ILLUSTRATION 1

SCENARIO 1: SWEET IS AN INDIVIDUAL TAXPAYER

2018
Net income before dealings in properties 70,000.00
Add: Ordinary Gains 40,000.00
Less: Ordinary Loss - 80,000.00
Net income before dealings in capital assets 30,000.00

NET CAPITAL LOSS CARRY OVER

Actual Net Capital Loss 40,000.00
LIMIT 1: Net income before dealings in capital assets 30,000.00
LIMIT 2: Available net capital gain 2019 50,000.00
WHICHEVER IS LOWEST 30,000.00

2019
Net income before dealings in properties 300,000.00
Add: Ordinary Gains 30,000.00
Less: Ordinary Loss - 50,000.00
Net income before dealings in capital assets 280,000.00
Add: Net Capital Gain 50,000.00
Less: Net Capital Loss Carry Over - 30,000.00 20,000.00
NET INCOME 300,000.00

ILLUSTRATION 2
NET CAPITAL LOSS CARRY OVER
Actual Net Capital Loss 40,000.00
LIMIT 1: Net income before dealings in capital assets 80,000.00
LIMIT 2: Available net capital gain 2019 30,000.00
WHICHEVER IS LOWEST 30,000.00

2019
Net income before dealings in capital assets 150,000.00
Add: Net Capital Gain 30,000.00
Less: Net Capital Loss Carry Over - 30,000.00 -
NET INCOME 150,000.00

ILLUSTRATION 3
Interest income from loans 3,000,000.00
Interest income from notes rediscounting 100,000.00
TOTAL INTEREST INCOME SUBJECT TO REGULAR INCOME TAX 3,100,000.00

ILLUSTRATION 4
*All receipts beginning the 11th year onwards - TAXABLE

ILLUSTRATION 5
Gross Receipts 2,000,000.00
 Less: Professional expenses - 1,200,000.00
Net income from operations 800,000.00
Interest from bank deposits 20,000.00
Distributive net income 820,000.00
Share of B1 492,000.00
Share of B2 328,000.00

ILLUSTRATION 6

2017 AS-IF APPROACH

Net Income (Loss) before write-off 100,000.00 100,000.00
Less: Bad debt written-off claimed as deduction - 60,000.00 - 25,000.00
Net income (loss) after write-off 40,000.00 75,000.00

ILLUSTRATION 7

2017 AS-IF APPROACH

Net Income (Loss) before write-off 100,000.00 100,000.00
Less: Bad debt written-off claimed as deduction - 120,000.00 - 20,000.00
Net income (loss) after write-off - 20,000.00 80,000.00
*treated as zero because negative income will result to a

ILLUSTRATION 8

2017 AS-IF APPROACH

Net Income (Loss) before write-off 70,000.00 70,000.00
Less: Bad debt written-off claimed as deduction - 120,000.00 - 80,000.00
Net income (loss) after write-off - 50,000.00 - 10,000.00

ILLUSTRATION 9
Invoice Value 112,000.00
Divide by 1.12
Rental Income 100,000.00
Output Tax (12%) 12,000.00
Withholding Tax (5%) 5,000.00

Invoice Value 112,000.00

Less: Withholding Tax - 5,000.00
Cash Received 107,000.00

ILLUSTRATION 10
Invoice Value (Rental Income) 112,000.00
Less: Withholding Tax (5%) - 5,600.00
Cash Received 106,400.00
ILLUSTRATION 11
Rent Income 500,000.00
Professional Fees 400,000.00
TOTAL GROSS INCOME 900,000.00
Less: Business Expenses - 500,000.00
Taxable Income 400,000.00
Multiply by income tax rate 30%
INCOME TAX DUE 120,000.00
Less: Tax Credits
CWT on rental income 25,000.00
CWT on professional fees 40,000.00 - 65,000.00
INCOME TAX PAYABLE 55,000.00

ILLUSTRATION 12
SCENARIO 1
*The 1,000,000 life insurance proceeds is exempted.

SCENARIO 2
Proceeds received 1,050,000.00
Less: Insured amount in the life insurance policy (tax-exempt) - 1,000,000.00
TAXABLE AMOUNT 50,000.00

SCENARIO 3
Maturity Value 500,000.00
Less: Premiums paid (tax-exempt) - 200,000.00
TAXABLE AMOUNT 300,000.00

SCENARIO 4
ALBERTO GLINO
Proceeds received 130,000.00 1,000,000.00
Less: Premiums or payments made (Exempt) - 120,000.00 - 170,000.00
TAXABLE AMOUNT 10,000.00 830,000.00

ILLUSTRATION 13
Indemnity for his pain 200,000.00 EXEMPTED
Lost Salaries 40,000.00 TAXABLE
Reimbursement for hospital bills 100,000.00 EXEMPTED
Total Indemnity 340,000.00

ILLUSTRATION 14
*Taxable since she is 45 years upon retirement.

ILLUSTRATION 15
*Taxable since she only served seven years in her second employer.

ILLUSTRATION 16
*Exempt on her first availment of retirement benefit.
 **Taxable on her second availment of retirement benefit.

ILLUSTRATION 17
Unpaid salaries in the last 2 months 30,000.00 TAXABLE
Current salary 15,000.00 TAXABLE
Separation pay 100,000.00 EXEMPTED

ILLUSTRATION 18
*Separation pay of 120,000 is TAXABLE because of her resignation.

CORPORATION IS NEWLY ORGANIZED

Example: Organized on March 1, 2020. Thus, short accounting period is from March 1, 2020 to December 31, 2020.

CORPORATION IS DISSOLVED
Example: Dissolved on July 31, 2020 due to COVID 19 effects. Thus, short accounting period is from January 1, 2020

TAXPAYER DIES
Example: Died on August 31, 2020 due to COVID 19 complications. Thus, short accounting period is from January 1,

CORPORATION CHANGES ACCOUNTING PERIOD - Beginning of the previous accounting period to the end of the n
A. FROM CALENDAR TO FISCAL YEAR
Example: Corporation shifted to fiscal year ending August 31.
*A short period return shall be prepared for periods from January 1 to August 31. The succeeding returns shall alre

B. FROM FISCAL YEAR TO CALENDAR YEAR

Example: Corporation changes accounting period from fiscal year ending June 30 to calendar year.
*A short period return shall be prepared for periods from July 1 to December 31. The succeeding returns shall alrea

PERCENTAGE OF COMPLETION METHOD

2019 2020
Contract Price 6,000,000.00 6,000,000.00
Percentage of Completion 25% 75%
Gross Income 1,500,000.00 4,500,000.00
Less: Reported Gross Income, previous years - - 1,500,000.00
Gross Income, current 1,500,000.00 3,000,000.00
Less: Expenses - 1,300,000.00 - 2,500,000.00
Net Taxable Income 200,000.00 500,000.00
SCENARIO 2: SWEET IS A CORPORATE TAXPAYER
NET CAPITAL LOSS CARRY OVER (NCLCO)
NET CAPITAL GAIN FOR 2019
NET INCOME 2019

Net income before dealings in properties

Add: Ordinary Gains

Less: Ordinary Loss

Net income before dealings in capital assets
Add: Capital Gain 2019
NET INCOME
 Taxation of Partnership
Taxation of Partners

TAX
BENEFIT/TAXABLE
RECOVERY

35,000.00

TAX
BENEFIT/TAXABLE
RECOVERY

80,000.00
e negative income will result to a zero taxable income.

TAX
BENEFIT/TAXABLE
RECOVERY

JOURNAL ENTRY:
Cash (107%)
Creditable Withholding Tax (5%)
Rental Income (100%)
Output Tax (12%)
to record the rental income for the period

JOURNAL ENTRY:
Cash
Creditable Withholding Tax
Rental Income
to record the rental income for the period
h 1, 2020 to December 31, 2020.

ng period is from January 1, 2020 to July 31, 2020.

ounting period is from January 1, 2020 to August 31, 2020.

unting period to the end of the new period.

The succeeding returns shall already be 12 months.

o calendar year.
The succeeding returns shall already be 12 months, beginning January 1 until December 31.

2021
6,000,000.00
100%
6,000,000.00
- 4,500,000.00
1,500,000.00
- 1,400,000.00
100,000.00
ZERO
50,000.00

2019
300,000.00
30,000.00

- 50,000.00
280,000.00
50,000.00
330,000.00
 GPP TAXABLE PARTNERSHIPS
Tax-Exempt Subject to Corporate Income Tax
Subject to Regular Income Tax Subject to 10% Final Tax

107,000.00
5,000.00
100,000.00
12,000.00

106,400.00
5,600.00
112,000.00
Capital Gain 50,000.00 NOLCO
Capital Loss 30,000.00 net operating loss
Net Capital Gain 20,000.00 item of gross income carried over to the next 3-5 years
deducted against gross income
Capital Gain 30,000.00 applicable for both IT and CT

cannot be deducted together with

OSD because OSD is in lieu of
itemized deductions, including
Capital Loss 50,000.00 NOLCO
Net Capital Loss - 20,000.00 NON-DEDUCTIBLE
 NCLCO
net capital loss
carried over for the next taxable year only
deducted against net capital gain
applicable only for IT

can be deducted together with OSD because

NCLCO is deductible agains net capital gain
PROBLEM 1 - A
Exclusion of Gross Income

PROBLEM 2 - C

CASE A AS-IF APPROACH

Net Income (Loss) before write-off 120,000.00 120,000.00
Less: Bad debt written-off claimed as deduction - 40,000.00 -
Net income (loss) after write-off 80,000.00 120,000.00

CASE B AS-IF APPROACH

Net Income (Loss) before write-off 60,000.00 60,000.00
Less: Bad debt written-off claimed as deduction - 40,000.00 - 30,000.00
Net income (loss) after write-off 20,000.00 30,000.00

CASE C AS-IF APPROACH

Net Income (Loss) before write-off - 40,000.00 - 40,000.00
Less: Bad debt written-off claimed as deduction - 50,000.00 -
Net income (loss) after write-off - 90,000.00 - 40,000.00

PROBLEM 3 - C
Rental payments for 2014 and 2015 4,800,000.00
Annual real property tax 30,000.00
TOTAL INCOME 2014 4,830,000.00

PROBLEM 4 - C
Cost of leasehold improvement 36,000,000.00
Rental payment 2,400,000.00
Annual real property tax 30,000.00
TOTAL INCOME 2016 38,430,000.00

PROBLEM 5 - A
Cost of leasehold improvement 36,000,000.00
Divide by useful life 15.00
Annual Depreciation 2,400,000.00
Multiply by remaining lease term 10.00
Accumulated Depreciation 24,000,000.00

Cost of Leasehold Improvement 36,000,000.00

Less: Accumulated Depreciation - 24,000,000.00
Book Value at the end of lease term 12,000,000.00
Divide by remaining lease term 10.00
Annual Income from leasehold improvement 1,200,000.00
Multiply by months from July to December 2016 0.50
Income from Leasehold Improvement 600,000.00
Rental Payment 2,400,000.00
Annual Real Property Tax 30,000.00
TOTAL INCOME 2016 3,030,000.00
PROBLEM 6 - B
Cost of Leasehold Improvement 36,000,000.00
Less: Accumulated Depreciation (July 2016 - Dec 2017) - 3,600,000.00
Book Value as of January 1, 2018 32,400,000.00
Less: Reported income from leasehold improvement (July 1, 2016 - D - 1,800,000.00
Outright Income from Leasehold Improvement 30,600,000.00

PROBLEM 7 - D
Proceeds of his life insurance 2,000,000.00
Less: Total premiums paid - 375,000.00 1,625,000.00
Rent Income from inherited properties 200,000.00
TOTAL GROSS INCOME 1,825,000.00

PROBLEM 8 - C
Proceeds of life insurance 200,000.00
Less: Payment to Mr. Basilio 60,000.00
Less: Premiums paid 80,000.00 - 140,000.00
TAXABLE INCOME 60,000.00

PROBLEM 9 - D
Loss of Income 500,000.00

PROBLEM 10 - B
Philippines Foreign Country
Gain on sale of personal property - Hongkong 400,000.00
Compensation received for personal services - PHL 200,000.00
Rent income from real property in Malaysia 300,000.00
Gain on sale in Philippines of foreign shares 100,000.00
GROSS INCOME 300,000.00 700,000.00
Less: Deductions
*Identifiable Deductions 80,000.00 120,000.00
*Unidentifiable Deductions 9,000.00 21,000.00
TOTAL DEDUCTIONS - 89,000.00 - 141,000.00
NET INCOME 211,000.00 559,000.00

PROBLEM 11 - A
Statement 1: FULLY TAXABLE if he is a resident citizen
Statement 2: NON TAXABLE if he is a non-resident alien

PROBLEM 12 - D
Gross Income, Philippines 2,000,000.00
Add: Dividend from RFC (60%) 30,000.00
Total Gross Income 2,030,000.00
Less: Business Expenses - 1,200,000.00
TAXABLE INCOME 830,000.00

PROBLEM 13 - B
Dividends from DC 180,000.00
 Multiply by final tax rate 10%
FINAL WITHHOLDING TAX 18,000.00

PROBLEM 14 - C
Gross Income, Philippines 10,000,000.00
Add: Dividend Income from all RFCs 2,200,000.00
Total Gross Income 12,200,000.00
Less: Business Expenses - 4,000,000.00
TAXABLE INCOME 8,200,000.00

PROBLEM 15 - D
Gross Income, Philippines 10,000,000.00
Add: Dividend Income from RFC
*80% income derived from Philippines 800,000.00
*60% income derived from Philippines 480,000.00 1,280,000.00
Total Gross Income 11,280,000.00
Less: Business Expenses - 4,000,000.00
TAXABLE INCOME 7,280,000.00

PROBLEM 16 - B
Receipt from illegal bets 600,000.00
Less: Expenses
Rent of space where bets are received 120,000.00
Salaries of assistants 100,000.00 - 220,000.00
TAXABLE INCOME 380,000.00

PROBLEM 17 - C
Maturity value of life insurance 300,000.00
Less: Premiums paid - 250,000.00
INCLUSION OF GROSS INCOME 50,000.00

PROBLEM 18 - D
Retirement pay* 1,800,000.00
GSIS benefits 400,000.00
EXCLUSION FROM GROSS INCOME 2,200,000.00

*complied with all the requisites for its exclusion from gross income

PROBLEM 19 - D
Total indemnity is excluded from gross income 800,000.00

PROBLEM 20 - B
Rental, gross of 5% CWT 2,000,000.00
Real property tax of the leased building 50,000.00
INCLUSION OF GROSS INCOME 2,050,000.00

PROBLEM 21 - D
Gross compensation income 800,000.00
Commission income 150,000.00
 Total Compensation Income 950,000.00
Less: Mandatory Contributions - 124,000.00
REPORTABLE AMOUNT IN GROSS INCOME 826,000.00

PROBLEM 22 - A
Salaries, gross of withholding tax 560,000.00
Separation Pay 1,000,000.00
TAXABLE GROSS INCOME 1,560,000.00

PROBLEM 23 - D
Joint venture profit 500,000.00
Multiply by Cordillera's ownership 20%
GROSS INCOME OF CORDILLERA 100,000.00
 100,000.00

TAX
BENEFIT/TAXABLE
RECOVERY

40,000.00

TAX BENEFIT

10,000.00

TAX BENEFIT