Since 1977

TAXATION SIA/TABAG
TAX.2812-Accounting Methods MAY 2020

LECTURE NOTES

A. ACCOUNTING PERIODS
KINDS FORMATS OF COMPUTATION
1) Calendar Year 1. Selling Price (SP)
2) Fiscal Year
Cash received P XXX
INSTANCES WHEN USE OF CALENDAR YEAR IS REQUIRED FMV of the property received XXX
Receivables XXX
Taxable income shall be computed on the basis of Unpaid mortgage assumed by the buyer XXX
calendar year in the following cases: Selling Price P XXX
1. If the taxpayer’s annual accounting period is other
than a fiscal year; 2. Contract Price (CP)
2. If the taxpayer has no annual accounting period;
3. If the taxpayer does not keep books of accounts; Selling Price P XXX
4. If the taxpayer is an individual. (Section 43, RA 8424) Less: Mortgage assumed by the buyer XXX
Balance P XXX
SHORT PERIOD RETURN
Add: Excess unpaid mortgage over cost XXX
Accounting period may be less than twelve (12) months
Contract Price P XXX
(Short Accounting Period) may arise when:
1. A corporation is newly organized
3. Initial Payments (IP)
2. When a corporation is dissolved
3. When the taxpayer dies
4. When a corporation changes accounting period Downpayment P XXX
Expected installment collections in the year XXX
B. ACCOUNTING METHODS of sale
1) Cash method Excess of unpaid mortgage over cost XXX
2) Accrual method Initial Payments P XXX
3) Crop basis
4) Percentage of completion 4. Realized Gross Profit (RGP) (if sale is subject to basic
5) Installment method tax)

PERCENTAGE OF COMPLETION RGP = Collections x Gross Profit Rate

Percentage of completion method is only allowed in case Gross Profit Rate = Gross Profit/Contract Price
of “long-term contracts”.
5. Installment Capital Gains Tax
“Long-term contracts” means building, installation or
construction contracts covering a period in excess of one Installment CGT = Total CGT x Collection/CP
(1) year.
MULTIPLE CHOICE EXERCISES
INSTALLMENT METHOD
The following sales may be reported on installment basis: 1. An accounting period of twelve (12) months ending on the
1) Sales of Dealers in Personal Property - These include last day of December.
sales by persons who regularly sell or otherwise a. Calendar year c. Leap year
dispose of personal property on the installment plan. b. Fiscal year d. Sum-of-the-year

2) Casual Sales of Personal Property - These include 2. An accounting period of twelve (12) months ending on the
casual sales or other casual disposition of personal last day of any month other than December.
property (other than property of a kind which are a. Calendar year c. Leap year
ordinarily included in the inventory of the taxpayer), b. Fiscal year d. Sum-of-the-year
provided:
a. The selling price exceeds P1,000; and 3. Which one of the following cases may the taxable income
b. The initial payments do not exceed 25% of selling be computed not on the basis of the calendar year?
price. I. Taxpayer has no accounting period
II. Taxpayer does not keep books of accounts
3) Sales of Real Property - These include sales of real III. Taxpayer is an individual taxpayer
property on the installment plan, provided: The initial IV. Taxpayer is a corporation
payments do not exceed 25% of the selling price. V. Taxpayer is a general partnership
a. IV only c. III, IV and V only
4) Sales of Real Property Considered as Capital Assets by b. IV and V only d. None of the above
individuals - An individual taxpayer who sells real
property considered as capital assets and the I.P. do 4. Which of the following instances may give rise to short
not exceed 25% of the selling price may pay the accounting period?
capital gains tax in installments. a. When the corporation is newly organized using
calendar year
b. When a corporation is dissolved
c. When a corporation changes accounting period
d. All of the above

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EXCEL PROFESSIONAL SERVICES, INC.

5. A method of accounting where income is reported in the P25,000 beginning Dec. 20, 2018.
year it is collected, actually or constructively.
a. Cash basis c. Crop basis How much is the income subject to income tax in 2018?
b. Accrual basis d. Installment method a. P125,000 c. P46,875
b. P225,000 d. P23,437.50
Next five (5) questions are based on the following:
Joseph provided the following data on sale of his personal 14. How much is the income subject to income tax in 2019?
property sold in 2018 held by him for 15 months: a. P112,500 c. P56,250
b. P300,000 d. nil
Cost P225,000
Mortgage assumed by the buyer 270,000 15. Assuming the asset above is a capital asset, the capital
Installment Collection Schedule: gains tax payable is 2018 and in 2019 is –
- 2018 67,500 a. P36,000 and P0, respectively
- 2019 67,500 b. P7,500 and P18,000, respectively
- 2020 45,000 c. P0 and P36,000, respectively
6. How much is the selling price? d. P18,000 and P7,500, respectively
a. P450,000 c. P180,000
b. P270,000 d. P225,000

7. How much is the contract price?

a. P450,000 c. P180,000
b. P270,000 d. P225,000

8. How much is the initial payments?

a. P67,500 c. P45,000
b. P112,500 d. P225,000

9. How much is the income subject to income tax in 2018,

2019, and 2020?
a. P56,250, P33,750 and P22,500, respectively
b. P112,500, P67,500 and P45,000, respectively
c. P225,000, P0 and P0, respectively
d. None of the choices

10. Maripet sold the following capital assets as follows: (RP -

Philippines)
Lot 1 Lot 2 Lot 3
Selling Price P225,000 P750,000 P1,200,000
Cost 95,000 900,000 300,000
Terms of Sale:
Downpayment - 2/18 P 15,000 P 75,000 P 150,000
1st Installment payment
- 4/18 15,000 75,000 75,000
2nd Installment
Payment - 9/18 15,000 - 120,000
Still due 180,000 P 600,000 P 855,000

How much is the capital gains tax for the year 2018?
a. P83,700 c. P130,500
b. P32,400 d. P11,700

11. Based on the above problem, assuming that the balance

was collected in 2019, how much is the capital gains tax
on that year?
a. P130,500 c. P46,800
b. P98,100 d. nil

12. In 2018, Leomar sold shares of stocks of a domestic Co.

directly to a buyer for P800,000. The shares were
acquired in 2017 for P400,000.

The term of sale are as follows:

Downpayment P100,000
Instalment payments:
2018 100,000
2019 200,000
2020 200,000
2021 200,000

How much is the capital gains tax for the year 2018?
a. P20,000 c. P15,000
b. P10,000 d. P5,000

13. Karen, a real estate dealer sold a house and lot for
P600,000 on November 20, 2018. The cost of the
property is P375,000. Terms are:
Downpayment: P100,000
Balance : Payable in monthly installments of

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