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
9. D
BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 38
SUGGESTED ANSWERS
Chapter 7: BUSINESS TAXES

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 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 P1,524,000

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
Input VAT (P2,700,000 x 12%) 324,000 1,524,000
Total landed cost – if capital asset P3,024,000
BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 40
SUGGESTED ANSWERS
Chapter 7: BUSINESS TAXES

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 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 P1,578,000

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