Income and Business Taxation

(Finals)

What I Need to Know

This module was designed and written with you in mind. It is here to help you master
the Income and Business Taxation. The scope of this module permits it to be used in
many different learning situations. The language used recognizes the diverse
vocabulary level of students. The lessons arranged to follow the standard sequence of
the course. However, the order in which you read them can be changed to correspond
with the textbook you are now using.
The module has one lesson, namely:
Lesson 2: Explain the procedure in the computation of gross taxable income and
tax due.

After going through this module, you are expected to:

1. explain the procedure in computing gross taxable income and tax due for Income
and Business Taxation.

What I Know

MULTIPLE CHOICE. Write the letter of your chosen answer on a separate sheet of
paper.

1. Which of the following is not taxable?

A. cost of living allowance (COLA) of a non-government employee

B. 13h month pay exceeding P90,000

C. christmas bonus amounting to P100,000

D. productivity bonus not exceeding P10,000 received under a productivity incentive

scheme.

2. These are other forms of benefits that are of relatively small value and are given to
employees (rank-and-file and managerial or supervisory) to promote health, goodwill,
contentment, and work efficiency.

A. De Maximus Benefits C. De Petty Benefits

B. De Minimis Benefits D. Pan De Benefits

3. The non-taxable limit of "13-month pay and Other Benefits" is

A. P82,000. C.P100,000.

B. P90,000. D. 0

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4. You are an auditor employed in one of the biggest auditing firms in the country. As
an auditor, you travel very often, sometimes abroad - for international clients, with
daily allowance to cover for transportation costs, hotel accommodation, meals, beach
sandals, sunblock lotion, bathing suit, caddy fee when playing golf, and coins for slot
machine in casino. You are required to liquidate the per diem allowance and return
any unused amount. Which of the following statements is correct?

A. The total daily allowance you receive is taxable on you.

B. The portion of the daily allowance you have spent is taxable on you.

C. The daily allowance is not taxable.

D. Spongebob wears round pants.

5. You are an employee in the private sector. For the year 20x1, you received a
13thmonth pay of Pl10,000 and a Christmas bonus (non-performance based) of
P25,000. Of the benefits, you have received, how much is taxable?

A. P135,000 C. P45,000

B. P90,000 D. P0

6. Use the following information for the next two questions:

Mr A, employed in the private sector, received the following benefits during the year:

• Rice subsidy of one 50 kg sack of rice per month worth P2,500

• Uniform and clothing allowance, P8,000 for the year

• Medical benefits for hospitalization during the year, P38,000

• Laundry allowance, PI,000 per month

• Omega wristwatch worth P230,000 received as a loyalty award for working for
the company in the last 25 years. • 13 months' pay, P40,000

• Christmas bonus, P6,000

How much is Mr X's taxable "13" month pay and Other Benefits?

A. 317,400 C. 217,400

B. 227400 D. 0

7. If Mr X's total "take-home pay (excluding the benefits above) for the the

year was p480,000, how much is Mr X's tax due for the year?

A. 96,150 C. 106,8500

B. 98,950 D. 108,250

8. A taxpayer is required to issue a BIR-registered receipt or commercial/sales invoice

at the point of sale if the goods sold or service rendered amounts to___________?

A. P100 or more C. more than P3M.

B. P1,000 or more D. regardless of the amount

9. You are a business owner. According to tax laws, you are required to retain and
preserve the receipts or sales invoices from your sales and purchases tor a period
of_________?

A. 3years. C. 10 years.

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B. 5years. D. forever and ever.

10. Which of the following violations 1s penalized with a 50% surcharge in addition to
interest?

A. late filing and payment

B. failure to pay the correct amount of tax

C. filing a fraudulent return

D. late payment of deficiency tax

11. It occurs when a taxpayer avoids paying his/her taxes using illegal means.

A. Tax avoidance C. Tax dodging

B. Tax evasion D. b and c

12. Which of the following statements is correct?

A. Tax avoidance is illegal and is punishable by law through monetary fines and/or
imprisonment.

B. Monetary fines or penalties consist of a 20% or 50% surcharge and an interest

twice the legal interest rate.

C. Filing with the wrong RD0 is penalized with a 50% surcharge.

D. Unauthorized printing of BIR receipts is punishable by monetary sanction and

imprisonment.

13. Knowledge of tax laws can help you legally avoid taxes through careful tax
planning. This is called
A. tax evasion C. tax avoidance

B. tax dodging D. tax-smart

14. The VAT rate is

A. 3%. C. 12%.

B. 10%. D. none of these

15. The percentage tax rate is

usually
A. 3% C. 12%.

B. 10%. D. 15%

Explain the
Lesson procedure in the
computation of gross
1 taxable income and
tax due.
This lesson explains how to compute the gross taxable income and tax due. The

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Philippines taxes its residents on their income around the world. Non-resident citizens
and aliens, whether or not resident in the Philippines, are taxed solely on revenue from
Philippine sources. Income tax rates for aliens, whether resident or not, vary
depending on the type of their income (i.e., income from compensation, income subject
to final tax, or other revenue).

What’s In

Have you visited https://www.bir.gov.ph/index.php/bir-forms.html to check the

different forms used in filing Income Tax Return(ITR) which discussed in the previous
module? For example, in filing the ITR form 1700 for compensation income, what have
you noticed? Have you seen the part for computation of tax? If yes, what part is it? Do
you know how to compute the tax to pay to fill it up?

What’s New
Still, remember the Statement of Comprehensive Income in the previous modules? Try
your best to recall. It will ease to answer the activity below.
Given the information, compute for the Gross Business Income of Mr Lee Butero
Trading. Write the answer on a separate sheet of paper.
Sales P2,000,000
Sales returns and discounts 300,000
Inventory, beg. 100,000
Purchases 50,000
Inventory, end. 70,000

What is It
Now that you know the process of Income and Business taxation, in this
module, you’ll see illustrations on how to compute the gross taxable income
and tax due, which is part of the ITR. Before we proceed on how to compute the
gross taxable income and tax due, let's define first tax schedule and tax due.
TAX SCHEDULE is gross income minus the deductions allowed by law. Taxable
income is the amount on which the tax computed.
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Tax Due - the amount of tax to be paid to the government by a taxpayer
Graduated Tax schedule effective January 1, 2018, until December 31, 2022
TAX TABLE
IF TAXABLE INCOME IS: TAX DUE IS:
• Not over P250,000 -0%
• Over P250,000 but not over 20% of the excess over P250,000
P400,000
• Over P400,000 but not over P30,000 + 25% of the excess over P400,000
P800,000
• Over P800,000 but not over P130,000 + 30% of the excess over P800,000
P2,000,000
• Over P2,000,000 but not P490,000 + 32% of the excess over P2,000,000
over P8,000,000
• Over P8,000,000 P2,410,000 + 35% of the excess over P8,000,000
Tax schedule Effective January 1, 2023, onwards
TAX TABLE
IF TAXABLE INCOME IS: TAX DUE IS:
• Not over P250,000 0%
• Over P250,000 but not 15% of the excess over P250,000
over P400,000
• Over P400,000 but not P22,500 + 25% of the excess over P400,000
over P800,000
• Over P800,000 but not P102,500 + 30% of the excess over P800,000
over P2,000,000
• Over P2,000,000 but not P402,500 + 32% of the excess over P2,000,000
over P8,000,000
• Over P8,000,000 P2,202,5000 + 35% of the excess over
P8,000,000

LET’S START THE PROCEDURE IN COMPUTING THE GROSS TAXABLE INCOME AND
TAX DUE.

ILLUSTRATION A: COMPENSATION INCOME

Mrs Maldita payslip for the month shows the following:
Salary Ᵽ25,000
SSS contribution 581
PhilHealth contribution 325
Pag-ibig contribution 100
Solution:
Salary Ᵽ25,000
SSS contribution (581)
PhilHealth contribution (325)
Pag-ibig contribution (100)
Taxable Income Ᵽ23,994

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 TAX TABLE
IF TAXABLE INCOME IS: TAX DUE IS:
• Not over P250,000 -0 %
• Over P250,000 but not over P400,000 -20 % of the excess over P 250,000

➢ Based on the Tax Table, Taxable Income of Ᵽ23,994 is not over 250,000, which
means the tax due is zero.
ILLUSTRATION B: COMPENSATION INCOME WITH EXCESS
Salary Ᵽ350,000
SSS contribution 6 972
PhilHealth contribution 3,900
Pag-ibig contribution 1,200
Solution:
Salary Ᵽ350,000
SSS contribution (6 972)
PhilHealth contribution (3,900)
Pag-ibig contribution (1,200)
Taxable Income Ᵽ337,928

TAX TABLE
IF TAXABLE INCOME IS: TAX DUE IS:
• Not over P250,000 -0 %
• Over P250,000 but not over P400,000 -20 % of the excess over P 250,000

➢ Based on the Tax Table, Taxable Income of Ᵽ337,928 is over P250,000 but not
over P400,000. The tax due computed as follows:
Tax on P250,000 0
Add: 20 % Tax on Ᵽ87,928 (excess on Ᵽ337,928- Ᵽ250,000) Ᵽ17,586
Tax Due (amounts rounded off) Ᵽ17,586
Rounding-off of Centavos
In computing for the taxable income or the tax due, cents are rounded-off as follows:
(a.) For less than 0.50 centavos, drop or omit the centavos (b.) For 0.50 centavos and
above, round up to the next peso.

ILLUSTRATION: COMPUTATION WITH OTHER FORMS OF COMPENSATION

INCOME
De Minimis Benefits Summary Table
De Minimis Benefits Non-taxable Limit
a. Monetized unused vacation leaves • 10 days
(private employees)

b. Monetized value of vacation and sick • none

leaves (government employees)

C. Medical cash allowance to dependents • P125.00 per month

d. Rice subsidy • P1,500 per month
e. Uniform and clothing • P5,000 per year
f. Actual medical benefits • P10,000 per year
g. Laundry allowance • P300 per month
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 h. Employee’s achievement award • P10,000
i. Gifts (Christmas d Anniversary) • P5,000 per year
j. Daily meal allowance for overtime work • 25%% of the basic minimum wage
k. CBA and productivity incentive schemes • P10,000 per year

Illustration 1:
An employee receives the following:
13th month pay P 24,000
Christmas bonus (Non-performance based) 6,000
Rice subsidy 21,600
Uniform allowance 7,000
Laundry allowance 2,400
Productivity bonus (received under CBA and
productivity incentive schemes) 5,000
Requirement: Compute for the taxable portion of the amounts received.
Solution:
Step 1: Determine the excess de minimis benefits
Amount received Non-taxable Excess
Rice subsidy 21,600 18,000(a) 3,600
Uniform allowance 7,000 5,000 2,000
Laundry allowance 2,400 3,600 (b) -
Productivity bonus 5,000 10,000 -
Total 5,600
(a) P1,500 limit per month x 12 months =P18,000
(b) P300 limit per month x 12 months P3,600
Steps 2 & 3: Add excess de minimis benefits to 13h month pay and Other
benefits and determine the excess over the P90,000 limit:
Excess de minimis benefits P 5,600
13th month pay 24,000
Christmas bonus (Non-performance based) 6,000
Total 13th month pay and Other Benefits 35,600
Limit 90,000
Excess- Taxable amount -_0 –

Illustration 2:
Information on Mr. Adelle's compensation is provided below:
Regular monthly salary:
Basic Monthly Salary P 100,000
Cost of living allowance (COLA) per month 6,000
Medical cash allowance to employee's dependents per month 1,500
Rice subsidy per month 2,000
Laundry allowance per month 1,000

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Annual benefits:
13th month pay (equal to I month basic salary) 100,000
Christmas bonus (non-performance based) 50,000
Uniform allowance 6,000
Requirement: Compute for Mr. A's tax due for the year.
Solution:
Step 1: Determine the excess de minimis benefits
Amount received Non-taxable Excess
Medical cash allow 18,000(a) 1,500 (a) 16,500
Rice subsidy 24,000 (b) 18,000(b) 6,000
Laundry allowance 12,000(c) 3,600 (C) 8,400
Uniform allowance 6,000 5,000 1,000
Total 31,900
(a) (Amount received: 1,500 per month x 12 months = 18,000);
Non-taxable: 125 per month x 12 months-1,500)
(b) (Amount received: 2,000 per month x 12 months=24,000);
Non-taxable: 1,500 per month x 12 months - 18,000)
(c) (Amount received: 1,000 per month x 12 months=12,000);
Non-taxable: 300 per month x 12 months= 3,600)
Steps 2 & 3: Add excess de minimis benefits to 13th month pay and Other
benefits and determine the excess over the P90,000 limit:
Excess de minimis benefits 31,900
13th month pay 100,000
Christmas bonus ('Other Benefits) 50,000
Total 13th month pay and Other Benefits 181,900
Less: Limit (90,000)
Taxable 13th month pay and Other Benefits 91,900
Step 4: Gross Compensation Income/ Taxable income
Basic Salary (100,000/mo. x 12 mos.) 1,200,000
COLA (6,000 x 12) 72,000
Taxable 13th month pay and Other Benefits 91,900
Gross Compensation Income 1,363,900
Step 5: Tax due
TAX TABLE

IF TAXABLE INCOME IS: TAX DUE IS:

• Over P800,000 but not over P130,000 + 30% of the excess over
P2,000,000 P800,000
Tax on P800,000 130,000
Add: Tax on excess [30% x (1,363,900-800,O00)] 169,170
Tax due 299,170

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Illustration 3:

Ms. Pinky has the following compensation income for the taxable year:
Basic salary P 290,000
Overtime pay 9,200
Daily meal allowances for overtime pay
(3 meals at P50/meal; the basic minimum wage is P300) 150

Reimbursement for transportation costs in relation

to overtime work 210
Fees as a director ` 15,000
Honorarium as guest speaker 6,000
Paid vacation leaves taken during the year
(included in the salary) 8,000

13th month pay 25,000

Requirement: Compute for the tax due of Ms. A for the taxable year.
Solution:
Step 1: Determine the excess de minimis benefits
Amount received Non-taxable Excess
Meal allowance 150 225(a) -
Total -
(a) (300 basic minimum wage x 25%)= 75 per meal x 3 meals= 2
Steps 2 & 3: Add excess de minimis benefits to 13 months pay and Other
benefits and determine the excess over the P90000 limit:
Excess de minimis benefits -
13th month pay P 25.000

Total 13th month pay and Other Benefits 25.000

Limit 90,000
Taxable 13h month pay and Other Benefits -
Step 3: Gross Compensation Income Taxable income
Basic salary P 290,000
Overtime pay 9,200
Fees as a director 15,000
Honorarium as guest speaker 6,000
Gross Compensation Income P 320,200
Additional Information:

➢ The P210 reimbursement for transportation costs in relation to overtime work is

omitted because this is not taxable.

➢ The P8,000 paid vacation leaves taken during the year are taxable. Because this
amount already included in the salary, no adjustment is necessary. Note that
only monetized unused vacation leaves considered de minimis benefits; those
used are not.
Step 4: Tax due

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 TAX TABLE

IF TAXABLE INCOME IS: TAX DUE IS:

• Over P250,000 but not over 20% of the excess over P250,000
P400,000
Tax on P250,000 P 0
Add: Tax on excess [20% x (320,200-250,000)] 14,040
Tax due P14,040
ILLUSTRATION: GROSS BUSINESS INCOME
Summary Table for Gross Business Income (Self-employed/Professionals)
Gross Sales/Receipts TAX RATE
Not exceeding P3 Option 1. Graduated income tax (IT) schedule (either
million itemized deductions or Optional Standard Deduction)
Option 2. 8% income tax on gross sales or gross receipts
in excess of P250,000
Above P3 million 1. Graduated income tax (IT) schedule

The accounting records of a sole proprietorship business show the following

information for the taxable year:
Accounts Dr Cr
Sales P2,000,000
Sales returns and discounts P200,000
Inventory, beg. 40,000
Purchases 100,000
Commissions expense 30,000
Communication, Light & Water 10,000
Depreciation expense 50,000
Insurance expense 15,000
Office Supplies expense 15,000
Rent expense 40,000

Salaries expense 400,000

Taxes and licenses 20,000

Transportation expense 10,000

Totals P730,000 P 2,000,000
Additional information:
The ending inventory per physical count is P60,000.
Requirements:
a Compute for the tax due assuming the taxpayer uses the itemized deductions
b. Compute for the tax due assuming the taxpayer avails the optional
standard deduction (OSD).
Solutions:
Requirement (a): Itemized deductions
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 Sales P990,000
Sales returns and discounts 200,000
NET SALES 790,000
Inventory, beg. 40,000
Purchases 100,000
Total Goods Available for Sale 140,000
Inventory, end. (60,000)
Cost of Goods Sold (80,000)
Gross income from business 710,000
Less: Itemized deductions
Commissions expense 30,000
Communication, Light & Water 10,000
Depreciation expense 50,000
Insurance expense 15,000
Office Supplies expense 15,000
Rent expense 40,000
Salaries expense 400,000
Taxes and licenses 20,000
Transportation expense 10,000
Total Expenses (590,000)
TAXABLE INCOME P120,000

Tax on P250,000 based on Tax Table P0

TAX DUE P0

Requirement (b): Optional Standard Deduction (OSD)

Sales P990,000

Sales returns and discounts 200,000

NET SALES 790,000

Less: Optional Standard Deduction (316,000)

(790,000 x 40%)

TAXABLE INCOME P474,000

Tax on P250,000 based on Tax Table P30,000

Add: tax on excess 18,500

[25% x (474,000-400,000)]

TAX DUE P 48,500

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ILLUSTRATION: MIXED INCOME
Summary Table for Mixed-Income Earners
Type of Income TAX RATE
Compensation Income 1. Graduated income tax (IT) schedule
Income from Business or
Practice of Professions
Gross Sales/Receipts not Option 1. Graduated income tax (IT) schedule
exceeding P3 million (either itemized deductions or Optional Standard
Deduction)
Option 2. 8% income tax on gross sales or gross
receipts instead of income and percentage tax
Gross Sales/Receipts above P3 1. Graduated income tax (IT) schedule
million
Alejo is an engineer of a construction company and earns a net of compensation
income of P550,000 in 2019. Alejo also has a registered business under his name that
makes P250,000 in 2019. He chose to be taxed at an 8% income tax rate for his
business.
Requirement: Compute the income tax due.
Analysis: Alejo is a mixed-income earner who earns a compensation income and
business income. The tax due on compensation income computed using the graduated
income tax rate. While the tax due on revenue from the business calculated using the
8% income tax rate because he opted to do so.
Solution on income from compensation:
TAX TABLE
IF TAXABLE INCOME IS: TAX DUE IS:
• Over P400,000 but not P30,000 + 25% of the excess over P400,000
over P800,000

Tax on P400,000 based on Tax Table P30,000

Add: tax on excess [25% x (550,000-400,000)] 37,500
TAX DUE P 67,500

Solution on income from business:

Total business income - P250,000
Less: Amount allowed as a deduction - P0.00 (cannot claim the deduction since it was
applied in the taxable compensation income under the graduated income tax rate)
Total taxable business income - P250,000
Income tax due (8%): P250,000 x 8% = P20,000
Percentage Tax Due is 0 (zero). Alejo is not liable for any percentage tax on his
business income since he chose the 8% income tax rate. It was discussed in the
previous module under Gross Business Income Optional Eight percent (8%) Tax.
ILLUSTRATION: PASSIVE INCOME
Mr Pogi, a resident, earns the following passive incomes, gross of final taxes:
Interest income from peso bank deposit P2,000
Royalties from invention 2,000,000
Prize won on a singing contest 100,000
Winnings from Lotto 400,000
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 Cash dividends from a domestic corporation 50,000
Requirements: Compute for the net amount received from the passive incomes earned.
Solution:
Passive Income Amount Final Tax Final Tax
Rate
Interest income from peso bank deposit P2,000 20% 400
Royalties from invention 2,000,000 10% 200,000
Prize won on a singing contest 100,000 20% 20,000
Winnings from Lotto 400,000 20% 80,000
Cash dividends from a domestic 50,000 10% 5,000
corporation
Totals 2,552,000 305,400

Total Passive Income P2,552,000

Less: Total Final Tax (305,400)
Net Amount Received 2,246,600

ILLUSTRATION FOR VALUE ADDED TAX (INPUT & OUTPUT VAT)

Sunflower Convenience Store, a sole proprietorship and a VAT- registered business,
has the following transactions during the month:
Sale of goods, exclusive of VAT P350,000
Purchases of goods, exclusive of VAT 130,000
Requirements:
a. Compute for the net amount of VAT to be remitted to the BlR
Solutions:
Notes: The VAT component of sales recorded in the "Output VAT" account. In contrast,
the VAT component of purchases recorded in the "Input VAT" account.
Output VAT (350,000x 12%) P42,000
Input VAT (130,000 x 12%) (15,600)
Net VAT to be remitted to the BIR (VAT PAYABLE) P26,400

ILLUSTRATION FOR PRICES INCLUSIVE OF VAT

You purchased a pair of shoes from a department store for a total purchase price of
P7,999. How much is the VAT component of the purchase price?
Solution:
Most often than not, prices charged to buyers are inclusive of VAT. The VAT
component of a price that is inclusive of VAT is Computed as follows:
Price, inclusive of VAT P 7,999
Divide by: (100% + 12% VAT) 112%
Price, exclusive of VAT 7,141.96
Multiply by: VAT rate 12%
VAT component P 857.03
Compute using Calculator: 8,999 x 12/112= 964.18

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ILLUSTRATION FOR PERCENTAGE TAX DUE

Carlo started a shoe business last year. At the end of 2018, he earned a taxable
income of P350,000.00 in total. He did not choose the option of an 8% income tax rate.
Compute the taxes due.
Analysis: Carlo is earning purely from the business so that he can choose between
option A of 8% and option B, the graduated income tax rates. Carlo did not select the
first option; therefore, by default, his income tax due is computed based on the
graduated income tax rates.
Solution:
(1) Income Tax Due: Using the graduated income tax table, the income tax rate for
the first P250,000 is 0%. The excess is subject to a 20% income tax rate. Therefore,
Marco's income tax due is P20,000.00 or (P350,000.00 - 250,000.00) x 20%.
(2) Percentage Tax Due: Carlo is now subject to the 3% percentage tax on his gross
receipts. If Carlo did not incur any operating expenses and the gross receipts
amounted to P350,000.00, therefore, the percentage tax due is P10,500.00 or
(P350,000.00 x 3%). In the illustration above, the total tax due to be paid by Carlo is
the sum of the income tax and percentage tax due amounting to P30,500.00 in total.

What’s More

Activity 1
Answer the following questions below using the graduated tax table. Write your
answer on a separate sheet of paper.
a. How much is the tax due on a taxable income of P150,000? __________________
b. How much is the tax due on a taxable income of P290,000? __________________
c. Ms. Carol earns compensation income of P3,230,000 during a taxable year. How
much is the tax due of Ms. Carol? __________________
d. Mrs. Emily married earns compensation income of P460,000 during 2019. How
much
1s the tax due of Mrs. Emily? __________________
e. The payslip of Mr. Budoy shows the following information:
Basic salary P348,000
SSS contribution 6,976
PhilHealth contribution 4,500 Pag-IBIG contribution
1,210
How much is the tax due to Mr. Budoy? __________________

Assessment 1
Multiple Choice: Write the letter of your chosen answer on a separate sheet of
paper.
1. How much is the tax due on a taxable income of P150,000
A. 0 C. 50,000
B. 1,250 D. 30,000
2 How much is the tax due on a taxable income of P900,000
A. 127,000 C. 175,000
B. 160,000 D. 181,000
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3. Mrs Angela earns a compensation income of P530,000 during a taxable year. How
much is the tax due to Mrs Angela?
A. 25,600 C. 56,200
B. 26,500 D. 60,000
4. Mr Mario earns a compensation income of P13,870,000 during 2019. How much is
the tax due to Mr Mario?
A. 4,464,500 C. 5,914,000 B. 4,854,500 D.
6,111,000
5. The pay slip of Mr. Kier shows the following information:
Basic salary 462,000
SSS contribution 6,679
PhilHealth contribution 5,520
Pag-IBIG contribution 1,200
How much is the tax due to Mr. B?
A. 42,150 C. 44,464
B. 43,442 D. 44,644
Activity 2
Compute what is asked. Write your answer on a separate sheet of paper. A.
Mr. Edgar earns the following compensation income in a taxable year:
Basic salary 288,000
Uniform allowance 7,000
Laundry allowance 2,400
13th month pay 24,000
How much is the tax due? (Use tax table applicable to Years 2018 to 2022)

B. Information on Mr. B's compensation is provided below: Regular monthly salary:

Basic Monthly Salary 120,000
Cost of living allowance (COLA) per month 6,000
Rice subsidy per month 2,000
Annual benefits:
13th month pay 120,000
Uniform allowance 7,000 How much
is the tax due for the year?

C-D Use the following information for the next two questions:
Mr A, employed in the private sector, received the following benefits during the year:
•Rice subsidy of one 50 kg sack of rice per month worth P2,500
•Uniform and clothing allowance, P8,000 for the year
•Medical benefits for hospitalization during the year, P38,000
•Laundry allowance, PI,000 per month
•Omega wristwatch worth P230,000 received as a loyalty award for having worked for
the company in the last 25 year.
•13 month pay, P40,000
•Christmas bonus, P6,000
C. How much is Mr. X's taxable "13" month pay and Other Benefits? _____________
D. If Mr X's total "take-home pay (excluding the benefits above) for the year was
480,000, how much is Mr X's tax due for the year? _____________

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Assessment 2
Compute what is asked. Write your answer on a separate sheet of paper.
A. A customer service representative receives a monthly salary of P21,000 with
mandatory annual deductions of P15,166 consisting of SSS, Philhealth, and Pag-ibig
contributions.
Requirement: Compute for the Income Tax Due.
B. A public teacher receives a monthly salary of P26,494 with mandatory annual
deductions of P34,185 consisting of GSIS, Philhealth, and Pag-ibig contributions.
Requirement: Compute for the Income Tax Due.

Activity 3
Use the following information for the next two questions. Write your answer on a
separate sheet of paper.
Mr Danny earns the following business income in a taxable year.
Sales P 3,900,000
Sales returns and discounts 100,000
Inventory, beg. 30,000

Purchases 1,800,000
Operating expenses (itemized deductions) 780,000
Inventory, end. 80,000
1. How much is the tax due if Mr Danny chose the option to use the itemized
deductions? _____________
2. How much is the tax due if Mr Danny chose the option to use the optional
standard deduction? _____________

Assessment 3
Use the following information for the next two questions. Write your answer on a
separate sheet of paper.
The accounting records of Pingot's business show the following information for the
taxable year:
Accounts Dr Cr
Sales P1,180,000
Sales returns and discounts P50,000
Inventory, beg. 40,000
Purchases 170,000
Commissions expense 30,000
Communication, Light & Water 15,000
Depreciation expense 26,000
Office Supplies expense 9,000
Rent expense 31,000

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 Salaries expense 330,000

Transportation expense 29,000

Totals P730,000 P 1,180,000
Additional information:
➢ The ending inventory per physical count is P60,000.
1. How much is the tax due assuming the taxpayer elects to deduct itemized
deductions?
A. 27,500 C. 57,500
B. 30,000 D.0
2. How much is the tax due assuming the taxpayer avails the optional standard
deduction (OSD)?
A. 37,600 C. 77,000
B. 67,600 D. 83,000

What I Have Learned

Let us check what you have learned. Answer the following and write your answer on a
separate sheet of paper.
1. Mr. Peter, a resident citizen, earns the following passive incomes
gross of final taxes:
Interest income from a peso bank deposit
P2,000
Interest income from a dollar bank deposit $500 Cash dividends from a domestic
corporation P40,000
The peso-to-dollar exchange rate is P50: $1.
Requirement: Compute for the total final tax paid on the passive incomes earned, in pesos.
2. Ms Berna, a resident citizen and an inventor, receives a royalty of 10% for every
sale of a product manufactured using Ms Berna's invented technology. Royalty
payments are due from the manufacturer every quarter. The net sales for the 2nd
quarter of the year were P320,000.
How much net royalty income did Ms B receive?
3. You won the following prizes:
•1st prize- Animal Show (your pet won) P50,000.
•3rd prize-Talent show (your pet won again) P20,000.
•2nd prize - Quiz Bee (your pet won again) P10,000.
How much is the total final tax paid on the prizes?
4. Mr. A, a resident citizen, earns tne following passive income gross of final taxes:
Interest income from a dollar bank deposit P3,000
Royalties from invention 4,000,000

Prize won on a "balut" eating contest 10,000

Winnings from Sweepstakes 60,000
Share in profit of a partnership engaged in trading 40,000 Requirement:
Compute for the total final tax on the passive incomes.

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 What I Can Do

Write if the statement is C if the statement is Correct and I if the statement is

Incorrect. Write your answer on a separate sheet of paper.
1. Gross revenue from a trading merchandising business is calculated as gross sales
deduct sales costs.
2. Costs of Sales calculated as beginning inventory + net purchases-ending inventory
3 A business may, at the same time, deduct both the itemized deductions and the
optional standard deduction from its gross income.
4. Personal expenses of the sole proprietor shall be allowed as deductions from gross
business income.
5. In the year 2018, a sole proprietor acquired a vehicle for business use. The business
is not allowed to deduct the acquisition cost of the vehicle for tax purposes. Still, it
is allowed to deduct its depreciation expense.
6. The optional standard deduction should be computed as 10% of net sales.
7. An employee earning compensation income is exempt from filing an income tax
return if the employer has rightly withheld his or her income tax.
8. Business income earners are only required to file an income tax return if their
taxable income exceeds P250,000.
9 An individual earning mixed-income is exempt from tax on his or her income from
the business but not on his or her income from compensation.
10. A business income earner whose gross sales or gross receipts and other
nonoperating income do not exceed P3M has the at the optional 8% tax on gross
sales/receipts and other non-operating income

Assessment

MULTIPLE CHOICE. Write the letter of your chosen answer on a separate sheet of
paper.
1. A VAT-registered business makes a sale of P10,000, inclusive of VAT. The VAT on
the sale can be computed as
A. P10,000 x 12% C. P10,000 x 12%/112%
B. P10,000 12%. D. P10,000 -12%/112%
2. A Non-VAT registered business makes total sales of P110.000 during a taxable
period.
The percentage tax can be computed as A.
P110,000 x 3%.
B. P110,000 3%.
C. P110,000 x 3%/103%
D. P110,000 3%/103%

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3. A VAT-registered business makes a sale of P34,500, inclusive of VAT. The amount of
sale that was reported in the statement of comprehensive income can be computed as
A. P34,500 x 112%. C. P34,500 x 12%/112%
B. P34,500 112%. D. P34,500 12%/112%
4. A VAT-registered business has total sales of P62,720 and total purchases of
P25,088, both inclusive of VAT. How much is the net VAT payable to the BIR?
A. 1,882 C. 4,516
B. 4,032 D. 5,224
5. A Non-VAT business has total sales of P200,720. How much is the sales tax
payable to the BIR?
A. 2,007 C. 4,516
B. 4,015 D. 6,022
Use the following information for the next three questions:
Maricel started a laundry business last year. At the end of 2018, he earned a taxable
income of P350,000 in total. He did not opt the 8% income tax rate.
6. What is the tax rate based on the graduated tax schedule?
A. 20% of the excess over P250,000
B. P30,000 + 25% of the excess over P400,000
C. P130,000 + 30% of the excess over P800,000 D. P490,000 + 32% of the excess
over P2,000,000
7. What is the tax due?
A. 0 C. 55,000
B. 20,000 D. 70,000
8 What is the percentage tax?
A. 0
B. 600
C. 10,500
D. 30,500
Use the following information for the next two questions:
Shirley is a sales clerk in a certain mall. She earned P410,000.00 in 2019.
9. What is the tax rate based on the graduated tax schedule?
A. 20% of the excess over P250,000
B. P30,000 + 25% of the excess over P400,000
C. P130,000 + 30% of the excess over P800,000 D. P490,000 + 32% of the excess
over P2,000,000 10 . What is the tax due?
A. 2,500 C. 30,000
B. 10,000 D. 32,50

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References
By:
• Curriculum Guide in Fundamentals of Accountancy, Business and Management 2
• Beticon, J. L, & Domingo, J. D, & Yabut, F. D. (2016). Fundamentals of Accountancy, Business
and Management 2 Teacher’s Manual (2016). Quezon City: Vibal Group, Inc.
• Fundamentals of ABM 2: Senior high school SHS teaching guide. (2019, April 3). Retrieved from
https://www.teacherph.com/fundamentals-abm-2-senior-high-school-teaching-guide/
• Ferrer, R. C, & Millan, Z. B. (2018). Fundamentals of Accountancy, Business and Management 2 (2nd
ed., Ser. 2018). Baguio: Bandolin Enterprise
• Perdiguez, V. (1970, January 01). Discover. Expand Your Visions. Retrieved June 19, 2020, from
https://www.cpadavao.com/2019/05/how-to-compute-the-income-tax-due-under-the-TRAIN-Law.html
• Taxpayers Service Programs & Monitoring Dvision 1. (n.d.). Retrieved from
https://www.bir.gov.ph/index.php/bir-forms.html
• A. P. (n.d.). Retrieved from https://www.bir.gov.ph/index.php/tax-information/income-tax.html

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 Development Team of the Module

Writers: Nessa B. Dimalanta

Editors: Jane P. Valencia, Ed. D., EPS - Mathematics
Reviewers: Bethel Grace M. Guiao/Viennah Marie M. Bustos
Illustrator: Nessa B. Dimalanta
Layout Artist: Nessa B. Dimalanta
Management Team:
ZENIA G. MOSTOLES, EdD, CESO V, Schools Division Superintendent
LEONARDO C. CANLAS, EdD, CESE. Asst. Schools Division Superintendent
ROWENA T. QUIAMBAO, CESE, Asst. Schools Division Superintendent
CELIA R. LACNALALE, PhD, CID Chief
JANE P. VALENCIA, EdD, Education Program Supervisor, Mathematics
JUNE E. CUNANAN, Education Program Supervisor/ Language Editor RUBY
M. JIMENEZ, PhD., Education Program Supervisor, LRMDS

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