Assignment: General Principles of Income Tax to Accounting Period and Method

1. Who among the following is a non – resident alien?

a. An alien who comes to the Philippines for a definite purpose which in its nature may
be promptly accomplished.
b. An alien who comes to the Philippines for a definite purpose which in its nature
would require an extended stay. RA
c. An alien who has acquired residence in the Philippines. RA
d. An alien who lives in the Philippines with no definite intention as to his stay.

2. Christopher, a staff auditor of the Sycip, Gomez, Velayo & Co. took and passed the
examination for Certified Internal Auditor (CIA). In the following year, he resigned from
his job and left the Philippines on April 10, 2014, to work as an Internal Auditor in a big
establishment in Melbourne, Australia. For income tax purposes, which of the following
statements is correct with respect to Christopher’s classification?

a. He shall be classified as nonresident citizen for the whole year of 2014.

b. His classification as a nonresident citizen will start in 2015.
c. He shall be classified as nonresident citizen for the year 2014 with respect to his
income derived from sources without from April 10, 2014.
d. He shall be classified as nonresident citizen for the year 2014 with respect to his
income derived from sources without from April 11, 2014.

3. Pierre de Savigny, a Frenchman, arrived in the Philippines on January 1, 2013 and

continued to live and engage in business in the Philippines. He went on a tour of
Southeast Asia from August 1 to November 5, 2013. He returned to the Philippines on
November 6, 2013 and stayed until April 15, 2014 when he returned to France. He
earned during his stay in the Philippines a gross income of P 3M from his investments in
the country. For the year 2013, Pierre’s taxable status is that of
a. a non – resident alien not engaged in trade or business in the Philippines.
b. a non – resident alien engaged in trade or business in the Philippines.
c. A resident alien not engaged in trade or business in the Philippines.
d. A resident alien engaged in trade or business in the Philippines.

4. Who among the individual taxpayer is taxable on income within and without?
a. Alcazar, a native of General Santos City, working an overseas contract worker in
Iraq.
b. Philander Rudyman, naturalized Filipino Citizen and married to a Filipina. He had been
living in Olongapo City since 1970.
c. Rodrigo dela Hoya, Spanish Citizen, a resident of Madrid, Spain, spent a one (1) week
vacation trip in Boracay.
d. Dao Ming So, Taiwanese singer, held a 3-day concert in Manila.
 5. Mr. Cua, a non-resident alien stockholder, received a dividend income from a resident
foreign corporation amounting to P 600,000 in the year of 2018. The gross income of the
foreign corporation from within and without the Philippines for three years preceding
2018 are as follows:

Sources of income 2015 2016 2017

Philippines 16M 12M 14M
Outside the Philippines 20M 14M 16M

How much of the dividend income received by Mr. Cua shall be reported as part of
income within the Philippines?

GI PH/GI World = 42M/92M = 45.65% = without the Phils

60M/92M = 65.22% x 600,000 = 391,320

Mark Anthony insured his life with an insurance company. Under the contract, he will pay a
monthly premium of P2,000 for 10 years. In case of death before the 10th year, his beneficiary
will receive an indemnification in the amount of P 150,000. If he is still living on the 10 th year, he
will receive the face value of P 500,000.

6. If Mark Anthony dies on the 5th year, his beneficiary will report an income of
a. P 500,000
b. P 150,000
c. P 260,000
d. Exempt

7. Suppose Mark Anthony dies on the 5 th year and his beneficiary was offered to receive
the P 150,000 in lump sum or to receive it at P 20,000 a month for the (10) months and
the beneficiary chose the 2nd option, he will report an income of
a. P 500,000
b. P 150,000
c. P 50,000
d. Exempt

20,000 x 10 months = 200,000

Exempt 150,000
Income 50,000

8. Suppose Mark Anthony survived the policy and was able to receive P 500,000, he will
report an income of
 a. P 500,000
b. P 260,000
c. P 150,000
d. None

Received 500,000
Capital 240,000
Income 260,000

9. Chris sued Nena for breach of promise to marry. Chris lost the case and duly paid the
court’s award that included, among others, P 100,000 as moral damages for the mental
anguish Nena suffered. Did Nena earn a taxable income?
a. She had a taxable income of P 100,000 since income is income from
whatever source.
b. She had no taxable income since moral damages are compensatory.
c. She had taxable income since she made a profit.
d. She had no taxable income because it was a donation.

10. Anton was hired as a staff auditor of SBB and Company in 1999. In December 2006, he
transferred to Tacandong and Associates. In 2008, he returned back to SBB and
Company until his retirement in 2014 at the age of 55.
Q1. Are the retirement benefits taxable to Anton?
Q2. Suppose he was terminated from employment due to dishonesty. Is the separation
pay taxable to Anton?
Q3. Suppose he was terminated from employment due to the merger of the two audit
firms. Will the separation pay be taxable to Anton?
Q1 Q2 Q3
a. No Yes No
b. No Yes Yes
c. Yes No No
d. Yes No Yes

11. All the items below are excluded from gross income, except:
a. Gain from sale of long-term bonds, debentures, and indebtedness.
b. Value of the property received by a person as donation or inheritance.
c. Retirements benefits received from the GSIS, SSS or accredited retirement plan.
d. Separation pay received by a retiring employee under a voluntary retirement
program of the corporate employer.
12. GMA, a service business had the following information for the year 2018:
Service Revenue – accruing for current year P 1,000,000
Collections during the year:
For service income – last year 300,000
For service income – current year 800,000
For service income – next year 100,000
Expenses actually incurred during the year 500,000
Expenses paid during the year 600,000

How much is the taxable income?

Collections/receipts 1,200,000
Expenses paid during the year (600,000)
Taxable income 600,000

13. XYZ Corporation reported the following income and expenses from business for year
2018:

Cash sales P 2,000,000

Sales on account 520,000
Advances from customers 400,000
Cost of sales 1,200,000
Operating expenses (30% prepayments) 600,000

How much is the taxable income for year 2018?

Cash sales 2,000,000

Sales on account 520,000
Cost of sales (1,200,000)
OPEX (600T x 70%) (420,000)
Taxable income 900,000

14. The total contract price of the project is P 1,200,000. This was constructed as follows:
Year Cost for the year Completion as of the year
2016 P 432,000 60%
2017 P 184,250 85%
2018 P 103,750 100%

Taxable income?
2016 2017 2018
Contract price 1,200,000 1,200,000 1,200,000
% of completion 60% 85% 100%
Income 720,000 1,020,000 1,200,000
Cost (432,000) 616,250 720,000
 Taxable income 288,000 403,750 480,000
Previous year 0 (288,000) (403,750)
Current year 288,000 115,750 76,250

15. Under this method of reporting income, the taxpayer reports a percentage of the gross
income from a long – term contract based on the portion of work that has been
completed
a. Accrual basis
b. Cash basis
c. Percentage of completion method
d. Installment method

16. Gross income is reported partially in each taxable year in proportion to collection made
in such period as it bears the total contract price refer to
a. Crop year basis method
b. Percentage of completion method
c. Accrual method
d. Installment sales method

Rentals (leasing) – service business – cash method

Rentals fee collected – taxable.

Advance payments – upon receipt – taxable
Security deposit – not taxable

Leasehold improvements – at the end of the contract the improvement – the lessor will benefit
from the improvements – income for the benefit

2 methods:
1. Outright – FMV at the time of the completion - income
2. spread out

Income – distribute for the duration of the lease term of the contract

Lease term
Useful life of the improvements

Excess of useful life over the improvements

Bryant leased a land to Jose for a period of 11 years starting January 1, 2012 at an annual rental
of P 12,000. Observing the provisions of the contract, Jose constructed a building which shall
become the property of Bryant at the expiration of the lease. The construction was completed
on January 1, 2015 a cost of P 1,000,000 with an estimated useful life of 20 years.

It is also stipulated in the contract that the lessee will pay to the government the P 1,500 annual
real property tax on the land starting in 2012.

17. Assuming that on January 1, 2012, Jose paid P 24,000 to Bryant covering the lease
contract for two years, how much income is to be reported by Bryant in 2012?
a. P 12,000
b. P 13,500
c. P 24,000
d. P 25,500

Jan. 1, 2012 – contract of lease

Advance payments 24,000
Real property tax assumed 1,500
Total 25,500
2013
Rental fee – 2013 0
Real property tax 1,500
Total 1,500
2014
Rental fee 12,000
Real property tax assumed 1,500
Total 13,500
18. How much income is to be reported by Bryant in 2015 under the outright method?
a. P 13,500
b. P 1,500
c. P 1,013,500
d. P 1,000,000

Rental fee 12,000

 RPT 1,500
Leasehold improvements 1,000,000
Total 1,013,500

19. How much income is to be reported by Bryant in 2015 under the spread-out method?
a. P 13,500
b. P 1,500
c. P 1,013,500
d. P 88,500

Solution:
Lease term – 11 years
Jan 1, 2015 – 11 years – 3 years = 8 years
Useful life – 20 years
Benefit = 20 years – 8 years – 12 years

Total income = 1,000,000 (12 years/20 years)

Total income = 600,000
Annual income = 600,000/8 years
Annual income = 75,000

Annual income 75,000

Rental income 12,000
RPT assumed 1,500
Total income 88,500

20. Assuming that due to the fault of the lessee, the lease contract was terminated on
January 1, 2017, how much income is to be reported by the lessor in 2017?
a. P 763,500
b. P 750,000
c. P 88,500
d. P 1,013,500