A 21. B 32. A 43. B 54. D
11. D 22. B 33. D 44. B 55. B
CHAPTER 2 GROSS ESTATE

TRUE OR FALSE SET A
1. T 6. T 11. T 16. F
2. T 7. T 12. F 17. T
3. F 8. T 13. F 18. T
4. T 9. T 14. T 19. T
5. T 10. T 15. T 20. T
TRUE OR FALSE SET B
1. T 6. F 11. T 16. T
2. F 7. T 12. F 17. T
3. F 8. T 13. F 18. T
4. T 9. T 14. T 19. F
5. T 10. F 15. F 20. T
MULTIPLE CHOICE
1. A 16. D 31. C 46. C 61. A
2. B 17. C 32. B 47. D 62. A
3. D 18. B 33. B 48. C 63. A
4. B 19. D 34. A 49. C 64. C
5. C 20. A 35. B 50. C 65. D
6. C 21. D 36. B 51. D 66. B
7. A 22. A 37. D 52. D 67. A
8. B 23. B 38. C 53. C 68. C
9. A 24. A 39. B 54. C 69. C
10. A 25. C 40. D 55. C 70. D
11. C 26. C 41. C 56. B
12. B 27. C 42. C 57. D
13. D 28. D 43. B 58. C
14. A 29. B 44. C 59. C
1 | Tr a n s fe r & B u s i n es s Ta xa ti o n (3 r d
E d i ti o n ) b y Ta b a g a n d G a rc i a
15. C 30. D 45. B 60. A
Supporting Computations:
23.
Bank deposit in the foreign branch of a domestic P500,000
bank
Bank deposit in Makati branch of a foreign bank 300,000
Shares of stock issued by a domestic corporation 1,000,00
(certificate kept in Canada) 0
Franchise exercised in Manila 800,000
Receivable, debtor from Mindanao 200,000
Total Exclusion from the gross estate P2,800,
000
23.
House and lot, family home in Quezon City P1,500,0
00
Bank deposit in Makati branch of a foreign bank 300,000
Shares of stock issued by a domestic corporation 1,000,00
(certificate kept in Canada) 0
Franchise exercised in Manila 800,000
Receivable, debtor from Mindanao 200,000
Total Inclusion from the gross estate P3,800,
000
25.
Shares of stocks, domestic corp. P250,00
(certificate kept in UK) 0
Shares of stocks, domestic corp. 100,000
(certificate kept in Phils.)
Franchise exercised in the Phils. 200,000
Receivables, debtor is from Phils. 50,000
Intangibles subject to P600,0
reciprocity 00
26.
Land & building, Philippines P2,000,00
0
House and lot, Philippines 3,500,000
Shares of stocks, domestic corp. (certificate kept 250,000
in UK)
Shares of stocks, domestic corp. (certificate kept 100,000
in Phils.)
Franchise exercised in the Phils. 200,000
Receivables, debtor is from Phils. 50,000
Gross Estate P6,100,0
00
33. (P12M/100,000) x 1,000 shares = P120,000

34. (P10M/100,000) x 1,000 shares = P100,000
35. P110 x 1,000 shares = P120,000
36. (P140 + P80/2) x 1,000 shares = P110,000
44.
Considerat FMV upon FMV upon Gross Estate
ion transfer death
received
Land P1,500,00 P1,500,000 P2,000,000 None. Valid
0 sale
Shares of 100,000 50,000 150,000 None. Valid
stock sale
Vintage car 50,000 80,000 100,000 P50,000
Painting 250,000 400,000 500,000 250,000
INCLUSION IN THE GROSS ESTATE P300,000
44. Bequests to charitable institutions are considered exclusions from the gross
estate only if the problem clearly states that not more than 30% were used for
administrative purposes.
PROBLEM SOLVING:
PROBLEM 1
(1) P19,300,000 (2) P19,300,000 (3) P11,800,000 (4) P14,300,000
Citizen/ NRA with R NRA w/o R
Resident
(# 1 & 2) (# 3) (# 4)
Family home in the Philippines P8,000,000 P8,000,000 P8,000,000
Parcel land of with vacation house in Malaysia 5,000,000
Farm land in the Philippines 3,000,000 3,000,000 3,000,000
Shares of stock of a domestic corporation 2,000,000 2,000,000
deposited in a bank safety deposit box in
Malaysia
Shares of stock of a foreign corporation the 500,000 500,000
entire business of which is in the
Philippines, deposited in a bank safety
deposit box in Malaysia
Receivable from a friend who has no property 300,000 300,000 300,000
whatsoever
Receivables under insurance policies:
Life insurance policy, taken by the 200,000 200,000 200,000
decedent on his own life, with his estate
as revocable beneficiary
Life insurance policy, taken by the 300,000 300,000 300,000
decedent, with his daughter as
revocable beneficiary
Life insurance policy, taken by the - - -
decedent on his own life, with his son as
irrevocable beneficiary
Life insurance (group) taken by the - - -
employer of the decedent, with the
estate as revocable beneficiary
Property insurance, for a loss of property 50,000 50,000 50,000
Accident insurance, for injury sustained 50,000 50,000 50,000
TOTAL GROSS ESTATE P19,300,0 P11,800,0 P14,300,0
00 00 00
PROBLEM 2
To Juan P25,000,0
00
To Pedro 18,000,00
0
To Maria 15,000,00
0
To Sisa 20,000,00
0
Total Gross Estate P78,000,
000
PROBLEM 3
1. P230,0000
2. P1,100,000
3. P0
4. P5,000,000
5. P1,000,000 + [1M x (1M x 10% x 1.5)] = P1,150,000
MODIFIED IDENTIFICATION
EXERCISE A
1. Included 11. Included***
2. Included 12. Excluded**
3. Excluded 13. Excluded**
4. Included 14. Included
5. Excluded 15. Included
7. Included * 17. Excluded
8. Excluded 18. Excluded**
9. Excluded** 19. Excluded
*Included in the gross estate if the beneficiary is the estate, administrator or

executor. In case of doubt, the item should be taxable.
**Exclusions from the gross estate. Nonetheless, the tax code requires these items
to be included first in the gross estate before deducting the same from the gross
estate.
*** Bequests to charitable institutions are considered exclusions from the gross
estate only if the problem clearly states that not more than 30% were used for
administrative purposes.
EXERCISE B EXERCISE C
1. P0; valid sale 1. P10M
4. P4,000,000 4. P10M
5. P6,000,000 5. P0
CHAPTER 3 DEDUCTIONS FROM THE GROSS ESTATE
TRUE OR FALSE
1. T 7. T 13. F 19. T 25. T
2. T 8. T 14. F 20. T 26. T
3. T 9. T 15. T 21. T 27. F
4. T 10. F 16. F 22. F 28. T
5. T 11. F 17. T 23. T 29. F
6. F 12. F 18. T 24. T 30. T
MULTIPLE CHOICE
1. C 12. C 23. A 34. C 45. C
2. D 13. B 24. A 35. A 46. B
3. D 14. A 25. A 36. C 47. A
4. C 15. A 26. B 37. B 48. A
5. C 16. A 27. B 38. B 49. C
6. B 17. D 28. B 39. C 50. C
7. B 18. D 29. C 40. D 51. A
8. D 19. D 30. A 41. A 52. A
9. C 20. D 31. C 42. D 53. A
10. A 21. C 32. D 43. D 54. B
11. B 22. D 33. C 44. D 55. D
7.
Mourning clothing of the decedents surviving P1,500
spouse
Mourning clothing of the decedents dependent 3,200
children
Expenses of the wake preceding the burial 40,000
Publication charges for death notices 5,000
Telecommunication expenses incurred in 3,000
informing relatives of the deceased
Cost of burial plot 20,000
Interment fees and charges 12,000
Expenses for the performance of the rites & 5,000
ceremonies incident to interment
Actual Funeral Expenses P89,700
Limit: 5% of Gross Estate (P2M x 5%) P100,000
ALLOWED (Lower Amount) P89,700
15.
Real property tax for the year 2013 P100,000
Notarized interest bearing promissory note 100,000
Accrued interest on the promissory note at the 20,000
time of death
Income tax due for 2013 200,000
Allowable deductions P420,00
0
(Disregard standard deduction)
23.
Income tax from practice of profession - 2013 P300,000
Income tax from practice of profession for Jan.- 100,000
June 13
Real property taxes for 2013 150,000
Deductible taxes P550,00
0
35.
ERRATUM: Pedro died leaving a car acquired by purchase from Pedro JUAN
41.
Value to take/Initial Basis P900,000
Mortgage paid (50,000)
Initial basis 850,000
2nd Deduction:
(850/1,000 x P100,000**) (85,000)
Final Basis P765,000
X Vanishing rate 40%
VANISHING P306,00
DEDUCTION 0
** Mortgage P150,000
50,000
54.
Shares, domestic corporation P500,000
Tangible personal property 1,500,000
Gross Estate 2,000,000
ELIT (500,000 x 2,000/2,500) (400,000)
Taxable Estate P1,600,00
0
TAX DUE
1st P500,000 P15,000
In excess of P500,000 = 88,000
(1,100,00 x 8%)
Estate Tax Due P103,00
0
55.
Gross Estate (Tangible property P6,000,00
Phils.) 0
ELIT (1,200,000 x (720,000)
6,000/10,000,000)
Taxable Estate P5,280,0
00
PROBLEM SOLVING
Problem 1
Case A: P150,000
Case B: P200,000
Case C: P150,000
Case D: P150,000
Case E: P0
Problem 2
ASSUME GROSS ESTATE OF P2,000,000
Embalming charges P15,00
0
Burial apparel of the decedent 3,500
Cost of coffin 125,00
0
Mourning apparel of the surviving spouse during the 5,000
burial
Mourning apparel of the minor child 2,000
Snacks and drinks during the wake 12,500
Honoraria of priest for daily masses before burial 2,000
Telecommunication charges to inform relatives 1,000
Charges for death notice published in a newspaper 8,000
Cost of video footage of the burial and interment 12,000
Funeral car service during interment 4,000
Honorarium of priest who celebrated the mass 2,000
during interment
Cost of tombstone 30,000
ACTUAL FUNERAL EXPENSE P232,0
00
Vs. Limit (P5% of P2M) 100,00
0
ALLOWABLE FUNERAL EXPENSE P100,
000
NOTE: Hospital bills for two months of confinement before decedents death should
be charged to medical expenses
Problem 3
Case A: P100,000
Case B: P333,333 computed as follows:
Receivable P500,000
Collectible portion (400/1,200) x (166,667)
500,000
Uncollectible portion of the claim P333,33
3
Case C: P0. Debtor is not insolvent
Problem 4
DUE FROM PEDRO P200,00
0
Assets of Pedro P400,00
0
Less: Due to the BIR for unpaid (200,00
taxes 0)
Balance 200,000
Collectible by Juan X (66,667)
200/600
UNCOLLECTIBLE PORTION
(Deductible from Juans Gross P133,3
Estate) 33
Problem 5
Question 1: P550,000 computed as follows:
Unpaid taxes on the estate before death P150,000
Unpaid mortgage on the estate 200,000
Unpaid loans arising from debt instruments 125,000
(notarized)
Unpaid loans arising from debt instruments (not 75,000
notarized). The debt instrument was issued by
a financial institution not requiring notarizations
for debt instruments issued
Total Deductible Claim Against the Estate P550,00
0
Question 2: P2,097,000 computed as follows

Ordinary Deductions:
Claim against insolvent person P100,000
Unpaid taxes on the estate before death 150,000
Unpaid mortgage on the estate 200,000
Funeral expenses 200,000
Actual = P182,000 + 37,500 = P219,500
Limit = P5M x 5% = P250,000
Maximum = P200,000
Judicial expenses 100,000
Unpaid loans arising from debt instruments 125,000
(notarized)
Unpaid loans arising from debt instruments (not 75,000
notarized). The debt instrument was issued by
a financial institution not requiring notarizations
for debt instruments issued
Casualty loss 65,000
Special Deductions:
Standard deduction 1,000,000
Medical expenses 82,000
Total Allowable deduction from the gross P2,097,00
estate 0
Problem 6
Question 1: P217,500
Question 2: P217,500
Same answer with question #1. Whether or not the estate was
settled judicially is irrelevant in the determination of allowable
deduction for judicial expenses.
Solution:
Expenditures incurred for the collection of assets P100,000
and payment of debts
Attorneys fees (1/2 were incurred after six 20,000
months)
P40,000 x 1/2
Accountants fees 25,000
Executors commission 15,000
Appraisers fees 2,500
Court fees 18,000
Cost of preserving and distributing the estate 15,000
Cost of storing or maintaining the property of the 12,000
estate
Brokerage fees for selling property of the estate 10,000
Total allowable judicial expenses P217,50
0
Problem 7
Loss due to shipwreck, two (2) months after the P500,000
decedents death.
Robbery loss, seven (7) months after the decedents 2,000,000
death. The decedents executor was allowed by
the Bureau of Internal Revenue to extend the
filing (within the period allowed by the Tax Code) of
estate tax return due to a meritorious reason
Allowable Deduction P2,500,0
00
Problem 8
Value to take P937,500
1st Deduction: Mortgage paid (187,500
)
Initial basis P750,000
2nd Deduction: Proportionate
deduction (93,750)
(750/4,500) x 562,500
x Vanishing rate 40%
Vanishing Deduction P262,50
0
Problem 9
Value to take P1,500,0
00
1st Deduction: Mortgage paid ------
Initial basis P1,500,0
00
deduction (128,788
(1,500/1,980) x 170,000 )
Final Basis P1,371,2
12
Vanishing Deduction P1,096,
970
Problem 10
Case A: P1,000,000
Case B: P1,000,000
Case C: P1,000,000
Case D: P0
Case E: P0
Problem 11
Case A: P500,000
Case B: P500,000
Case C: P150,000
Case D: P500,000
Case E: P0
Problem 12
Case A: P1,000,000
Case B: P500,000
Case C: P0
Case D: P500,000
Case E: P600,000
Case F: P750,000; [ (1M/2) + (500,000/2)]
Problem 13
00
Funeral expenses (150,000
Actual P300,000 120,000 = )
P180,000
Limit = P3M x 5% = P150,000
Standard deduction (1,000,0
00)
Medical expenses (400,000
)
Taxable Estate P1,450,
000
CHAPTER 4 PROPERTY RELATIONS

TRUE OR FALSE
1. T 6. F 11. T 16. F
2. T 7. F 12. F 17. T
3. T 8. T 13. T 18. T
4. T 9. F 14. T 19. T
5. T 10. F 15. F 20. T
MULTIPLE CHOICE
1. A 7. D 13. B 19. C 25. C
2. B 8. D 14. D** 20. C 26. D
3. B* 9. B 15. A 21. A 27. C
4. C 10. C 16. D 22. A 28. A ***
5. C 11. D 17. D 23. D 29. D
6. D 12. C 18. C 24. B 30. D
*Change Aug. 3, 1998 TO August 3, 1988
** Under conjugal partnership of gains, fruits earned during marriage,
regardless of source, are common properties
Supporting Computations
No. 22 and 23
Gross Estate: Exclusive Conjugal
Rest House in Batangas P2,500,00
0
Car 1,000,000
Commercial land 5,000,000
Income from the commercial land 500,000
Income from exclusive property of 200,000
the spouse
Jewelry owned before the marriage 300,000
Other properties at the time of her 1,000,000
death
Gross Estate P8,800,00 P1,700,00
0 0
No. 24 and 25
Gross Estate: Exclusive Common
Rest House in Batangas P2,500,00
0
Car 1,000,000
Commercial land 5,000,000
Income from the commercial land 500,000
Jewelry owned before the marriage 300,000
Other properties at the time of her 1,000,000
death
0 0
No. 26
Conjugal properties P200,00
0
Conjugal Deductions:
Funeral expenses (35,000)
Actual = P45,000
Limit = (P500,000 + 200,000) x 5%
= 35,000
Judicial expenses (20,000)
Claim against the estate (45,000)
Net Conjugal properties P100,00
0
Divide 2
Share of the Surviving Spouse P50,00
0
No. 27
Real property, Philippines P4,000,00
0
Real property, USA 5,000,000
Judicial expenses (200,000 50,000) (150,000
Claim against insolvent persons (50,000)
Unpaid taxes (50,000)
Balance P8,550,00
0
Standard Deductions (1,000,00
0)
Medical expenses (max.allowed) (500,000)
Family Home (P1,500,000/2) (750,000)
Share of the surviving spouse (4,275,00
(P8,550,000/2) 0)
Net Taxable Estate P2,025,0
00
No. 28
Exclusive Common Total
Conjugal real properties P5,000,00
0
Conjugal family home 1,500,000
Exclusive properties P2,500,00
0
Total P2,500,00 P6,500,00 P9,000,00
0 0 0
Actual P300,000 x 25% =
P75,000
Limit = 5% x P9M = P450,000
Casualty losses*** (100,000)
Miscellaneous deductions (P1M x (750,000) (825,000)
75%)
Net P2,400,00 P5,675,00 P8,075,00
0 0 0
Special Deductions:
Standard Deductions (1,000,00
0)
Medical expenses (P500,000 x (250,00)
50%)
Family Home (1,500,000/2) (750,000)
Share of the surviving spouse (2,837,50
(5,675,000/2) 0)
00
ERRATUM: DISREGARD .Exclusive Properties are NET of Casualty
Losses***
No. 29 ABSOLUTE COMMUNITY OF PROPERTY

Exclusive Common
Properties-Land P2,400,00
0
Other personal property owned before 1,600,000
marriage
Other personal property acquired during 500,000
marriage
0 0
Ordinary Deductions
Net conjugal before special deductions P1,800,00
0
Share of surviving spouse P900,000
(P1,800,000/2)
No. 30 CONJUGAL PARTNERSHIP OF GAINS

Properties-Land P2,400,000
Other personal property owned before 1,600,000
marriage
Other personal property acquired during P500,000
marriage****
Gross Estate P4,000,000 P500,000 P4,500,00
0
Ordinary Deductions
Vanishing Deductions***** (1,120,000)
Net Estate Before Special Deductions P2,880,000 200,000 P3,080,00
0
Standard deductions (1,000,00
0)
Medical expenses (500,000)
Share of the surviving spouse (P200,000/2) (100,000)
Share of surviving spouse P1,480,0
(P1,800,000/2) 00
****If silent and unless the problem clearly illustrate that it is exclusive, assume the
property is common.
Value to take P1,500,0 00

1st Deduction: Mortgage paid -
deduction (100,000)
(1,500/4,500) x 300,000
Vanishing Deduction P262,500 *****
PROBLEM SOLVING
PROBLEM 1:
(a)P1,624,773 (b)P4,132,955 (c)P3,691,250 (d)P321,038

0
Conjugal properties* P5,000,00 P7,000,00
0 0
ELIT** (867,045)
Vanishing Deductions *** (175,227)
Transfer for Public Use **** (200,000)
Net Estate P1,624,77 P4,132,95 P5,757,72
3 5 8
Share of the Surviving Spouse (2,066,478
(4,132,955/2) )
0
1st P2,000,000 P135,000
In excess of P2,000,000 @ 11% 186,038
ESTATE TAX DUE P321,038
*The problem is silent as to reciprocity, hence, the gross estate should include
tangible and intangible properties within the Philippines.
**ELIT:
Funeral expenses P200,000
Claim against the 1,725,000
estate
TOTAL ELIT P2,725,00
0
X 7,000/22,0
00
ALLOWABLE ELIT P867,045
**VANISHING DEDUCTIONS:
Value to take P500,0 00
1st Deduction: Mortgage paid -
Initial basis P500,000
deduction (61,932)
(500/7,000) x 867,045
Vanishing Deduction P175,227
**** Since the properties were already classified as exclusive and common, it
should be assumed that the exclusive properties were already inclusive of transfer for
public use.
PROBLEM 2:
(Decedent: Resident Citizen)
a) Vanishing deduction = P1,676,200
b) Net exclusive property of the decedent = P7,923,800
c) Net community property = P17,800,000
d) Net Taxable estate = P15,323,800
e) Estate tax due = P2,279,760
Exclusive Conjugal Total
0
Conjugal properties 20,000,000 P30,000,00
0
Funeral expenses (200,000) (200,000)
Judicial expenses (300,000) (300,000)
Claims against conjugal properties (200,000) (200,000)
Claims against exclusive properties* (400,000) (400,000)
Legacy against exclusive - - -
properties **
VANISHING DEDUCTION*** (1,676,200) (1,676,200)
Amount received under RA4917 (1,500,000) (1,500,000)
Net exclusive/conjugal P7,923,800 P17,800,00 P25,723,80
0 0
Special Deductions:
Standard deduction (1,000,000)
Share of the surviving spouse (8,900,000)
NET TAXABLE ESTATE P15,323,8
00
ESTATE TAX DUE P2,279,76
0
*From the information provided in the problem, the amount of P400,000 as claim
against exclusive property should pertain to the unpaid mortgage on the land
inherited. Therefore, the present decedent paid P100,000 on the original amount of
the mortgage (P500,000). This should be taken into consideration in computing the
vanishing deduction.
** LEGACY AGAINST EXCLUSIVE PROPERTIES
Legacy means bequest or inheritance of personal properties. The deductible
legacy/devised (bequests) under the tax code are:
Transfer for public use (Rule: Include both in the Gross Estate as well as in
the Deductions from the Gross Estate) ; and
Bequests to charitable institutions wherein not more than 30% of the bequest
was used for administrative purposes (Rule: Same as transfer for public use)
From the information provided above, the problem was silent as to the type of the
legacy. In case of doubt, the two types of transfers enumerated above should not be
assumed. Therefore, the item should be treated as a simple legacy or transfer in
contemplation of death which is added only in the gross estate.
Value to take P3,000,000

Mortgage Paid (refer to explanation above) (100,000)
2nd Deduction: 2,900/30,000 x P1.1M (106,333)
x rate 60%
Vanishing Deduction*** P1,676,20
0
PROBLEM 3:
(Decedent: Resident Alien) (a) Net Taxable estate = P3,570,000; (b)Estate tax
due = P307,700
House and lot, USA * P2,000,00
0
Investment in stock, Philippines 800,000
Investment in stock, USA 1,000
000
Investment in bonds, USA 700,000
Cash in bank, Philippines 300,000
Cash on hand, Philippines 50,000
Accounts receivable 200.000
Car, Philippines 800,000
Legacy in favor of Philippine National Red 50,000
Cross**
Devise to Quezon City for childrens 70,000
playground**
Total Gross Estate P5,970,00
0
Unpaid Philippine income tax for income in 2011 120,000
Loss on December 31, 2012 due to theft 10,000
Legacy in favor of Philippine National Red Cross 50,000
Devise to Quezon City for childrens playground 70,000
Accounts receivable (fully uncollectible) *** 200,000 (900,000)
Special Deductions:
0)
00
0
NOTE (Problem 3)
*Family home is not allowed as a deduction for single decedent
**To be deductible, the legacy/devise should be included first in the
decedents gross estate
***Assume the debtor is an insolvent person.
PROBLEM 4 (Decedent: Resident Alien)

a) Vanishing deduction = P441,463
b) Net Taxable estate = P3,200,000
c) Estate tax due = P386,739
Exclusive Conjugal Total
Land P3,000,000
House and Lot, furniture and P5,000,000
appliances
Other tangible personal properties 1,200,000
Amount received under RA4917 1,000,000
Claims against insolvent persons 50,000 P10,250,00
0
Ordinary deductions:
Other claims against conjugal (500,000)
properties
Claims against insolvent persons (50,000)
Unpaid mortgage** (350,000)
VANISHING DEDUCTION* (441,463)
Net exclusive/conjugal P2,208,537 P6,400,000 P8,608,537
Special deductions:
Standard deduction (1,000,000)
Share of the surviving spouse (3,200,000)
TAXABLE ESTATE P4,288,53
7
Value to take/Initial Basis*** P2,500,000

2nd Deduction: 2,500/10,250 x 1,200,000 (292,683)
x rate 20%
Vanishing Deduction* P441,463
** P700,000 350,000 = P350,000
***The amount paid on the mortgage should not be considered in computing the
vanishing deduction because the amount pertains to a mortgage entered into by
Pedro during his lifetime. To be deductible, the mortgage should have been assumed
on the property at the time of inheritance.
PROBLEM 5
Conjugal Absolute
Partnersh Communi
ip ty
1. Real Property inherited by the decedent E E
during the marriage.
2. Income earned during marriage from the C E
property in the preceding number.
3. Property acquired by the decedent with cash E C
owned before the marriage
4. Personal belongings used exclusively by the E E
decedent
5. Jewelry for the exclusive use of one of the C C
spouses
6. Property unidentified when and by whom C C
acquired
7. Lot acquired before the marriage by the E E
surviving spouse (surviving spouse had a
previous marriage and legitimate children in
that previous marriage)
8. Income from the lot above E E
9. Cash income during marriage C C
10. Exclusive property was sold, and was C C
repurchased using conjugal property
CHAPTER 5 ESTATE TAX CREDIT AND ESTATE TAX DISTRIBUTABLE

MULTIPLE CHOICE
1. B 8. A 15. A 22. C 29. C
2. C 9. D 16. C 23. A 30. D
3. D 10. A 17. C 24. C 31. A
4. C 11. D 18. A 25. D 32. B
5. C 12. D 19. D 26. C
6. C 13. A 20. A 27. A
7. C 14. D 21. C 28. B
No.5
Estate tax due (for P4M) P355,000
Estate tax credit (3/4 x P355,000) vs (80,000)
P80,000
Estate tax payable P275,000
No. 6
Estate tax due (for P500,000) P55,000
Less: Estate tax credit (20,500)
Limit 1: Limit Actual Allowed
Singapore: 300/1,000 x P55,000 P16,500 P30,000 P16,500
USA: 100/1,000 x P55,000 5,500 4,000 4,000
P20,500
Limit 2:
400/1,000 x P55,000 P22,000 34,000 22,000
ALLOWED TAX CREDIT (LOWER P20,500
AMOUNT)
No. 7
0
Deductions (5,000,000)
Share of the surviving spouse (5,000,000 x 60% (1,500,000)
x 50%)
Net taxable estate P3,500,000
Tax Due P300,000
Estate tax credit (2.8/3.5 x P300,000) vs (124,500)
P124,500
Net estate France = [(6M -2M) x 0.6 x 1/2] + (6M-2M) x 0.4 = P2,800,000
Net estate R.P. = [(4M-3M) x 0.6 x 1/2] + (4M-3M) x 0.4 = P700,000
No. 8
Estate tax due (for P500,000) P71,000
Less: Estate tax credit (41,417)

Japan: 300/1,200 x P71,000 P17,750 P20,000 P17,750
USA: Exclude for purposes of computing - - -
Limit 1
HK: 450/1,200 x P71,000 26,625 45,000 26,625
P44,375
Limit 2: (Include USA)
700/1,200 x P71,000 P41,417 65,000 41,417
ALLOWED TAX CREDIT (LOWER P41,417
AMOUNT)
No. 9 and 10
Net Taxable Net
Distributable
Property inherited P1,400,000 P1,400,000
Property acquired through own 3,600,000 3,600,000
labor
Funeral expenses (200,000) (240,000)
Judicial expenses (200,000) (200,000)
Claims against the estate
Notarized (40,000) (40,000)
Not notarized - (20,000)
Standard deduction (1,000,000) -
Net Taxable/Distributable P3,560,000 P4,500,000
estate
No. 28
Letter a .The Bureau of Internal Revenue can ask payment from the heirs to
whom the estate has been disturbed .. change to Distributed
PROBLEM SOLVING
Problem I:
(1)P200,000 (2)P0; not allowed
00
Estate Tax Due [P465,000 + (5M x 15%)] P1,215,00

0
Estate tax credit (4/10 x P1,215,000) (200,000
vs P200,000 )
Estate tax payable P1,015,00
0
Problem II:
0

Estate tax credit (67,500)
Estate tax payable after tax credit P67,500

0
Canada: 500/2,000 x P135,000 P33,750 P150,000 P33,750
USA: 500/2,000 x P135,000 33,750 110,000 33,750
P67,500
Limit 2:
1,000/2,000 x P135,000 P67,500 260,000 67,500
ALLOWED TAX CREDIT P67,500
Problem III:
(a) Net Taxable estate = P3,570,000; (b)Estate tax due after tax credit = P142,770
(c ) Net Distributable Estate = P4,427,230
House and lot, USA * P2,000,00
0
Investment in stock, Philippines 800,000
Investment in stock, USA 1,000
000
Investment in bonds, USA*** 700,000
Cash in bank, Philippines 300,000
Cash on hand, Philippines 50,000
Accounts receivable 200.000
Car, Philippines 800,000
Legacy in favor of Philippine National Red 50,000
Cross**
Devise to Quezon City for childrens 70,000
playground**
Total Gross Estate P5,970,00
0
Accounts receivable (fully uncollectible) 200,000 (900,000)
Special Deductions:
0)
00
0
Estate Tax Credit (164,930)
Limit: [(3,200/5,970) x 307,700 = P164,930
Actual: P250,000
ESTATE TAX DUE AFTER ESTATE TAX CREDIT P142,77
0
NOTE:
*Family home is not allowed as a deduction for single decedent
**To be deductible, the legacy/devise should be included first in the
decedents gross estate
*** Considered as Estate within
TOTAL GROSS ESTATE (Refer above) P5,970,00

0
Accounts receivable (fully uncollectible) 200,000 (900,000)
Special Deductions:
Standard deduction -
Estate Tax Due after tax Credit (142,770
)
NET DISTRIBUTABLE ESTATE P4,427,2
30
Problem IV:
Real property, Philippines P4,000,00
0
Claim Against Insolvent Persons 50,000
Real property, USA 3,000,000
Real property, Japan 2,000,000
Net estate, Malaysia (1,000,00
0)
Total Gross Estate (common) P8,050,00
0
Funeral expenses (maximum) (200,000)
Judicial expenses (P200,000-100,000) (100,000)
Net estate before special deductions P7,650,00
0
X (Share of the surviving spouse) 1/2
Net estate of the decedent in the conjugal P3,825,00
properties 0
Standard Deduction (1,000,00
0)
Family Home (1,000,00
0)
Medical Expenses (500,000)
00
TAX DUE:
1ST P500,000 P15,000
In excess of P500,000 @ 8% 66,000
ESTATE TAX DUE P81,000
Estate Tax Credit (None; No Estate Tax ----
Payments abroad)
ESTATE TAX PAYABLE P81,000
Total Gross Estate (common; as computed P8,050,00

above) 0
Funeral expenses (actual) (300,000)
Judicial expenses (actual) (200,000)
Net estate before special deductions P7,450,00
0
X (Share of the surviving spouse) 1/2
Net estate of the decedent in the conjugal P3,725,00
properties 0
Standard Deduction ------
Family Home ------
Medical Expenses (actual) (650,000)
Estate Tax (81,000)
NET DISTRIBUTABLE ESTATE P2,994,0
00
CHAPTER 6 DONORS TAX

TRUE OR FALSE
1. T 7. F 13. F 19. F 25. T
2. T 8. T 14. F 20. F 26. T
3. F 9. F 15. F 21. F 27. F
4. T 10. F 16. F 22. F 28. T
5. T 11. T 17. F 23. F 29. F
6. T 12. F 18. F 24. T 30. F
MULTIPLE CHOICE
1. A 11. D 21. D 31. B 41. A
2. A 12. B 22. C 32. C 42. B
3. C 13. C 23. A 33. D 43. A
4. C 14. D 24. D 34. A 44. A
5. B 15. D 25. C 35. B 45. C
6. D 16. B 26. C 36. D 46. B
7. D 17. D* 27. D 37. C 47. B
8. D 18. A 28. C 38. B 48. D
9. D 19. B 29. D 39. D** 49. D
10. C 20. C 30. B 40. D 50. A
Supporting computation:
No. 17.
ERRATUM: Letter C: A gift to the International Rice Research Institute
is exempt from gift *
No. 19. If the sale is considered fictitious, the entire value at the date of sale is subject
to donors tax.
No. 22.
Letter a onerous transfer
Letter b - To be considered valid donation, the renunciation should be specifically and
categorically done in favor of identified heir(s) to the exclusion or disadvantage of the
other co-heir(s) in the hereditary estate.
Letter c gratuitous transfer, subject to donors tax
No. 25.
Donation to Pedro Clara
Gross Gifts (2M/2) /2 P500,000 P500,000
Less Dowry (10,000) -
Net taxable gift P490,000 P500,000
No. 28.
DONEE
Son D. in Law
Gross Gifts (5M/2) P2,500,0 -
00
Less Dowry (10,000) -
Net taxable gift P2,490,0 -
00
No. 32-34.
Husband Wife
NG (3/1) 125,000 125,000
Tax Due (P25,000 x P500 P500
2%)
GG (5/1) P100,000 P100,000

Dowry (10,000) (10,000)
PNG 3/1 125,000 125,000
TNG P215,00 P215,00
0 0
Tax Due P2,600 P2,600

Tax Paid 3/1 (500) (500)
D.T. Payable P2,100 P2,100
GG (7/1) 100,000 100,000

PNG 3/1 and 5/1 215,000 215,000
TNG P315,00 P315,00
0 0
Tax Due 6,600 6,600
Total Taxes Paid 7/1 P13,200
No. 39.
Taxable gift P300,00
0
Tax Due P6,000
Tax Credit P4,500 vs. (200/300 x (4,000)
P6,000=P4,000) **Change Choice d from P2,200
D.T.Pyable P2,000 to P2,000
**
PROBLEM SOLVING
Problem I:
ITEM Q#1 Q#2 Q#3 Q#4 Q#5
A P800,000 P800,000 P800,000 P800,000 P800,000
B 3,000,000 3,000,000 3,000,000
C 250,000 250,000 250,000 250,000
D 100,000 100,000 100,000 - 100,000
E* 5,000,000 5,000,000 5,000,000
F 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000
G 100,000 100,000 100,000 - 100,000
H 100,000 100,000 100,000 - -
I 500,000 500,000 500,000 500,000 500,000
Land 1** - - - - -
Land 2*** - - - - -
Land 5,000,000 5,000,000 5,000,000 - -
3****
Car 200,000 200,000 200,000 200,000 200,000
GROSS P16,550,0 P16,550,0 P16,550,0 P3,000,00 P3,450,00
GIFT 00 00 00 0 0
*The question is gross gifts, hence, disregard the mortgage.

**Sale of Land #1 is a transfer with insufficient consideration.
However, unlike in Estate Taxation, Transfer with insufficient
consideration for donors tax purposes is not taxable if the property
donated is a real property classified as capital asset subject to capital
gains tax.
*** Sale of Land # 2 is considered bonafide or valid sale.

****Sale of Land #3 is a transfer with insufficient consideration.
Nonetheless, the sale is subject to donors tax because the property
was not subjected to capital gains tax. Capital gains tax on real
properties are applicable only on sale of real properties classified as
capital assets located in the Philippines.
Problem II:
ITEM Q#1 Q#2
A P4,500,00 P4,500,00
B 1,000,000 -
C 1,500,000 -
D 2,000,000 -
E 3,000,000 3,000,000
F 500,000 -
Car, Alabang 200,000 200,000
Car, 200,000 -
Malaysia
Land Cebu - -
GROSS P12,900,0 P7,700,00
GIFT 00 0
Problem III:
1.P0 2.P5,000 3.P10,000 43,000
Problem IV:
Donation-Red Cross (exempt under a P100,000
special law)*
Donation to Manila City Hall * 300,000
Mortgage on the land (400,000 x ) 100,000
Total deductions from the gross gifts P500,00
0
*Exempt donations which partake the nature of deductions and are, therefore ,
deductible from the gross gifts to arrive at taxable net gifts.
Problem V (Donations to Relatives and Strangers)

Relative Stranger
Cash to his son on account of marriage P50,000
Cash to PPCRV for 2013 election - -
Jewelry to his auntie 46,000
Shoes and bags to his girlfriend 30,000
Books to the City of Makati 20,000
Second hand car to his first cousin 500,000
Brand new SUV to his second cousin (subject to - -
revocation)
Shares of stocks of a domestic corp. to his best 150,000
friend
Car to his daughter (a donation mortis causa) - -
Forgiven a loan due from his brother(50,000- 25,000
25,000)
Sports equipment to his brother in law 75,000
Parcel of land to the Philippine government for 1,000,00
public use 0
Gross Gifts P621,00 P1,275,0
0 00
NOTE:
Cash to PPCRV. Not considered as donation under the tax code. It is subject
to the rules and regulations of the COMELEC under the election code of the
Philippines.
City of Makati AND Land for Public Use. Although the donation is exempt, it
shall be considered in the determination of gross gifts
Gift subject to revocation is not a gift.
Donation mortis causa is a donation subject to estate tax, not donors tax.
Problem VI
Tax payable on:
1) March 1 = P2,000
2) May 30 = P18,000
3) June 30 = P90,000
4) July 31 = P0
5) September 30 = P447,200
Solution
Gross Gifts P200,000
Dowry - 1 year after
celebration
Net taxable gift P200,000
Donors Tax Due/ Payable March 1 P2,000
Gross gift P500,000
Less: Mortgage assumed by the donee (100,000)
Add: Prior net gift 200,000
Taxable gift May 30 P600,000
Donors Tax Due P20,000

Less: Tax paid (2,000)
Donors tax payable-May 30 P18,000
Donors tax payable-June 30 P90,000

(P300,000 x 30%)
Donors tax payable-July 31 (Bantay P0

Bata)
September 30
Relative Stranger Total
Gross Gift P1,500,000 P1,500,000
Dowry (10,000) -
Mortgage assumed (300,000) (300,000)
Prior net gift 600,000
Taxable gift P1,790,000 P1,200,000
@30%
Tax Due P107,200 P360,000
Less: Tax Payments (20,000)
Tax Payable P87,200 360,000 P447,200
Problem VII
1) January 15, 2012 = P32,000
2) April 1, 2012 = P6,000
3) December 25, 2012 = P0
4) March 30, 2013 = P30,000
5) May 25, 2013 = P0
Solution
Gross Gifts-Jan. 1, 2012 P1,000,000
Less: Encumbrance (200,000)
Donors tax due/payable-Jan. 1, P32,000
2012
Gross gift April 1, 2012 P100,000

Add: Prior net gift 800,000
Donors Tax Due P38,000
Less: Tax paid (32,000)
Donors tax payable-Apr. 1, P6,000
2012
December 25, 2012 P0
March 30, 2013 The rule that gift of not more

P100,000 x 30% P30,000 than P100,000 is exempt is
applicable only to donations
made to relatives.
May 25, 2013
Gross gift P200,000
Deductions (200,000
)
Taxable gift P0
Tax Due P0
Problem VIII
1) October 8, 2014 = P9,800
2) November 4, 2014 = P1,200
June 6, 2014
Husband Wife Total
Gross Gift P240,000 P240,000
Dowry (10,000) (10,000)
Taxable gift P228,000 P228,000
Donors Tax Payable P3,120 P3,120 P6,240
October 8, 2014
Husband Wife Total
Gross Gift P30,000 P30,000
Dowry --- (10,000)
Prior Net Gift 228,000
@30
Donors Tax (Tax Table) P3,920
Tax Paid-June 6 (3,120)
Donors Tax Payable P9,0000 P800 P9,800
November 4, 2014
Husband Wife Total
Gross Gifts (strangers) P7,000 P7,000
Exempt (5,000) (5,000)
Prior Net Gift - -
@30 @30
Donors Tax Payable P600 P600 P1,200
Problem IX
1) October 10, 2013 = P3,140
2) April 4, 2014 = P13,500
June 6, 2013
Mr.Ramos Mrs.Ramos Total
Gross Gifts (strangers) P115,000 P115,000
Exempt (90,000) (90,000)
@30 @30
October 10, 2013

Gross Gifts P191,000 P191,000
Dowry (10,000) (10,000)
Prior net gifts - -
Donors Tax P1,570 P1,570

Tax paid - -
April 4, 2014
Dowry - (10,000)
Prior net gifts - -
(none; different year)
@30
Donors Tax Payable P13,500 Exempt P13,500
Problem X
(1)P7,000 (2)P2,600 (3)P69,800 (4)P30,000
Feb. 15, 2014
Mr.Macariol Mrs.Macari Total
a ola
Dowry (beyond 1 year) - -
March 30, 2014

a ola
Gross Gifts P200,000 P-
Dowry - -
Donors Tax 8,000
Donors tax paid (1,000)
Donors Tax Payable P7,000 P7,000
June 1, 2014
a ola
Gross Gifts P- P100,000
Dowry - (10,000)
Taxable gift 240,000
Donors Tax P3,600
Donors tax paid (1,000)
Donors Tax Payable 2,600 P2,600
October 12, 2014
Mr.Macariola Mrs.Macariola Total

Donation Donation to Donation to a
to a Relative Relative
Stranger
Gross Gifts P200,000 P200,000 P400,000
Dowry (claimed June - - -
1)
Prior net gift 350,000 240,000
Taxable gift 150,000 550,000 590,000
@30%
Donors Tax P17,000 P19,400
Donors tax paid (8,000) (3,600)
Donors Tax Payable P45,000 P9,000
Total P54,000 P15,800 P69,80
0
Donation by
Clifford:
Gross Gifts P100,00
0
@30%
Donors Tax P30,00

0
ERRATUM: Ronald Change to Clifford
CHAPTER 7 BUSINESS TAXES

MULTIPLE CHOICE
1. A 7. B 13. D 19. C 25. A*
2. D 8. C 14. C 20. D 26. D
3. D 9. D 15. B 21. D 27. C**
4. D 10. C 16. C 22. A 28. A
5. D 11. A 17. A 23. D 29. A
6. C 12. C 18. D 24. C 30. C
* The end-use (person using the communication facility is the one liable for OCT, not the
communication company.
**3% CCT is applicable only to domestic carriers transporting passengers by land, not by air
or sea.
CHAPTER 8 VALUE ADDED TAX

TRUE OR FALSE-PART A
1. T 6. F 11. F 16. T 21. F
2. F 7. F 12. F 17. F 22. F
3. F 8. F 13. F 18. F 23. T
4. T 9. T 14. F 19. T 24. F
5. T 10. T 15. F 20. T 25 F
TRUE OR FALSE-PART B
1. T 6. F 11. F 16. T
2. T 7. F 12. F 17. T
3. T 8. F 13. T 18. T
4. F 9. T 14. F 19. F
5. F 10. F 15. T 20. F
MULTIPLE CHOICE
1. D 21. A 41. B 61. B 81. D
2. C 22. B 42. C 62. C 82. C
3. A 23. D 43. A 63. A 83. D
4. D 24. C 44. B 64. C 84. C
5. D 25. A 45. C 65. A 85. B
6. D 26. C 46. D 66. B 86. D
7. D 27. C 47. D 67. B 87. A
8. D 28. D 48. B 68. C 88. B
9. D 29. C 49. D 69. D 89. D
10. B 30. D 50. D 70. A 90. D
11. A 31. B 51. C 71. C 91. B
12. C 32. C 52. C 72. B 92. C
13. C 33. B 53. D 73. D 93. D
14. A 34. A 54. B 74. A 94. C
15. A 35. D 55. C 75. D 95. D
16. D 36. A 56. B 76. D
17. C 37. B 57. D 77. A
18. C 38. B 58. D 78. D
19. A 39. B 59. C 79. B
20. D 40. B 60. A 80. C
ERRATUM:
Illustration #6 . Medical fees (included in the
hospital bills)
No. 14 To be exempt, the contributions from each member in item III should not
exceed P15,000.
No. 21 Item a is composed of selling price and the applicable output vat
No. 23
Output Vat (P280,550 P51,954
+P152,400) x 12%
Input vat (P110,220+P101,250) x (25,374.6
12% )
Vat Payable P26,578
No. 24
Output Vat, 3rd quarter (P150,000 P18,000
x 12%)
Input vat, 3rd quarter (P120,000 x (14,400)
12%)
Deferred input vat previous (6,000)
quarter
Vat Payable (Carry-over) (P2,400)
No. 40
AR, July 1 P180,00
0
Billings, July-Sept. 850,000
AR, Sept. 30 (120,00
0)
Collections P910,00
0
Output vat @ 12% 109,200
Input vat on purchases @ (57,600)
12%
Vat Payable P51,600
No. 42
Output vat (P10M x 12%) P1,200,0
00
Input vat on materials (480,000
)
Input vat on capital goods (36,000)
(P3Mx12%) /60 mos.
Vat Payable June 30, P684,000
2014
No. 44
Sales, shares held as P5,000,0
inventory 00
Cos of shares, held as (2,000,00
inventory 0)
Gross income 3,000,00
0
Vat rate 12%
Output vat P360,000
Les: Input vat
Supplies expense 12,000
Rent expense 24,000 (36,000)
Vat payable P324,00
0
No. 52
Domestic sales (P600,000 x 12%) P72,000
Add: Transaction deemed sales
Jan. 4 consignment (P200,000 x 12%) 24,000
Goods consumed on Fe. 27 (P50,000 x 6,000
12%)
Property dividends (P150,000 x 12%) 18,000
Total Output Vat P120,00
0
No. 63
Output tax (1,500,00 x 12%) P180,000
Less: Input taxes
Purchases (800,000 x 12%) 96,000
Machinery (240,000/60 x 12,000
3mos.)
Carry-over 97,000 205,000
Excess input vat (P25,000)
No. 64
Output tax on sale (2,000,000x 12%) P240,000
Output tax on sale of machinery (2,000,000x 240,000
12%)
Less: Input taxes
Purchases 1,000,000x 12%) 120,000
Unamortized input tax on machinery 25,000
(240,000- 12,000)
Carry-over 228,000 (373,000
)
VAT Payable P107,00
0
No. 71 & 72
Output vat (P592,480 x 3/28) P63,480
Less: Input Vat
Purchases of goods (P100,000 x P12,00
12%) 0
Purchases of services (P20,000 2,400
x 12%)
Transitional input vat 4,800 (19,200
)
VAT Payable P44,28
0
No. 77
Change the year from 2010 to 2012
Output Vat for October 2012 = P3M x 12 = P360,000
Ratio of Initial Payt over Gross S.P. = P900,000/P3,000,000 = 30%
If initial payment is more than 25% of Selling Price, the sale is classified as
Deferred Sale which is treated as Cash Sale. Therefore, the entire output vat is
due on the month of sale.
No. 78
Output Vat for 2013 = P0; The entire output vat was paid in 2012
No. 80
Downpayment P112,00
0
1st installment payment 112,000
Total (vat inclusive) 224,000
Less: VAT (P224,000 x 3/28) (24,000)
Initial Payment (exclusive of vat) P200,00
0
Divide by contract Price (P1,120,000 x 1,000,00
3/28) 0
Ratio of Initial Payment over SP 20%
Output vat for 2012 (P200,000 x P24,00
12%) 0
No. 80
VAT ON CASH SALE: P72,000
(FMV is higher than SP) (P600,000 x
12%)
VAT ON DEFERRED SALE: 36,000
(Ratio of Initial payment over SP
25%
(Not qualifying under installment
method)
(Treated as cash sale; SP is higher
than FMV)
[(P336,000/1.12) x 12%]
TOTAL OUTPUT VAT P108,0
00
No. 83 and 84
Output vat (P336,000 x 3/28) P36,000
Input vat (56,000 + 11,200) x 3/28 x (4,320)
300/500
Vat Payable P31,68
0
No. 85
OUTPUT VAT (P896,000 x 3/28) P96,000
INPUT VAT
Purchases of goods, vat business, vat included (24,000)
(P224,000 x 3/28)
MIXED Transactions:
Purchases of supplies, for vat & non vat business
[(112,000 x 3/28) x (800,000/1,000,000)] (9,792)
Purchase of depreciable asset, for use in vat and non vat
business
[(P2,240 x 3/28) x (800,000/1,000,000)]
VAT PAYABLE P62,208
No. 86 and 87
OUTPUT VAT
Domestic sales (P330,000 + P274,996) x 3/28 P64,821
Export sales (zero rated) 0
INPUT VAT
Purchases of goods, supplies and services for domestic sales
and for export (374,000 + 69,848 + 154,000 + 55,000) x 3/28 (69,948
)
Vat Payable (P5,127
)
No. 88
Raw Materials (P560,000 x 3/28) x P24,000
400,000/1M
Supplies (P448,000 x 3/28) x 400,000/1M 19,200
Equipment (P300,000 x 12% x 400,000/1M) 14,400
INPUT VAT ATTRIBUTED TO EXPORT P57,600
SALES
PROBLEM SOLVING
Problem 1:
a) P0
b) P134,400 x 3/28 = P14,400
c) PP201,600 x 3/28 = P201,600 (regardless of whether or not Abi is a vat
registered exporter)
Not zero rated. To be zero rated, the problem should provide that Abi
exported more than 70% of its annual production
d) Vat exempt
Problem 2:
Cash sales (P660,800 x 3/28) P70,800
Sales on account (P246,400 x 3/28) 26,400
Transaction deemed sales:
(P22,400 + 16,800 + 19,040 + 7,200
8,960) x 3/28
Total output vat P104,40
0
Input vat (P291,200 x 3/28) (31,200)
Vat Payable P73,20
0
Problem 3:
OUTPUT:
Sales (P8M 400,000) x 12% P912,000
Sales from consignment (March and Feb.) 36,000
(20+10) x P10,000 x 12%
Transactions deemed sales
January 8 consignment (20 x P10,000) x 24,000
12%
Goods withdrawn 6,000
Goods taken as payment to creditors 3,600 P981,600
INPUT VAT
Purchase of goods, supplies, 82,080
freight/insurance)
Capital goods (ASSUME USEFUL LIFE OF 2,750 (84,830)
4 YEARS)
(P1,100,000 x 12%) / 48 mos.
VAT PAYABLE P896,77
0
Problem 4:
Business tax VAT OPT
Gross receipts (collections) from:
Hotel rooms P1,800,0
00
Dining hall 3,150,00
0
Other revenues 700,000
Total P5,650,0
00
VAT 12% P678,00
0
Gross receipts (collections) from disco P504,00
operations @18% 0
TOTAL Business Taxes P1,182,000
Problem 5:
Output vat on gross receipts
(collections) from construction contracts
with:
Bobads, City Condo & Urban
Devt. P3,600,00
(P30M x 12%) 0
Less: Input vat on payments/advances
made to:
Alpha (P12M x 90% x 12%) (1,296,00
0)
Charlie (P4M-P1M) x 12% (360,000)
Delta (P2M x 12%) (240,000)
VAT PAYABLE, 1st Quarter 2014 P1,704,0
00
Problem 6:
Ratio of Initial Payment over Selling Price:
Lot A = 50/250 = 20% ; Installment Sale
Lot B = 70/200 = 35%; Deferred Sale; Treated as Cash Sale
Lot C = 60/300 = 20%; Installment Sale
No. 2013 Dec.

2013
Lot A: P25,000 x 12%; P25,000 P3,000 P3,000
x 12%
Lot B: P200,000 x 12% 24,000 -
Lot C: P40,000 x 12%; P20,000 4,800 2,400
x 12%
Vat Payable P31,800 P5,400
Problem 7:
Output vat: school supplies and gift items (P560,000 + 336,000) x P96,000
3/28
Input vat:
Directly attributable to vatable sales (P406,000 x 3/28) (43,500)
Not directly attributable to vatable sales (P21,112 x 3/28 x (1,809.6
800*/1,000**) 0)
VAT PAYABLE P50,690
.40
*(560,000/1.12) + (P336,000/1.12) = P800,000 vatable sales

**vatable sales + vat exempt sales (sale of books) = P1,000,000
CHAPTER 9 OTHER PERCENTAGE TAXES

TRUE OR FALSE-SET A
1. F 6. F 11. T 16. T
2. T 7. F 12. F 17. F (False, should be 20
days)
3. T 8. T 13. F 18. F
4. F 9. T 14. T 19. T
5. F 10. F 15. T 20. F
TRUE OR FALSE-SET B
1. T 6. F 11. T 16. T
2. T 7. F 12. F 17. T
3. F 8. T 13. F 18. T
4. T 9. F 14. T 19. T
5. T 10. F 15. T 20. T
MODIFIED IDENTIFICATION
1. A 6. C 11. C 16. A 21. C
2. A 7. A 12. A 17. C 22. A
3. E 8. A 13. A 18. C 23. A
4. C 9. C 14. A 19. C 24. A
5. C 10. C 15. A 20. C 25. B
MULTIPLE CHOICE
1. C 21. ------ 41. D 61. A 81. C
2. D 22. A 42. C 62. D 82. B
3. D 23. B 43. A 63. D 83. D
4. C 24. D 44. D 64. B 84. D
5. A 25. B 45. D 65. C 85. B
6. A 26. C 46. C 66. D 86. B
7. D 27. B 47. B 67. A 87. A
8. A 28. C 48. C 68. A 88. D
9. A 29. C 49. B 69. B 89. D
10. C 30. A 50. B 70. C** 90. D
11. D 31. B 51. A 71. A
12. A 32. D 52. C 72. C
13. B 33. D 53. C 73. C
14. C 34. D 54. C 74. C
15. D 35. D 55. A 75. C
16. B 36. A 56. A 76. D
17. B 37. A 57. ----- 77. D
18. D 38. A 58. C 78. D
19. A 39. D 59. C 79. C
20. B 40. A 60. A 80. A
No. 5 (P280,000 + P220,000) x 3% = P15,000
No. 6 (P50,000 + 100,000 75,000) x 3% = P2,250
No. 7
Gross receipts (refer to P75,000
#6)
x vat rate 12%
Output vat P9,000
Input vat (P11,200 x (1,200)
3/28)
Vat Payable P7,800
No. 16 P6.5M x 12% = P780,000

No. 17 P660,00 x 3% = P19,800
No. 18 (P400,000 + P100,000) x 12% = P60,000
No. 22 P10M x 2.5% = P250,000
No. 22 P10M x 1.5% = P150,000
No. 26 (P10M x 40%) 3% = P120,000
No. 27 (P10M P6M) X 30% = P1,800,000
No. 30 Subject to vat, not franchise tax
No. 34
AR, beg. P600,00
0
Revenues (P4M + P1M) 5,000,00
0
AR, end (960,000
)
Gross receipts P4,640,0
00
Vat rate 12%
Business tax due P556,8
00
No. 35
Covered by the NOT Covered by the
Franchise Franchise
AR, beg. P600,000 AR, beg. P----
Revenues 4,000,00 Revenues 1,000,00
0 0
AR, end (800,000) AR, end (160,000
)
Gross receipts P3,800,00 Gross receipts P840,000
0
Franchise tax rate 2% Franchise tax rate 12%
Business tax due P76,000 Business tax due P100,800
Total Business P176,80
Taxes 0
No. 42 P3M x 10% = P300,000
No. 34
Output vat (P5M x 12%) P600,00
0
Input Vat
P300,000 x 12% (36,000)
P800,000 x 12% x 5/8 (60,000)
Vat Payable P504,0
00
No. 48
OPT% GRT
Interest income from lending
activities from inst1uments with
remaining terms of:
Five years and less 5,000,00 5% P250,000
0
More than five years 3,000,00 1% 30,000
0
Dividends & equity shares from 1,000,00 0% 0
subsidiaries 0
Rental income 500,000 7% 35,000
Net trading gains 300,000 7% 21,000
Total Gross Receipts Tax P336,000
No. 49
OPT% GRT
Rentals from safety deposit boxes P880,000 7% P61,600
Net foreign exchange gains 220,000 7% 15,400
Net trading gains from trading of 660,00 7% 46,200
securities 0
Trust fees 110,000 7% 7,700
Dividends from domestic 30,000 0% 0
corporations
Other service fees 220,000 7% 15,400
Interest income from lending
activities from inst1uments with
remaining terms of:
Five years and less 700,000 5% 35,000
More than five years 800,000 1% 8,000
Total Gross Receipts Tax P189,300
No. 50
Interest income with maturity of less than 5 years P25,0
(P500,000 x 5%) 00
Rentals (P500,000 x 7%) 35,00
0
Net trading loss = none; if net trading gain, tax is
7%
Gross receipt tax (GRT) P60,0
00
No. 51
Interest income with maturity of less than 5 years P50,000
(P1M x 5%)
Rentals (P500,000 x 7%) 35,000
Net trading gain
[200,000 (100,000 net trading loss previous 7,000
month) x 7%]
Gross receipt tax (GRT) P92,00
0
No. 52
Interest withheld and paid (P100,000 x 5 years x 1%) P5,000
Adjusted amount of tax due to pretermination (P100,000 x 25,000
5 years x 5%)
Tax Payable P20,0
00
No. 55 P2M x 10% = P200,000
No. 56 [(P500,000 x 12%)-(300,000x12%)] = P24,000
No. 58 P2M x 2% = P40,000
No. 64 P7.5M x 18% = P1,350,000
No. 65 P5M x 18% = P900,000
No. 66 Not subject to OPT. Gross Receipts > 1,919,500, therefore, JC is subject to vat,
not OPT
No. 70**
ERRATUM: CHANGE THE QUESTION TO : WHICH OF THE FOLLOWING IS SUBJECT TO
PERCENTAGE TAX?
a - not subject to percentage tax or any business tax Overseas communication
into the Philippines.
b and d - subject to vat
c not world or oriental championship. Subject to 10% OPT
No. 75 P350,000 x .005 = P1,750

No. 77 [(P1,500,000 - P1,000,000) x 12] = P60,000
No. 79 (120,000 30,000) x x P30 x 1% = P13,500; Ratio = 45/75 = 60%; IPO
rate = 1%
No. 80 (2,000 x P25 x 4% = P2,000; Ratio = 2/75 = 2.67%; IPO rate = 4%
No. 81 (6,000 x P40 x .005% = P1,200
PROBLEM SOLVING
Problem I:
Gross receipts-passenger P240,000
operations
(P8,000,000 x 3% CCT)
Gross receipts cargo operations 450,000
(P5M x 75% x 12%vat)
Rentals (P2M x 12%vat) 240,000
Total business taxes P930,00
0
Problem II:
1) 3% OPT on vat exempt sales (GR<1,919,500 & non-vat registered) =P1.4M x 3%
= P42,000
2) VAT = P1,400,000 x 12% = P168,000
Problem III:
1) Income tax due = P625,000
Subject to 2.5% GPB:
GR Passenger operations-Phils. P10,000,0
00
GR cargo operations-Phils. 6,000,000
Total 16,000,00
0
GPB rate 2.5% P400,000
Subject o NCIT (RR 15-2013):
Demurrage, detention and 1,000,000
Other fees
Expenses on demurrage fees (250,000)
Income subject to NCIT 750,000
NCIT rate 30% 225,000
Total income tax due P625,000
EXCLUDED FROM GPB: RR15-2003 provides that demurrage fees, detention

fees, and other charges relating to inbound and outbound cargoes are
considered as income derived from sources within the Philippines subject to
regular tax rates.
2) Income tax due = P545,000

Subject to 2% GPB (Under a tax
treaty):
00
Total 16,000,00
0
GPB rate 2% P320,000
Subject o NCIT (RR 15-2013):
Other fees
Expenses on demurrage fees (250,000)
Income subject to NCIT 750,000
NCIT rate 30% 225,000
Total income tax due P545,000
3) Business tax due = 3% CCT on cargo operations originating in the Philippines

= 3% x P6M = P180,000
4) Income tax due = P3,225,000

An offline carrier is not an international carrier. Assume therefore that the
income provided were in the nature of commission income from
international carriers.
***An offline carrier may be a domestic or resident foreign corporation.
Since the original problem pertains to an international carrier (resident
foreign corporation), the offline carrier provided in the problem should be
treated as a resident foreign corporation taxable only on its income from
sources within the Philippines.
Solution:
Net income subject to NCIT:
00
0
Other fees 0
Expenses-passenger operations- (4,000,00
Phils. 0)
Expenses-cargo operations- (2,000,00
Phils. 0)
Expenses on demurrage fees (250,000) P10,750,000
***
NCIT rate 30%
Income tax due P3,225,000
5) Business tax due (offline carrier) = P2,040,000

GR from Passenger operations- P10,000,0
Phils. 00
GR from cargo operations-Phils. 6,000,000
Demurrage, detention and 1,000,000 P17,000,00
Other fees 0
Vat rate 12%
Business tax due P2,040,00
0
Problem IV:
1. P0. Not subject to business tax but subject to a capital gains tax of P2,500.
[(5,000 sh. X P50) P200,000 = P50,000 capital gain x 5%CGT = P2,500 CGT
2. P0. Not subject to business tax as well as income tax (CGT). The
transaction resulted to a loss amounting to P75,000, hence, not subject to
CGT.
Purchase Price = P50/share; S.P.=P35/share; Loss = P15/share
3. Subject to P6,000 value added tax

[(5,000 sh. X P50) P200,000 = P50,000 capital gain x 12% = P6,000
4. Subject to OPT (stock transaction tax) of P600 computed as follows:

P120,000 x .005 = P600
5. OPT = 5,000 shares x P18 x .005 = P450
Problem V:
1. P3,000 OPT. ratio=10/35=28.5%; IPO rate= 2%; Tax due
on=P150,000 x 2% = P3,000
2. P100 OPT. P20,000 x .005
Problem VI:
1. P1,053,000 OPT (amusement tax). P5,850,000 x 18%
2. P1,053,000 OPT. Subject only to a business tax due of 18% OPT.
3. P720,000 OPT P4,000,000 x 18%
4. P55,500 OPT. P1,850,000 x 3%
5. P108,000 Vat. (P1850,000 x 12%) [P750,000 x 12% + (P224,000 x
3/28)]
Problem VII:
1. P651,250
(P4M + 3.5M + 775,000) x 7% = P579,250
(P6M + 1.2M) x 1% = P72,000
2. P578,500
[(P2.8M + 3.3M + 825,000) + (325,000 150,000)] x 7% = P497,000
(P7.2M + 950,000) x 1% = P81,500

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SOLUTIONS MANUAL

TRANSFER & BUSINESS TAXATION, 3rd Edition

CHAPTER 1 SUCCESSION & TRANSFER TAXES

CHAPTER 2 GROSS ESTATE

33. (P12M/100,000) x 1,000 shares = P120,000

*Included in the gross estate if the beneficiary is the estate, administrator or

Question 2: P2,097,000 computed as follows

CHAPTER 4 PROPERTY RELATIONS

No. 29 ABSOLUTE COMMUNITY OF PROPERTY

No. 30 CONJUGAL PARTNERSHIP OF GAINS

Value to take P1,500,0 00

Exclusive Common Total

Value to take P3,000,000

PROBLEM 4 (Decedent: Resident Alien)

Value to take/Initial Basis*** P2,500,000

** P700,000 350,000 = P350,000

CHAPTER 5 ESTATE TAX CREDIT AND ESTATE TAX DISTRIBUTABLE

Limit 1: Limit Actual Allowed

Estate Tax Due [P465,000 + (5M x 15%)] P1,215,00

Estate Tax Due P135,000

Net Taxable Estate P2,000,00

TOTAL GROSS ESTATE (Refer above) P5,970,00

Total Gross Estate (common; as computed P8,050,00

CHAPTER 6 DONORS TAX

GG (5/1) P100,000 P100,000

Tax Due P2,600 P2,600

GG (7/1) 100,000 100,000

*The question is gross gifts, hence, disregard the mortgage.

*** Sale of Land # 2 is considered bonafide or valid sale.

Problem V (Donations to Relatives and Strangers)

Donors Tax Due P20,000

Donors tax payable-June 30 P90,000

Donors tax payable-July 31 (Bantay P0

Gross gift April 1, 2012 P100,000

March 30, 2013 The rule that gift of not more

Donors Tax Payable P3,120 P3,120 P6,240

October 10, 2013

Donors Tax P1,570 P1,570

March 30, 2014

October 12, 2014

Mr.Macariola Mrs.Macariola Total

Donors Tax P30,00

ERRATUM: Ronald Change to Clifford

CHAPTER 7 BUSINESS TAXES

CHAPTER 8 VALUE ADDED TAX

No. 2013 Dec.

*(560,000/1.12) + (P336,000/1.12) = P800,000 vatable sales

CHAPTER 9 OTHER PERCENTAGE TAXES

No. 16 P6.5M x 12% = P780,000

No. 42 P3M x 10% = P300,000

No. 75 P350,000 x .005 = P1,750

EXCLUDED FROM GPB: RR15-2003 provides that demurrage fees, detention

2) Income tax due = P545,000

3) Business tax due = 3% CCT on cargo operations originating in the Philippines

4) Income tax due = P3,225,000

5) Business tax due (offline carrier) = P2,040,000

3. Subject to P6,000 value added tax

4. Subject to OPT (stock transaction tax) of P600 computed as follows:

5. OPT = 5,000 shares x P18 x .005 = P450

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