BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 64

SUGGESTED ANSWERS
Chapter 9: VALUE-ADDED TAX

CHAPTER 9
VALUE-ADDED TAX
Problem 91
1. True
2. False the buyer is legally liable for the payment of VAT on importation of goods or services.
3. True
4. True
5. False Some sales are VAT-exempt.
6. False Goods and services sold outside the Philippines are either zero-rated or VAT-exempt.
7. False VAT is not a specific tax, but an ad valorem tax because its computation is based on
the value of goods or services sold.
8. True
9. False zero-rated VAT transaction is subject to a 0% VAT rate.
10. False 4%.
11. True
12. True
13. False includes the excise tax.
14. True
15. False Performance sales discount is based on the happening of future event; hence, not
allowed as deductible item from sales.

Problem 92
1. True
2. False More than P1,919,500.
3. False If VAT-registered, subject to VAT regardless of amount of sales.
4. False All non-VAT registered persons are not allowed to deduct input VAT.
5. False Annual gross receipts exceed P10,000,000.
6. False Subject to VAT whether for business or not.
7. False To be treated separately.
8. True
9. False Liable to pay VAT on their purchases from VAT-registered suppliers.
10. True
11. False inventors are VAT-exempt.
12. False subject to VAT on purchases from VAT-registered person.
13. True
14. True
15. False only those exempted by law.

Problem 93 Problem 94
1. A 1. C
2. B 2. B
3. C 3. D
4. C 4. A
5. A 5. C
6. C 6. D
7. A 7. A
8. B 8. D
9. D 9. B
10. B 10. C
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 65
SUGGESTED ANSWERS
Chapter 9: VALUE-ADDED TAX

Problem 9 5 C
Sales to: Within
Regular customers P2,000,000
Government 500,000
Employees 300,000
Total amount of sale subject to VAT P2,800,000

Problem 9 6 D
The ultimate consumer is not VAT-registered and does not sale the products. Therefore, no output VAT.
If the consumer is VAT-registred still there is no output VAT, but instead input VAT.

Problem 9 7 A
Output VAT (P5,000,000 + P5,000,000) x 12% P1,200,000
Less: Input VAT (P6,720,000/9.333) 720,000
Net VAT payable P 480,000

Problem 9 8 C
Sales per VAT invoice, no output VAT is shown (P224,000/9.333) P24,000
Sales per VAT invoice, output VAT shown separately
amounted to P30,000 inclusive in the invoice (P330,000/9.333) 35,358
Sales per purchase order delivered (P100,000 x 12%) 12,000
Amount of output VAT P71,358

Problem 9 9 D
Total manufacturing costs P1,000,000
Delivery and insurance 200,000
Excise tax (P1,000,000 x 10%) 100,000
Gross margin (P1,000,000 x 70%) 700,000
Total sales price P2,000,000
Multiplied by VAT rate 12%
Output VAT P 240,000

Problem 9 10 B
Fair market value of machine P1,500,000
Freight charges 100,000
Insurance charges 50,000
Duty tax 150,000
Excise tax 75,000
Total Vatable amount P1,875,000
Multiplied by VAT rate 12%
VAT on importation P 225,000

Problem 9 11 C
Cash sales P1,000,000
Credit sales 2,000,000
Sales returns defective products ( 200,000)
Net sales subject to VAT P2,800,000
Multiplied by VAT rate 12%
Output VAT for the quarter P 336,000

Problem 9 12 B
Sales P500,000
Less: Trade discounts per invoice 100,000
Net sales subject to VAT P400,000
Multiplied by VAT rate 12%
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 66
SUGGESTED ANSWERS
Chapter 9: VALUE-ADDED TAX
Output VAT P 48,000
Less: Creditable input VAT P 32,000
VAT payment 10,000 42,000
Remaining unpaid VAT P 6,000

Note: The sales commission is an operating expense and should not be an item to compute for
the net sales subject to VAT.

Problem 9 13 D
The sale of Y is not subject to VAT because its registration is nonVAT and its sales do not exceed
P1,919,500.

Problem 9 14 B
Correction: Income tax due during the quarter is P1,800,000.

Output VAT [(P1,800,000/30%)/40%] x 12% P1,800,000

Less: Input VAT (P8,960,000/9.333 960,000
Net VAT payable P 840,000

Problem 9 15 D
Total sales (P2,000,000 + P800,000) P2,800,000
Multiplied by VAT rate 12%
VAT payable P 336,000

Problem 9 16 D
Cash sales to non-VAT customers P600,000
Credit sales to VAT-registered customers 200,000
Sales of obsolete merchandise (at 75% discount) 100,000
Taxable sales not subject to standard input VAT P900,000
Multiplied by VAT rate 12%
Output VAT P108,000
Less: Allocated input VAT (P48,000 x 9/10) 43,200
Net VAT payable P 64,800

Note: Although subject to regular VAT, the sale to the government does not result to VAT payable
due to the application of final VAT and standard input VAT. Hence,

Output VAT - Sales to government (P100,000 x 12%) P12,000

Less: Input VAT
Actual input VAT (P48,000 x 1/10) P 4,800
Less: Standard input VAT (P100,000 x 7%) 7,000 7,000
Other income (P2,200)
VAT payable P 5,000

Less: Final VAT (P100,000 x 5%) 5,000

Net VAT payable P -0 -

Problem 9 17 A
NonVAT-registered:
Output VAT (P20,000,000 + P5,000,000) x 12% P3,000,000
VAT-registered:
Output VAT (P20,000,000 + P5,000,000) x 12% P3,000,000
Less: Input VAT (P7,840,000/9.333) 840,000 2,160,000
Business tax advantage P 840,000
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 67
SUGGESTED ANSWERS
Chapter 9: VALUE-ADDED TAX

Problem 9 18 B
Output VAT (P40M x 4 x 12%) P19,200,000
Less: Ouput VAT (P180M /5) x 4 x 12%) 17,280,000
Net VAT payable P 1,920,000

Supporting computations:
Purchase price P100,000,000
Excise taxes 40,000,000
Duty taxes 30,000,000
Insurance 5,000,000
Freight 5,000,000
Total landed cost P180,000,000

Problem 9 19 NOT IN THE CHOICES

Total business taxes (P264,000 + P27,000) P291,000

Mr. Educado Mrs. Educado

Professional income P1,200,000
Gross sales/receipts 1,000,000 P 900,000
Taxable amount P2,200,000 P 900,000
Multiplied by applicable business tax rate 12% 3%
Individual business tax P 264,000 P 27,000

Problem 9 20 D
Gross receipts sale of electricity P 5,000,000
Sale of assets:
Power general assets 30,000,000
Other real properties 20,000,000
Total P55,000,000
Multiplied by VAT rate 12%
Output VAT P 6,600,000

Problem 9 21 D
Total sales (P2,000 x 365 x 3) P2,190,000
Multiplied by VAT rate 12%
Business tax = Output VAT P 262,800

Problem 9 22 A
Inventors are exempt from all kinds of taxes in the first ten (10) years from the date of
the first sale subject to the rules and regulations of the Department of Finance. (R.A.
7459; Rev. Reg. 19-93)

Problem 9 23 D
Gross selling price (P9,520/1.12) P8,500
Less: Senior citizens discount (P8,500 x 20%) 1,700
Net amount P6,800

Problem 9 24 C
Exclusive consumption of Lolo Sot
[(P1,120/1.12)/5] x 80% P 160
Consumption of non-eligible companions
(P1,120/5) x 4 896
Amount to be paid by Lolo Sot P1,056
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 68
SUGGESTED ANSWERS
Chapter 9: VALUE-ADDED TAX

Problem 9 25 D
Nonstock and nonprofit organizations are not taxable.

Problem 9 26
1. Total Output VAT (P1,344,000/9.333) P 144,000

2. Total Output VAT P144,000

Less: Input VAT
VAT purchase invoice amount (P840,000/9.333) 90,000
Net VAT payable P 54,000

Problem 9 27
1. Output VAT (P880,000 + P720,000) x 12% P 192,000

2. Output VAT P 192,000

Less: Input VAT (P1,200,000 x 12%) 144,000
Net VAT payable P 48,000

Problem 9 28
1. Output VAT (P125,000 x 12%) P 15,000

2. Input VAT (P84,000/9.3333) P 9,000

Note: The sales is multiplied by 12% because the term used is not per VAT invoice while the
purchase is divided by 9.333 because the purchase is inclusive of VAT.

Problem 9 29
Total sales price (P20 x 10) P 200
Add: VAT (P200 x 12%) 24
Total sales invoice amount P 224

Problem 9 30
1. No, because the purchases for sari-sari store is not for her personal consumption.

2. P21,900.
Percentage tax (P2,000 x 365) x 3% P21,900

3. P96,000
Gross profit (P2,000 x 365) x 20% P146,000
Less: Business tax expense 21,900
Net income P124,100
Less: Personal exemption basic 50,000
Net taxable income P 74,100

Problem 9 31
1. None, because PEZA-registered entities are VAT-exempt.

2. Gross income tax (P50M P30M) x 5% P1,000,000

In general, ECONZON Enterprises (PEZA-registered enterprises) pay 5% tax on gross

income which is in lieu of all national and local taxes.
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 69
SUGGESTED ANSWERS
Chapter 9: VALUE-ADDED TAX

Problem 9 32
1. Net income (P570,000/30%) P1,900,000
Less: Gain on sale of capital asset 50,000
Net operating income P1,850,000
Add: Cost of sales (P120,000/12%) P1,000,000
Sales discounts due to prompt payments 150,000
Operating expense before taxes 990,000
Community tax 10,000 2,150,000
Vatable base Sales subject to VAT P4,000,000

2. Output VAT (P4,000,000 x 12%) P 480,000

3. Output VAT P 480,000

Less: Input VAT 120,000
VAT payable P 360,000

Problem 9 33
1. Net income (P600,000/30%) P2,000,000
Less: Gain on sale of capital asset 150,000
Net operating income P1,850,000
Add: Cost of sales (P240,000/12%) P400,000 P1,600,000
Sales discounts due to prompt payments 45,000
Operating expenses before taxes 1,000,000
Community tax 5,000 2,650,000
Sales subject to VAT P4,500,000

Output VAT (P4,500,000 x 12%) P540,000

Less: Input VAT from purchases P240,000
Presumptive input VAT 60,000 300,000
Net VAT payable P240,000
Add: Surcharge (P240,000 x 25%) P60,000
Interest from Jan. 25 to Mar. 25 (P240,000 x 20% x 2/12) 8,000
Compromise for late payment 1,000 69,000
Total amount payable P309,000

2. None, because the payment of income tax is made on time April 15, of
the succeeding year.