Name ____________________________________ Section _____________________

Business Taxation
Midterm Examinations
Problems (2 points)

Illustration 1
A nonresident citizen donor gave the following donations during 2022:
 Jan. 20 - Land located in the Philippines valued at P4,500,000 to his uncle subject to the
condition that the latter will pay the unpaid mortgage amounting to P500,000.
 Aug. 30 – Apartment in U.S. valued at P4,000,000 to his sister. Donor's tax paid in U.S. was
P250,000.
 November 29 – Property in Hong Kong valued at P2,000,000 to his brother. Donor’s tax paid in
Hong Kong was P100,000.

Compute the following:

_____ 1. Donor’s tax payable on August 30, 2022 donation
a. 10,000 b. 7,500 c. 0 d. 240,000
_____ 2. Donor’s tax payable on November 29, 2022 donation
a. 20,000 b. 3,000 c. 0 d. 23,000

Illustration 2
On February 22, 2023, Mr. and Mrs. Smith donated a conjugal parcel of land to their son, Patrick
who was getting married within four (4) months after the date of donation. The fair market value
of the property at the time of donation was P6,000,000. Its fair market value at the time of marriage
was P6,500,000. The donated property was subject to P1,500,000 mortgage assumed by Patrick.

_____ 3. How much is the net taxable net gift of Mr. Smith?
a. 2,250,000 b. 4,000,000 c. 2,237,500 d. 2,000,000

Illustration 3
On November 19, 2022, Mr. and Mrs. Cruz donated the following properties to their daughter,
Mary Anne, to be married on March 10, 2023:
 House and lot in Baguio City valued at P20,000,000. The property was mortgaged for
P5,000,000. One-half will be assumed by their daughter. Property’s market value increased by
P500,000 on March 10, 2023.
 Land in Cavite valued at P2,000,000. The property was inherited by Mr. Cruz on March 10,
2020 from his father.

_____ 4. Donor’s tax to be paid by Mr. Cruz

a.570,000 b. 585,000 c. 555,000 d. 630,000

Illustration 4
Mr. Brown died on November 01, 2022 with the following information:
Net exclusive property (after deducting ordinary deductions) P 5,000,000
Net conjugal property (after deducting ordinary deductions), including
family home valued at P4,000,00 12,000,000

Based on Mr. Brown’s last will and testament, free portion will be given to the following:
 50% to his parents, brothers, and sisters
 30% to his two sons
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 20% to his wife
The surviving heirs of Mr. Brown were his two sons (Mike and Mikko) and his wife, Mrs. Brown.

Mrs. Brown renounce her share in the community property in favor of Mike, and her share in
hereditary estate in favor of Mikko.

_____ 5. Total amount of Special deduction

a. 7,000,000 b. 9,000,000 c. 13,000,000 d. 15,000,000
_____ 6. Estate tax
a. 120,000 b. 240,000 c. 360,000 d. 480,000
_____ 7. Mrs. Brown’s share in net distributable estate
a. 9,228,000 b. 3,228,000 c. 2,328,000 d. 8,328,000
_____ 8. Total donor’s tax on the renunciation of Mrs. Brown’s share in the hereditary estate and
share in the community property?
a. zero b. 523,680 c. 484,680 d. 538,680

Illustration 5
Mr. John provided you the following information on January 01, 2021:

01/01/21 10/01/21
12% Notes receivable dated September 01, 2020 (due after 1,000,000 0
one year; interest is collectible quarterly beginning
November 30, 2020)
10% Notes receivable dated December 01, 2020 (Principal and 1,200,000 1,200,000
interest are due after two years)
Interest receivable 20,000 ?
Savings deposit in Better Bank (includes interest and other 3,000,000 4,200,000
income)
Investment in DEF Company (10,000 ordinary shares with 600,000 600,000
par value of P50, traded)
Investment in GHI Company (20,000 preference shares with 1,400,000 1,400,000
par value of P60, not traded)
_____ 9. Mr. John died on October 01, 2021. Compute the gross estate assuming that the market
value (arithmetic mean) of DEF and GHI shares are P70 and P120, respectively.
a. 7,532,000 b. 7,400,000 c. 7,432,000 d. 7,652,000

Illustration 6
Transfer in contemplation of death

Consideration FMV upon FMV upon

received transfer death
Land 2,000,000 2,000,000 3,000,000
Shares of stock 200,000 180,000 220,000
Equipment 300,000 450,000 400,000
Apartment 1,800,000 2,500,000 3,000,000
_____ 10. The correct gross estate should be
a. 1,300,000 b. 1,340,000 c.1,350,000 d. 1,390,000

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Illustration 7
One of the items in the gross estate of a decedent is a claim against an insolvent person amounting
to P500,000. The insolvent debtor can still pay P100,000 out of the P500,000.

_____ 11. How much will be included in and deducted from the gross estate?
Gross Estate Deduction
a. 100,000 100,000
b. 500,000 100,000
c. 500,000 400,000
d. None None

Illustration 8
A decedent (nonresident alien without reciprocity) died leaving the following:
Land and residential house P 6,100,000
Parcel of land in Argentina 12,000,000
Receivable from a friend 200,000
Receivables under insurance policies:
 Life insurance policy, taken by the decedent on his own 700,000
life, with daughter as revocable beneficiary
 Life insurance policy, taken by the decedent on his own 500,000
life, with son as irrevocable beneficiary
_____ 12. Gross estate for the current year
a. 7,000,000 b. 12,000,000 c. 6,700,000 d. 7,500,000

Illustration 9
Mr. ABC died on February 01, 2021 leaving among others the following charges and obligations:
Unpaid Real property tax for the year 2020 96,000
Notarized 12% interest bearing promissory note dated November P800,000
01, 2020 (principal and interest is payable on October 31, 2021)
Income tax due for the year 2020 350,000
st
Income tax paid/remitted for the 1 three quarters of the year 2020 200,000
_____ 13. How much were the allowable ordinary deductions from the gross estate?
a. 1,142,000 b. 1,070,000 c. 1,046,000 d. 1,270,000

Illustration 10
On March 01, 2021, Ms. Melinda passed away. The following unpaid taxes relate to his property,
income on his property, and estate. Estate tax was filed and paid early on December 20, 2021.
2020 Income tax from practice of profession, net of P320,000 already P180,000
remitted and paid for the 1st three quarters of the year 2020
Income tax-practice of profession from 01/01/2021 to 02/28/2021 125,000
Income tax of the estate, from 03/01/2021 to 12/31/2021 475,000
Real property taxes for 2019 and 2020 120,000
Business taxes for the year 2020 85,000
_____ 14. The total taxes that may be deducted from the gross estate
a. 830,000 b. 795,000 c. 510,000 d. 985,000

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Illustration 11
Various types of losses incurred by a decedent as follows:

Loss due to typhoon, a day before the decedents’ death P800,000

Loss due to shipwreck, four months after the decedent’s death 300,000
Capital loss incurred three months before death 250,000

_____ 15. Compute the deductible losses from the gross estate
a. 1,350,000 b. 1,100,000 c. Zero d. 300,000

Illustration 12
The gross estate of Jimmy includes P500,000 receivables which is duly notarized from debtor
(Francis) whose records show: Assets – 550,000; Liabilities – 850,000.

Francis’ liabilities composed of the following:

 Income tax payable 50,000
 Due to Jimmy 500,000
 Due to other creditors 300,000

_____ 16. Determine the amount of allowed deduction from Jimmy’s gross estate in relation to its
receivable from Francis
a. 312,500 b. 323,529 c. 187,500 d. 176,471

Illustration 13
Decedent died in 2020 leaving a will which directed all real estate owned by him not to be
disposed or sold for a period of three years after his death, and ordered that the property given to
Jhun after three years. In 2020, the estate left by the decedent had a fair market value of P900,000.
In 2023, the fair market value of the said estate increased by P500,000 and the BIR Commissioner
assessed thereon estate tax based on assessed value of P1,600,000.

_____ 17. What would be the correct amount of the gross estate?
a. 1,400,000 b. 900,000 c. 1,600,000 d. 1,500,000

Illustration 14
The gross estate of a decedent included the following:

Philippines
Cost Fair Value
Land and building, Philippines 1,800,000 3,000,000
House and lot, UK 1,800,000 1,500,000
Personal properties, UK 1,000,000 600,000
House and lot, Philippines 3,000,000 4,000,000
Shares of stocks, UK corp. 200,000
Shares of stocks, domestic corp. (certificate kept in UK) 250,000
Shares of stocks, domestic corp. ((certificate kept in
100,000
Phils.)
Franchise exercised in the Phils. 200,000
Franchise exercised in UK 150,000
Receivables, debtor is from UK 50,000
Receivables, debtor is from Phils. 50,000
_____ 18. If the decedent was a nonresident alien and his country exempts a Filipino citizen from
estate tax, how much, of his assets would be subject to reciprocity?
a. P1,000,000 b. 600,000 c. 250,000 d. P800,000
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_____ 19. If the decedent was a nonresident alien and assuming there is no reciprocity, how much
is the gross estate?
a. 7,600,000 b. 6,100,000 c. 4,800,000 d. 7,250,000

Illustration 15
On September 4, 2022, LJ died leaving an apartment building which has a fair value of P10,000,000
which he inherited from his mother. The property was valued at P9,000,000 at the time of
inheritance dated July 28, 2019. The building has a previous mortgage of P1,500,000 of which
P500,000 was paid by LJ prior to his death.

_____ 20. In computing for the vanishing deduction, what percentage will be used and how much
will be the vanishing deduction?
a. 20%; P3,050,000 b. 60%; P3,000,000 c. 40%: P3,230,000 d. 40%; P3,060,000

Illustration 16
Juan, a Filipino residing in Rizal died on July 10, 2022, leaving a gross estate of P40,000,000
including a parcel of land valued at P10,000,000, which he received from his father as gift on
October 5, 2020; his father paid donor’s tax on October 2020 amounting to P525,000. Total
deductions claimed for gross estate was P6,100,000, including capital loss of P100,000.

_____ 21. Determine the correct amount of vanishing deduction

a. 6,800,000 b. 6,780,000 c. 6,120,000 d. 6,102,000

Illustration 17
The gross estate of Julius includes P800,000 receivables which are duly notarized from Paul, a
debtor, whose records show:
Assets P 6,100,000
Liabilities 10,500,000
Paul’s liabilities composed of the following:
Due to BIR for unpaid taxes 500,000
Due to Julius 800,000
Due to other creditor 9,200,000

_____ 22. Determine the amount of allowable deduction from Julius’ gross estate in relation to its
receivable from Paul
a. 464,762 b. 448,000 c. 352,000 d. 335,238

Illustration 18
The heirs of a resident citizen decedent with a total gross estate ofP15,000,000 provided the
following data:

Receivable from Juan, a debtor P500,000

Amount collectible from Juan 400,000
Unpaid taxes on the estate before death 150,000
Unpaid taxes on the estate after death 50,000
Unpaid mortgage on the estate 200,000
Funeral expenses 82,000
Unpaid loans arising from debt instruments (notarized) 125,000
Unpaid loans arising from debt instruments (not notarized) 75,000
Casualty loss 65,000

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_____ 23. Determine the total amount of allowable deduction from gross estate of the decedent
including applicable special deduction.
a. 1,140,000 b. 5,630,000 c. 5,640,000 d. 5,682,000

Illustration 19
The administrator of a decedent's estate (head of the family) provided the following data:
Property:
Shares of stock of a domestic corporation (2,000 shares) inherited six (6) years
P8,000,000
ago
House and lot, family home, located in Davao, inherited two (2) years ago at a
2,000,000
value of P1,500,000
Jewelry items, in the Philippines at the time of death 400,000
Jewelry items kept abroad 200,000
Bank deposit in a Philippine branch of a U.S. bank 5,000,000
Interest from bank deposit earned after death 25,000
Expenses and other charges:
Funeral expenses, Philippines 280,000
Judicial expenses, abroad 100,000
Judicial expenses, Philippines 50,000
Claims against the estate with the notarized debt instrument issued in the
120,000
Philippines,
Donation to the Philippine government as provided in his will 250,000
_____ 24. Determine the net taxable estate assuming the decedent was a Filipino citizen
a. 7,308,013 b. 8,480,853 c. 692,853 d. 12,308,013

Illustration 20
A citizen decedent died in 2021 leaving the following:
Land inherited from mother (during marriage) two (2) years
P29,000,000
before death; valued at P23,000,000 when inherited
Personal property owned before marriage 18,000,000
Other personal property acquired during marriage 3,000,000
Deductions claimed:
Casualty losses 1,000,000
Unpaid taxes 600,000
Claims against the estate 900,000
Medical expenses 200,000

Determine the following under the Absolute Community of Property:

_____ 25. Net exclusive property of the decedent
a. 12,400,000 b. 6,960,000 c. 29,000,000 d. 11,520,000
_____ 26. Net community property
a. 1,020,000 b. 18,500,000 c. 19,500,000 d. 1,950,000
_____ 27. Share of the surviving spouse
a. 9,250,000 b. 510,000 c. 465,000 d. 9,750,000
_____ 28. Net taxable estate
a. 15,770,000 b. 17,150,000 c. 11,210,000 d. 24,510,000

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Illustration 21
The administrator of a decedent (single) died with the following information:
Net estate before special deductions, Philippines P22,000,000
Net estate, Brunei 3,000,000
Estate tax paid, Brunei 130,000

Determine the estate tax payable assuming:

_____ 29. The decedent was a resident citizen
a. 1,200,000 b. 1,020,000 c. 1,070,000 d. 1,056,000
_____ 30. The decedent was a nonresident alien
a. 1,290,000 b. 1,160,000 c. 1,020,000 d. 1,129,000

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