BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 51

SUGGESTED ANSWERS
Chapter 10: MIXED BUSINESS TRANSACTIONS

CHAPTER 10
MIXED BUSINESS TRANSACTIONS
Problem 10–1 True or False
1. True
2. False – 5% only.
3. True
4. True
5. True
6. False – the VAT exemption is applicable only for residential units.
7. True
8. False - Transport of passengers by land is not subject to VAT.
9. False – the gross receipts should be more than P1,500,000.
10. True

Problem 10–2
1. True
2. False – 5% only.
3. True
4. True
5. True
6. True
7. False – It must be prorated based on sales.
8. True
9. True – not subject to VAT, gross receipts do not exceed P1,500,000.
10. True

Problem 10 – 3

1. Final VAT withholding is 5% and 2% on purchase of services of the contract price before VAT.

2. VAT refund is P10,000.

3. None. Zero rated transaction.

4. None. Sale of capital asset is not subject to business tax.

5. Total business tax is P1,800,000, computed as follows:

OPT on passengers by land (P20,000,000 x 3%) P 600,000

VAT on passengers by air (P10,000,000 x 12%) 1,200,000
Total business taxes P1,800,000

6. P2,100,000
OPT (P10,000,000 x 3%) P 300,000
Add: VAT (P10,000,000 x 12%) P1,200,000
Surcharge (P1,200,000 x 50%) 600,000 1,800,000
Business taxes including surcharge P2,100,000
BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 52
SUGGESTED ANSWERS
Chapter 10: MIXED BUSINESS TRANSACTIONS

7. P432,000
Invoice cost P2,000,000
Custom duty (P2,000,000 x 50%) 1,000,000
Excise tax (P3,000,000 x 20%) 600,000
Total landed cost P3,600,000
Multiplied by VAT rate 12%
Input VAT P 432,000

8. P2,100,000
Output VAT (P1,000,000 x 12%) P120,000
Less: Amortized input VAT (P432,000/60) 7,200
VAT payable P112,800

Note: Assume for the month VAT payable

9. P600,000
Output VAT (P5,000,000 x 12%) year of sale P600,000
(Downpayment is more than 25% considered as cash sales)

10. P120,000
Required output VAT (P6,000,000 x 12%) P720,000
Less: Output VAT collected year of sale 600,000
Additional output VAT P120,000

11. P80,000
Unsold inventory at cost P 500,000
Multiplied by 12%
Output VAT P 60,000
Less: Input VAT 40,000
VAT payable P 20,000

Note: Asset at retirement is taxed at lower of cost or market.

12. P360,000
VAT payable (P3,000,000 x 12%) P 360,000

13. P184,000
Output VAT (P1,600,000 x 12%) P192,000
Less: Input VAT – Presumptive input VAT
Total manufacturing cost (P300,000/60%) P500,000
Less: Conversion cost 300,000
Direct material used – fish P200,000
Multiplied by presumptive input VAT 4% 8,000
VAT payable P184,000

14. P184,000
Output VAT (P1,000,000 x 40%) x 2 x 12% P96,000
Less: Input VAT – Transitional input VAT (P1,000,000 x 2%) 20,000
VAT payable P76,000

15. P192,000
Business tax – VAT (P1,600,000 x 12%) P192,000

VAT taxable because these are commercial units and yearly gross receipts exceeds P1.5M.
BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 53
SUGGESTED ANSWERS
Chapter 10: MIXED BUSINESS TRANSACTIONS

16. P192,000
Output VAT (P1,600,000 x 12%) P192,000

17. P3,840,000
Output VAT (P10,000,000 x 3 months) x 12% P3,600,000
Less: Input VAT (P1,120,000/9.3333) 120,000
VAT payable P3,840,000

Problem 10 – 4 C
Output VAT (P1,125,000 x 12%) P135,000
Less: Input VAT – prorated [P80,000 x (P1,125,000+ P300,000)/P1,500,000] 76,000
Net VAT payable P 59,000

Problem 10 – 5 B
Output VAT (P600,000 x 12%) P72,000
Less: Creditable Input VAT (P330,000/9.3333) x (P600,000/P900,000) 23,572
Net VAT payable P48,428

Notes:
1. The printing of books is VAT-exempt under Sec. 109y of NIRC.
2. The printing of other forms is subject to VAT and, correspondingly, should be allowed with
Input VAT. The expected amount of gross receipts for taxable transaction is P600,000 x 4 =
P2,400,000.
3. If the Input VAT is not directly identifiable with the portion of sale that is allowed to
creditable Input VAT, then it is allocated based on the total sales.

Problem 10 – 6 B
Amount inclusive of VAT and net of income tax withheld P26,250
Divided by 1.07%
VAT taxable receipt P24,532

Output VAT (P25,000 x 12%) P 3,000

Problem 10 – 7 C
Gross receipts – professional fees P1,000,000
Add: Value-added tax (P1,000,000 x 12%) 120,000
Total P1,120,000
Less: Withholding income tax (P1,000,000 x 15%) 150,000
Actual cash received P 970,000

Problem 10 – 8 A
Gross billings including VAT (P50,000 x 1.12) P 56,000
Less: Withholding income tax (P50,000 x 10%) 5,000
Actual cash received P 51,000

Problem 10 – 9 C
Percentage tax - passengers (P2,000,000 x 3%) P 60,000
Vatable transactions - cargoes (P1,600,000 x 12%) 192,000
Total business tax P252,0000

Notes:
Additional amount charged in ordinary bus fare tickets issued by common carrier for passengers’
excess baggage is subject to VAT. (BIR Ruling 094-99)
BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 54
SUGGESTED ANSWERS
Chapter 10: MIXED BUSINESS TRANSACTIONS
Although there is actual Input VAT paid, this could not be claimed as tax credit because the
business is non-VAT registered.

Problem 10 – 10 C
Common carrier’s tax (P1,400,000 x 3%) P 42,000
Output VAT (P600,000 x 12%) 72,000
Total business tax P114,0000
Less: Creditable Input VAT (P560,000/9.3333) x P600,000/P2,000,000 18,000
Net business tax payable P 96,000

Notes:
Additional amount charged in ordinary bus fare tickets issued by common carrier for passengers’
excess baggage is subject to VAT. (BIR Ruling 094-99)

The creditable Input VAT is prorated between the Vatable and VAT-exempt gross receipts.

Problem 10 – 11 B
Output VAT (P2,000,000 x 3 months x 12%) P720,000
Less: Input VAT (P560,000/9.333) 60,000
VAT payable P660,000

Problem 10 – 12 B
Output VAT of Y (P500,000 x 12%) P60,000
Less: Input VAT paid to Z (P448,000/9.3333) 48,000
VAT payable P12,000

Problem 10 – 13 C
Total domestic cash sales (P110,000 + P55,000) P165,000
Multiplied by VAT rate 12%
Total Output VAT P 19,800

Problem 10 – 14
1. Output VAT on domestic sales (P2,000,000 x 12%) P 240,000
Output VAT on sale to government units (P125,000 x 12%) 15,000
Amount of output VAT P 255,000

Note: Export sales are zero-rated but allowed of Input VAT.

2. Input VAT from importation (P1,008,000/9.3333) P108,000

Input VAT from domestic purchases (P560,000/9.3333) 60,000
Total Input VAT P168,000

3. Input VAT – domestic sales (P168,000 x P2,375,000/P2,500,000) P159,600

Standard input VAT – government sales (P125,000 x 7%) 8,750
Total creditable input VAT P168,350

Note: The P840 actual input VAT on sales to government cannot be

claimed as creditable input VAT, but the standard input VAT which is
7% of the sales to the government.

4. Total output VAT P255,000

Less: Total creditable input VAT P168,350
Final withholding VAT – government (P125,000 x 5%) 6,250 174,600
Net VAT payable P 80,400
 BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 55
SUGGESTED ANSWERS
Chapter 10: MIXED BUSINESS TRANSACTIONS

Problem 10 – 15
1. Input tax on taxable goods P 5,000
Input tax on zero-rated sales 3,000
Standard input tax – government sales (P100,000 x 5%) 5,000
Input tax on depreciable capital goods
not attributable to any specific activity
(monthly amortization for 60 months) = (P20,000 x P200,000/P400,000) 10,000
Creditable input tax for the month P23,000

2. Standard input VAT (P100,000 x 5%) P5,000

3. Zero, because VAT exempt sales are not entitled to Input VAT.

Problem 10 – 16
1. Net VAT payable = final VAT (P1,000,000 x 12%) P120,000

2. None, because the VAT paid is final.

Problem 10 – 17
Output VAT (P150,000 + P30,000) x 12% P 21,600
Less: Input VAT (P134,400/9.3333) 14,400
Net VAT payable P 7,200

Assume that the business is VAT-registered.

Note: It is implied that the total collection of the real estate lessor on residential units would be
more than P1,500,000 per year. (P150,000 x 12) = P1,800,000.

Problem 10 – 18

1. Gross receipts P400,000

Currency adjustment factor P 6,000
Documentation charges 10,000
Processing charges 8,000
Third party service provider:
Freight charges 250,000
Carrier security charges 50,000
Trucking fee 30,000
Advance manifest surcharge 16,000 370,000
Actual commission income P 30,000

2. Outbound movement
Local origin charges:
Currency adjustment factor P 6,000
Documentation charges 10,000
Processing charges 8,000
Actual commission income 30,000

Inbound movement
Local destination charges:
Trucking fee 30,000
Advance manifest surcharge 16,000
Total taxable based P100,000
Multiplied by VAT rate 12%
BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) 56
SUGGESTED ANSWERS
Chapter 10: MIXED BUSINESS TRANSACTIONS
Output VAT P 12,000

Problem 10 – 19
Percentage tax (P10,000,000 x 3%) P 300,000
VAT (P10,000,000 x 12%) 1,200,000
Surcharge (P1,200,000 x 50%) 600,000
Total business tax liability P2,100,000

Problem 10 – 20
1. Gross receipts of the contractor (P1,116,000/93%) P1,200,000

Note: The 93% is computed by deducting the 5% final VAT

and 2% withholding income tax from 100%.

2. Final VAT withheld (P1,200,000 x 5%) P 60,000

3. Income tax withheld (P1,200,000 x 2%) P 24,000

Problem 10 – 21
Output VAT from:
Cash sales to VAT persons (P300,000 x 12%) P 36,000
Cash sales to Non-VAT persons (P100,000 x 12%) 12,000
Cash sales to government units (P200,000 x 12%) 24,000
Credit sales to VAT persons (P400,000 x 12%) 48,000
Sales return (P10,000 x 12%) ( 1,200) P118,800
Less: Input VAT from:
Purchases from VAT person per invoice (P324,800/9.3333) P 34,800
Payment of services for business purposes, gross of VAT
(P72,800/9.3333) 7,800
Standard input VAT – government (P200,000 x 7%) 14,000 56,600
VAT payable P 62,200
Less: Final withholding VAT – government (P200,000 x 5%) 10,000
Net VAT payable P 52,200

Notes:
1. The sales discount is generally a cash discount that depends on the happening of future
events which is the prompt payment of customers. This sales discount is not allowed to
be deducted for VAT purposes. (Sec. 4.106-9, R.R. 14-2005)
2. The 5% final withholding VAT is deductible from output VAT on sales to the government.