ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY

CPA Review Batch 42  October 2021 CPA Licensure Exam  Week No. 9

TAXATION A. Tamayo  G. Caiga  C. Lim  K. Manuel  E. Buen

TAX-1001ANS: FRINGE BENEFIT TAX (FBT)

b. Exercises:
a) During the year 2018, ABC Corporation paid for the monthly rental of a residential house
of its branch manager, Mr. J. de la Cruz, amounting to P68,0000.

Answers:
Value of the fringe benefit P68,000
Monetary value of the fringe benefit (50% x P68,000) P34,000
Grossed-up monetary value of the fringe benefit (P34,000 divided by 65%) P52,308
Fringe benefits tax (P52,308 x 35%) P18,308

Journal entries Debit Credit

a) Fringe benefits expense * 68,000
Cash 68,000

b) Fringe benefits tax (FBT) expense ** 18,308

Cash/FBT Payable 18,308

* Account title used may vary (e.g., other employee benefits, other benefits, among others)
** FBT expense – considered as deductible expense for income tax for purposes (please refer to deductions hand-outs)

b) XYZ Corp. owns a condominium unit. During the year 2018, the said corporation furnished and granted the said property
for the residential use of its Assistant Vice President. The fair market value of the property per BIR amounts to P10,000,000
while its fair market value as shown in its current Real Property Declaration amounts to P8,000,000.

Answers:
Value of the fringe benefit (5% x 10,000,000) P500,000
Monetary value of the fringe benefit (50% x P500,000) P250,000
Grossed-up monetary value of the fringe benefit (P250,000 divided by 65%) P384,615
Fringe benefits tax (P384,615 x 35%) P134,615
Monthly fringe benefits tax (P134,615 divided by 12 months) P 11,218

Journal entry Debit Credit

a) FBT expense 11,218
Cash/FBT Payable 11,218

c) Using the same data in illustration no. 2) above and assuming that the acquisition cost of the
residential property is P7,000,000 and the remaining useful life is 15 years.

Answers:
Value of the fringe benefit (5% x 10,000,000) P500,000
Monetary value of the fringe benefit (50% x P500,000) P250,000
Grossed-up monetary value of the fringe benefit (P250,000 divided by 65%) P384,615
Fringe benefits tax (P384,615 x 35%) P134,615
Monthly fringe benefits tax (P134,615 divided by 12 months) P 11,218
Annual amortization of excess of FMV over cost (P3,000,000 divided by 15 years) P200,000
Monthly amortization (P200,000 divided by 12 moths) P 16,667

Journal entries Debit Credit

a) FBT expense 11,218
Cash/FBT Payable 11,218

d) In 2018, Taprolani Corporation purchased a residential house and lot for P2,300,000. The property was sold to the President of
the corporation for P1,980,000. The fair market value per BIR and per Assessor's Office were P2,500,000 and P2,607,000
respectively.

Question 1 - How much was fringe benefits tax, if any?

Answer:
FMV per assessor’s office (higher) P2,607,000
Less: Payment made by the employee 1,980,000
Value of the fringe benefit P 627,000
Grossed-up monetary value (627,000 divided by 65%) P 964,615
Tax rate 35%
Fringe benefits tax P 337,615

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 ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY TAX-1001
Weeks 9-10: Fringe Benefit Tax (FBT)

Question 2 – Assuming that the property was sold to the President for P2,500,000, how much was the fringe benefits tax?

None. The property was transferred at a price not less that the employer’s acquisition cost.

e) A house and lot were owned by Bonafe Laundry Corporation. The ownership of the said house and lot was transferred to its
President, Mars Bonafe, in 2018. The following data were made available:

Cost P5,000,000
Fair market value per BIR 4,500,000
Fair market value per Assessor's Office 3,000,000

How much was the fringe benefits tax, if any?

Answer:

FMV per BIR (higher) P4,500,000

Acquisition cost P5,000,000
Monetary value (higher) P5,000,000

Grossed-up monetary value (5,000,000 divided by 65%) P7,692,308

Tax rate 35%
Fringe benefits tax P2,692,308

f) SB Corporation bought a residential property in installment for the use of its President. The total amount paid by the corporation
was P5,500,000 (inclusive of P500,000 interest.)

How much was the fringe benefits tax?

Answer:

Fringe benefits tax (5% x 5,000,000 = 250,000 x 50% = 125,000/ 65% x 35%) P 67,308

h. Exercises

1) In 2021, Mata Optical Shop, sole proprietorship, purchased a motor vehicle for the use of its Manager, Dr. Malachi Mata. It was
registered in Dr. Mata's name. The cost of the vehicle was P400,000. The vehicle was used partly for the benefit of the company.

How much is the fringe benefits tax?

Answer:
Grossed-up monetary value (P400,000 divided by 65%) P615,385
Tax rate 35%
Fringe benefits tax P215,385

2) Eyes Drop, maker of the best-selling ice cream, owns a fleet of motor vehicles for use of the business and its employees. One
of the motor vehicles costing P450,000 is not used for business purposes, but for the employees' personal needs.

Question 1 - How much is the annual fringe benefits tax?

Answer:
Value of the fringe benefit (P450,000 divided by 5 years) P 90,000
Monetary value of the fringe benefit (P90,000 x 50%) P 45,000

Grossed-up monetary value (P45,000 divided by 65%) P 69,231

Tax rate 35%
Fringe benefits tax P 24,231

Question 2 – Assuming one of the vehicles costing P450,000 is used for business purposes, and not for the employee’s personal
needs, how much is the fringe benefits tax, if any?

None, it is required by the nature of the employer’s business.

g. Exercises

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 ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY TAX-1001
Weeks 9-10: Fringe Benefit Tax (FBT)

1) In 2021, ReSA Corporation paid the P50,000 vacation expenses of its President, Ms. Rita Ube to Dayag Rezzort.

Question 1 - How much is the value of the fringe benefit?

2 - How much is the monetary value of the fringe benefit?
3 - How much is grossed-up monetary value of the fringe benefit?
4 – How much is the fringe benefit tax?
5 - What entries will have to be made to record the fringe benefits expense and the fringe benefits tax expense?

Answers:

Question 1 - Value of the fringe benefit P50,000

2 - Monetary value of the fringe benefit (P50,000 x 100%) P50,000
3 - Grossed-up monetary value of the fringe benefit (P50,000 divided by 65%) P76,923
4 – Fringe benefit tax (76,923 x 35%) P26,923

5- Journal entries Debit Credit

a) Fringe benefits expense 50,000
Cash 50,000

b) FBT expense 26,923

Cash/FBT Payable 26,923

2) In 2021, Bruce Lee, an executive of the ReSA Bank, was granted a loan by the bank. The amount of the loan was P2,000,000
at 8% interest per annum. The loan was payable in four (4) months. How much is the monthly fringe benefit?

Answer:

Value of the fringe benefit/foregone interest (2,000,000 x 4% x 4/12) P26,667

Grossed-up monetary value (26,667 divided by 65%) P41,026

Tax rate 35%
Fringe benefits tax P14,359
Monthly fringe benefits tax (14,359 divided by 4 months) P 3,590

g. Exercises
1) The books of accounts of Jones Company showed the following:
Fringe benefits expense P750,000
Fringe benefits tax expense 76,470

Question 1 - How much is the monetary value of fringe benefits given to managers and supervisors?
2 - How much is the grossed-up monetary value of the fringe benefits given to managers and supervisors?
3 - How much is the value of the fringe benefits given to rank and file?
4 - How much is the total amount of deductions?

Answers:
Question 1 – P162,499
2 – P238,969
Amount Percentage
Grossed-up monetary value of the fringe benefits P218,486 100%
Monetary value of the fringe benefits 142,016 65%
Fringe benefits tax P 76,470 35%

3 – Fringe benefits expense P750,000

Less: Monetary value of the fringe benefits given to managers 142,016
Fringe benefits given to rank-and-file P607,984

4 – Fringe benefits expense P750,000

Fringe benefits tax 76,470
Total amount of deductions P826,470

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY TAX-1001
Weeks 9-10: Fringe Benefit Tax (FBT)

2) A resident rank-and-file private employee has two (2) qualified dependent children at the beginning of the year. He also
supports his father-in-law who is PWD and his uncle who is a senior citizen. The following date are made available for the
year 2021:
Salary, net of P117,500 withholding tax, P6,975 SSS contributions,
P5,250 Philhealth contributions and P1,500 union dues P482,500
13th month pay 50,000
14th month pay 50,000
Rice subsidy (P1,500 x 12) 18,000
Uniform and clothing allowance 5,000
Monetized unused vacation leave credits (12 days) 6,000
Actual medical benefits 15,000
Christmas gift 10,000
Laundry allowance (P400 x 12) 4,800
Employee achievement award (amount of cash given) 10,000
Monetary gift given on account of birth of a child during the year 5,000
Benefits received by virtue of a collective bargaining (CBA) and productivity incentive schemes 14,000
Separation pay from a previous employer (terminated due to redundancy) 150,000
Interest income from a long-term deposit which was pre-terminated (remaining maturity is 4 years) 40,000
Dividend from regional operating headquarters of a multinational corporation in the Philippines 10,000
Philippine Lotto winnings 100,000
Gain from sale of shares of stock listed and traded in the local stock exchange 20,000
Prize in a literary contest he joined 70,000

Compute the following:

a) Tax-exempt de minimis benefits
b) De minimis benefits to be included in other benefits
c) Total exclusions/exemptions (including de minimis benefits)
d) Total final withholding taxes
e) Taxable compensation income

a. Tax-exempt de minimis benefits

Ceiling Excess
Rice subsidy (P1,500 x 12) P18,000 P -
Uniform and clothing allowance 5,000 -
Monetized unused vacation leave credits (500 x 12 days = 6,000) 5,000 1,000
Actual medical benefits 10,000 5,000
Christmas gift 5,000 5,000
Laundry allowance (P300 x 12) 3,600 1,200
Benefits received by virtue of a collective bargaining (CBA) and productivity
incentive schemes – view 2 10,000 4,000
Total tax-exempt de minimis benefits P56,600 P 16,200

b. Total exclusions/exemptions
Exempt de minimis benefits P 56,600
SSS contributions (assumed to be the amount mandatory to be contributed) 6,975
Philhealth contributions (assumed to be the amount mandatory to be contributed) 5,250
Union dues 1,500
13th month pay and other benefits (50,000 + 50,000 + 16,200 + 5,000= 121,200); P90k is lower 90,000
Separation pay from a previous employer (terminated due to redundancy) 150,000
Gain from sale of shares of stock listed and traded in the local stock exchange 20,000
Total exclusions/exemptions P330,325

c. Total final withholding taxes

Interest income from a long term deposit which was pre-terminated
(remaining maturity is 4 years) (40,000 x 5%) P 2,000
Dividend from regional operating headquarters of a multinational corporation in the
Philippines (10,000 x 10%) 1,000
Philippine Lotto winnings (100,000 x 20%) 20,000
Prize in a literary contest he joined (70,000 x 20%) 14,000
Total withholding taxes P 37,000

d. Taxable compensation income

Salary (482,500 + 117,500) P600,000
Taxable benefits (121,200 – 90,000) 31,200
Employee achievement award 10,000
Taxable compensation income P641,200

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY TAX-1001
Weeks 9-10: Fringe Benefit Tax (FBT)

Refer to the revised summary of tax treatment below (highlighted in yellow and in red ink)

END

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