IRA Exercise No.

4: Estates, Trusts, and Co-ownership

Individual Readiness Applied Exercise

 This activity allows you to apply tax laws, concepts, and principles.
 Should there be answers or items that you are unsure of or is a product of guesswork, it is
encouraged that you raise your queries or concerns. Use our VLE My Private Safe Space, social
forum, chat messaging, or by calling, texting, or sending an email.

A. X and Y, unmarried siblings, inherited a mango plantation from their deceased parents. Ten years
have passed and the property remained in co-ownership. The land produced an annual gross harvest
of P325,000 and expenses of P75,000 during the current taxable year of 2021.
1. The income tax due on the co-ownership for 2021
2. Amount received by each co-owner on income share

B. Mr. Y died on October 1, 2021 leaving behind the following income from his estate:
Monthly interest from bank deposits (net of tax) P16,000
Monthly income from taxicabs 150,000
Monthly rentals from apartments (net of tax) 47,500
Monthly expenses include the following:
Maintenance – taxicabs 20,000
Depreciation – taxicabs 10,000
Maintenance – apartments 5,000
Depreciation – apartments 15,000
Legal heirs (children) of Y are:
H, jobless, married to W with 1 dependent child; and
J, single, employee with a monthly gross salary of P22,500 (tax withheld for the
year P50,000)
Distribution to the heirs during 2021 amounts to:
Interest from bank deposits 30,000
Two units of taxicabs 100,000
Rental from apartment 80,000

1. The taxable income of Mr. Y’s estate for the taxable year 2021 .
2. The income tax payable of Y’s estate for the taxable year 2021 to the BIR.
3. Value or amount received by each heir

C. During the year, Katie created separate trusts for her daughter, Katherine, and appointed Kara and
Karla as trustees. Data for the taxable year as follows:

Gross income, Kara 820,000

Gross income, Karla 1,000,000
Operating expenses, Kara 450,000
Operating expenses, Karla 620,000
Net capital loss carryover, Karla 10,000
Net capital gain, Kara 8,000
Income distribution, Kara to Katherine 45,000
Income distribution, Karla to Katie 50,000
Compute for the annual income tax due and payable for each trust.

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E. Ohara died leaving a gross estate of P5,000,000 which is under the supervision of an executor. In
2022 Ohara had the following data:
Gross income 2,600,000
Expenses 1,100,000
Share on income of a construction joint venture, May 2022 250,000
Share on income of a business joint venture, September 2022 175,000
Income of the estate distributed to the heirs 200,000
Amount distributed to the heir from the estate 500,000
Compute:
1. Taxable income of the estate
2. Amount received by the heirs

G. The following data are available for the income and expenses of the grantor, the trusts and the
beneficiary for the taxable year:
Income Expenses
Grantor 1,000,000 400,000
Trust A 500,000 200,000
Trust B 200,000 100,000
Beneficiary 100,000 40,000

1. Under the assumption that the income earned from Trust A is revocable and B is irrevocable,
the net income of the grantor is
2. Based on the given data above, the net taxable income of all the trusts is
3. Assume further that P50,000 of the income of trust B was distributed to the beneficiary, the net
taxable income of beneficiary after personal exemption is

H. Mrs. Toronto irrevocably designated in trust her investment portfolio consisting of domestic stocks
and bonds. The dividend income from the stocks shall be distributed to the beneficiary while the
interest on the bonds shall be accumulated. During the year, the portfolio earned P200,000 interest
and P135,000 dividends. What is the total deduction allowable to the trust?

You may not under any circumstances, transmit, reproduce, distribute, display or lend, in whole or part, any of the contents provided in this document. Access to this
material is used solely as an educational tool for distance and remote learning and for the personal use only of students enrolled in BA 127 FS 2022-2023.