Ateneo de Naga University

College of Business and Accountancy

Accountancy Department

Compilation of Taxation theories and computations

(A partial requirement on TAXM330 - AM41)

Submitted by:

Dyan Malonda

Samuel Mapa, Jr.

Aldrin Natividad

Christine Nidea

Yna Ocampo

Submitted to:

Mr. Dexter Mitra

 THEORIES

REGULAR INCOME TAX: INDIVIDUAL

1. Any individuals whose source of income is purely derived from an employer-employee

relationship.
a. Mixed Income Earners
b. Self-Employed/Professional Income Earners
c. Compensation Income Earners
d. None of the above.
Answer: C. RR 8-2018 Section 2-b.

2. Statement 1: It is not necessary that the employer actually exercises the right to direct or
control the manner in which the services are performed.
Statement 2: It is sufficient that there exists a right to control the manner of doing the
work.
a. Statement 1 is false. Statement 2 is true.
b. Statement 2 is false. Statement 1 is true.
c. Both statements are false.
d. Both statements are true.

Answer: D. RR 8-2018 Section 2-e.

3. If an individual self-employed and professional income earner’s gross receipt and sales
exceeded the 3M threshold, they are subject to:
a. Non-VAT
b. VAT
c. Graduated Rates
d. Final Tax

Answer: B. RR 8-2018 Section 2-p.

4. It refers to the total sales transactions net of VAT, applicable, reported during the period,
without any other deduction.
a. Gross Sales
b. Gross Income
c. Gross Receipts
d. Cost of Sales
Answer: A RR 8-2018 Section 2(h)

5. Statement 1: A Minimum Wage Earner refers to a worker earning compensation income

from employment and income from business, practice of profession and/or other sources
aside from employment.
Statement 2: A Rank and File Employee refers to an employee holding neither managerial
nor supervisory position.
 a. Both statements are true.
b. Both statements are false.
c. Only statement 1 is true.
d. Only statement 2 is true
Answer: D. RR 8-2018 Section 2(i) and 2(m)

6. In general, it means all remuneration for services performed by an employee for his
employer under an employer-employee relationship.
a. De Minimis Benefits
b. Compensation Income
c. Professional Income
d. None of the above
Answer: B. RR 8-2018 Section 2(a)

7. Exists when a person for whom services were performed has the right to control and direct
an individual who performs the services
a. Wife-Husband relationship
b. Employee-Employer relationship
c. Husband-Wife relationship
d. Employer-Employee relationship
Answer: D. RR-8-2018 Section 2. (e)

8. It refers to the ceiling fixed by law to determine VAT registrable taxpayers.

a. VAT ceiling
b. Tax ceiling
c. VAT Threshold
d. Tax Threshold
Answer: D. RR-8-2018 Section 2. (p)

9. Statement 1: Rank and File Employee refers to an employee holding managerial or

supervisory position.
Statement 2: Minimum Wage Earner refers to a worker in the public sector who is paid
with a statutory minimum wage rate.

a. Statement 1 is false. Statement 2 is true.

b. Statement 2 is false. Statement 1 is true.
c. Both statements are false.
d. Both statements are true.
Answer: C. RR 8-2018 Section 2(i) and 2(m)

10. It refers to a worker in the private sector who is paid with a statutory minimum wage (SMW)
rates.
 a. Mixed Income Earner
b. Minimum Wage Earner
c. Purely Compensation Income Earner
d. Self-employed or Professional

Answer: B. Minimum Wage Earner [RR 8-2018 Section 2-I]

11. What is the current VAT threshold?

a. ₱90,000
b. ₱250,000
c. ₱2,000,000
d. ₱3,000,000
Answer: D. ₱3,000,000 [RR 8-2018 Section 2-P]

12. Which is not an exclusion from the computation of gross income?

a. Proceeds from Life Insurance
b. Retirement Benefits, Pensions, Gratuities, etc.
c. Compensation in General
d. Compensation for injuries or sickness
Answer: C. Compensation in General [RR 8-2018 Section 6 – Exclusions from Gross
Income]

13. How to get the income tax rate for an income taxpayer regardless neither VAT nor Non-
VAT registered?
A. Fixed rate of 20%
B. Net Taxable Income x Graduated Rates (Tax Table)
C. Net Taxable Income less P250,000 x Graduated Rates (Tax Table)
D. Gross Income x 25%

Answer: B. Net Taxable Income x Graduated Rates – [RR 8-2018 Section 3 – (C). Self-
Employed Individuals Earning Income Purely from Self-Employment or Practice of Profession –
Amendment 1]

14. A taxpayer earning P 1,000,000 annually will pay the income tax due of?
A. P 200,000
B. P 300,000
C. P 190,000
D. P 130,000

Answer: C. P 190,000 – [RR 8-2018 Section 3 – (A). Income Tax Rate for January 1, 2018 until
December 31, 2022]
 15. Statement 1: An individual tax payer can 8% income tax rate if he/she is a VAT registered
payer.
Statement 2: Individual taxpayer can either used Itemized Deduction (ID) or Optional
Standard Deduction (OSD).
A. Statement 1 is true and Statement 2 is false.
B. Statement 2 is true and Statement 1 is false.
C. Both statements are true.
D. Both statements are false.

Answer: B. Statement 2 is true and Statement 1 is false. – [RR 8-2018 Section 3 – (C). Self-
Employed Individuals Earning Income Purely from Self-Employment or Practice of Profession –
Amendment 1 and RR 8 – 2018 Section 8 - Deduction from Gross Income]
 THEORIES

REGULAR INCOME TAX: CORPORATION

1. Statement 1: OSD for corporation is based on gross income.

Statement 2: Income tax rate of corporation is currently at 25%.

a. Statement 1 is false. Statement 2 is true.

b. Statement 2 is false. Statement 1 is true.
c. Both statements are false.
d. Both statements are true.

Answer: B. RR 8-2018 Section 8, Illustration 14

2. The partners are liable for to pay income tax on their separate and individual capacities for
their respective distributive share in the net income.
a. General Professional Partnership
b. Mixed Income Earner
c. Purely Compensation Income Earner
d. None of the above.
Answer: A. RR 8-2018, Section 8 - Determination of the optional standard Deduction for
General Professional Partnerships (GPPs) and Partners of GPPs

3. All information below is false about GPP, except

a. A GPP may claim both the itemized deductions and OSD at the same time.
b. The OSD allowed to corporations in claiming the deductions is in an amount not
exceeding thirty percent (30 %) of its gross income.
c. The GPP is not a taxable entity for income tax purposes since it is only acting as a “pass
through” entity where its income is ultimately taxed to the partners comprising it.
d. All the above information is true.

Answer: C. RR 8-2018, Section 8 - Determination of the optional standard Deduction for

General Professional Partnerships (GPPs) and Partners of GPPs

4. Statement 1: GPP is subject to income tax imposed pursuant to Sec. 26, as amended.
Statement 2: The GPP is a taxable entity for income tax purposes since it is only acting as a
“pass-through” entity where its income is ultimately taxed to the partners comprising it.

a. Both statements are true.

b. Both statements are false.
c. Only statement 1 is true.
d. Only statement 2 is true.
Answer: B. RR 8-2018 Section 8, Illustration 12
 5. Statement 1: Every corporation subject to tax herein imposed, except foreign corporations
not engaged in trade or business in the Philippines shall render, in duplicate, a true and
accurate quarterly income tax return and final or adjustment return.
Statement 2: A corporation subject to tax under Sections 27(A) & 28(A)(1), may elect a
standard deduction in an amount not exceeding 40% of its gross income.

a. Both statements are true.

b. Both statements are false.
c. Only statement 1 is true.
d. Only statement 2 is true.
Answer: A. RA No. 10963 Sec. 15. Section 52(A) of the NIRC & Sec. 11. Section 34(L) of the
NIRC

6. Statement 1: The partners comprising the GPP are not allowed to avail of the 8% income
tax rate option since their distributive share from the GPP is already net of cost and
expenses.
Statement 2: The partners are not liable to pay income tax on their separate and individual
capacities for their respective distributive share in the net income of the GPP.

a. Both statements are true.

b. Both statements are false.
c. Only statement 1 is true.
d. Only statement 2 is true.
Answer: C. RR 8-2018 Section 8 Determination of the OSD for GPP and Partners of GPPs.

7. Statement 1: The GPP is a taxable entity for income tax purposes.

Statement 2: The General Professional Partnership is not liable to business tax.
a. Statement 1 is true. Statement 2 is false.
b. Statement 2 is true. Statement 1 is false.
c. Both statements are false.
d. Both statements are true.
Answer: C. RR 8-2018 Section 8, Determination of the optional standard Deduction for
General Professional Partnerships (GPPs) and Partners of GPPs.

8. Statement 1: A corporation has the option to use either optional standard deduction or
itemized deductions as allowable deduction.
Statement 2: Corporate taxpayers are subject to tax table.
a. Statement 1 is false. Statement 2 is true.
b. Statement 2 is false. Statement 1 is true.
c. Both statements are false.
d. Both statements are true.
Answer: B. RR 8-2018 Section 8, Illustration 14
 9. Statement 1: The MCIT is not computed quarterly but on an annual basis

Statement 2: The MCIT is equal to 2% of the gross income of the corporation

a. Statement 1 is true. Statement 2 is false.

b. Statement 2 is true. Statement 1 is false.
c. Both statements are false.
d. Both statements are true.
Answer: B. BIR-Index for Income Tax, FAQ 12-16

10. Statement 1: In general, there shall be allowed at the option of the taxpayer, itemized
deductions or an Optional Standard Deduction at the rate of 40%.
Statement 2: In case of individual taxpayers, OSD shall be computed at the rate of 40% of
gross sales/receipts as the case may be.

a. Only Statement 1 is true

b. Only Statement 2 is true
c. Both Statements are true
d. Both Statements are false
Answer: C. Both Statements are true [RR 8-2018 Section 8 – Deductions from Gross Income]

11. Ordinary Corporation is subject to the regular income tax rate of?
a. 20%
b. 15%
c. 25%
d. 30%
Answer: D. 30%

12. The partners comprising the GPP can no longer claim further deduction from their
distributive share in net income of the GPP and are not allowed to avail what income tax
rate option?
a. 8%
b. 15%
c. 40%
d. 6%
Answer: A. 8% [RR 8-2018 Section 8]

13. How to get the income tax rate for a corporate taxpayer?
A. Gross Income x 30%
B. Net taxable income x Graduated Rates (Tax Table)
C. Graduated Rates only
D. Gross or Net Income x 30%
Answer: D. Gross or Net Income x 30% [R.B. Banggawaan, CPA, MBA (2016), Income Taxation
– Laws, Principles and Application. Chapter 15-A Regular Income taxation: Special Corporations,
page 618 – 620.]

14. Statement 1: Corporation such as Non-resident alien engaged in trade or business is being
directly being tax on Gross Income only.
Statement 2: Corporation can only use Itemized Deduction (ID).
A. Statement 1 is true and Statement 2 is false.
B. Statement 2 is true and statement 1 is false.
C. Both statements are true.
D. Both statements are false.

Answer: D. Both Statements are false. [RR 8-2018 and RR 11-2018]

Explanation: Statement 1: it must be Non-resident alien NOT engage in trade or business is

directly being tax on Gross Income only – Flight Risk taxpayer

Statement 2: Corporation can also use Optional Standard Deduction (OSD) not Itemized
Deduction (ID) only.

15. Which of the following is not a corporation?

A. Government agencies and instrumentalities
B. Proprietary educational institutions
C. International carrier
D. Cooperatives
E. None of the above

Answer: E. none of the above [R.B. Banggawaan, CPA, MBA (2016), Income Taxation – Laws,
Principles and Application. Chapter 15-A Regular Income taxation: Special Corporations, page 618 –
620.]

FINAL TAX (THEORIES)

1. Which of the following is a de minimis benefit?

A. Fixed Monthly Communication Allowance
B. Additional Fee paid for bookkeeping services
C. Employee of the month certificate plus P 1,000 cash
D. A car worth P 1,000,000
E. None of the above

Answer: C. Employee of the month certificate plus P 1,000 cash [RR 11-2018 Section 2.78.1
Withholding of Income Tax on Compensation Income – (A) Compensation Income Defined – (3)
 2. What fringe benefit tax rate shall be imposed on the grossed-up monetary value of fringe
benefits furnished or granted to an employee by the employer, whether an individual or a
corporation?
a. 65%
b. 35%
c. 75%
d. 25%
Answer: B. 35% [RR 8-2018 Section 7 – Special Treatment of Fringe Benefits]

3. Which of the following is a not a Fringe Benefit?

a) Housing
b) Vehicle of any kind
c) Monetized value of vacation and sick leave credits paid to government officials and
employees
d) Educational assistance to the employee or his dependents
Answer: C. RR 11-2018 Section 1, (G)

4. Interest income received by a resident citizen or a resident alien from a depository bank
under the Expanded Foreign Currency Deposit system has a final withholding tax rate of
__?
a. 25%
b. 15%
c. 20%
d. 30%
Answer: B RR 11-2018 SECTION 1(A)(3) Income Payments Subject to Final Withholding Tax

5. It is any good, service, or other benefits furnished or granted in cash or in kind by an

employer to an individual employee except rank and file employees.
a. 13th Month Pay and Other benefits
b. Fringe Benefit
c. De Minimis Benefit
d. None of the above.
Answer: B. [RR 11-2018 Section 1 – (G) Fringe Benefits granted to employee (Except rank and file
employee)]
 Capital Gain Tax (THEORIES)

1. Interest income derived from a depository bank under the Expanded Foreign Currency
Deposit system for a Domestic Corporation has a final withholding tax rate of __?
a. 20%
b. 30%
c. 25%
d. 15%
Answer: D. RR 11-2018 Section 1 (D)(3)

2. Statement 1: Tax rate for Capital gains from sale, exchange or other disposition of real
property located in the Philippines, classified as capital asset is 15%
Statement 2: Tax rate for Capital gains from the sale, exchange or other disposition of
lands and/or building is 12%
a. Statement 1 is true. Statement 2 is false.
b. Statement 2 is true. Statement 1 is false.
c. Both statements are false.
d. Both statements are true.
Answer: A RR 11-2018, Section 1 A-D

3. An asset is ordinary if:

a. Stock in trade or other properties is included in inventory.
b. Personal property is used in the trade or business and subject to depreciation.
c. Real property is primarily for sale to customers in the ordinary courses of trade
or business.
d. All of the above are true.
Answer: D. RR 11-2018, Section 1 A-D

4. Capital Gains from Sale of Shares of Stock Not Traded in the Stock Exchange shall be
subject to final withholding tax at the rate of
a. 15%
b. 20%
c. 10%
d. 30%

Answer: A. 15% [RR 11-2018 Section 2.57.1 Income Payments Subject to Final
Withholding Tax (A)]
 5. Capital Assets are property held by the taxpayer for tax purposes. Which of the following
best describe as a Capital Asset?
A. Stocks in trade or other property excluded in inventory.
B. Property primarily for sale to customers in trade or business.
C. Personal property used in trade or business.
D. Real property used in trade or business.
E. None of the above

Answer: A. Stocks in trade or property excluded in trade or business. [R.B. Banggawaan, CPA,
MBA (2016), Income Taxation – Laws, Principles and Application. Chapter 16 Capital Gain
Taxation, page 164.]
 COMPUTATIONS

REGULAR INCOME TAX: INDIVIDUAL

1. Ted Mosby is a professor at Columbia University while he offers architectural services to his
clients. His annual compensation in 2018 is P480,000, inclusive of 13th month and other
benefits in the amount of P150,000, but net of mandatory contributions to SSS and
Philhealth. His gross receipts amounted to P2,500,000. His cost of sales and operating
expenses are P750,000 and P525,000, respectively and with non-operating income of
P128,000. Ted Mosby opted to be taxed at 8%. How much is his Taxable Compensation
Income?
a. P210,240
b. P28,000
c. P390,000
d. P238,240
Answer: C. RR 8-2018 Section 3 Illustration 7

SOLUTION:

Total Compensation Income P480,000

Less: Non-taxable 13th month pay & other benefits (max) ( 90,000)
Taxable Compensation Income P390,000

2. Michael Scofield operates a Motorcycle Parts Store while he offers engineering services to
his clients. His gross sales amounted to P758,000, in addition to his receipts from
engineering services of P1,458,000 for taxable year 2018. He already signified his intention to
be taxed at 8% income tax rate in his 1st quarter return. How much is his Income Tax Due?
a. P157,280
b. P177,280
c. P116,640
d. P56,000
Answer: A. RR 8-2018 Section 3 Illustration 2

SOLUTION:

Gross Sales P 758,000

Gross Receipts 1,458,000
Total Sales/Receipts P2,216,000
Less: P250,000 deduction under Sec. 25(A)(2)(b) ( 250,000)
Taxable Income P1,966,000

Tax Due:
8% of P1,966,000 P 157,280
 3. Mr. Muramasa is a prominent blacksmith who offers forging and repair services. Since his
career flourished, his total gross receipts amounted to P1250,000 for taxable year 2018. His
recorded cost of service was P200,000 and operating expenses of 350,000 He signified his
intention to be taxed at 8% income tax rate on his initial Quarterly Income. What is his
income tax due?
a. P36,000
b. P105,000
c. P56,000
d. P210,000
Answer: A. Solution: (((1250,000-200,000-350,000=700,000)-250,000) x 8%)

4. Mr. Sokka, a non-resident alien not engaged in trade and business, provided the following
information:
Gross Income, Philippines P3,460,000 Expenses, Philippines P1750,000

Gross Income, Australia P2500,000 Expenses, Australia P1585,000

Tax Payments 40,000

How much is Mr. Sokka’s Net Taxable Income?

a. P1,710,000
b. P5,960,000
c. P2,625,000
d. P3,460,000
Answer: C P 3,460,000

Mr. Sokka is a NRANETB his Net Taxable Income is P 3,460,000

5. Dr. Strange operates a coffee shop while he offers medical services to his clients. In 2020,
his gross receipt amounted to P1,350,000 and his sales from his shop amounted to P900,000.
His cost of sale is P290,000 and operating expenses amounted to P250,000 He signified his
intention to be taxed at 8% income tax rate on his initial Quarterly Income. How much is his
income tax due?
a. P180,000
b. P160,000
c. P200,000
d. P220,000
Answer: B. Solution: (((P1,350,000+P900,000=P2,250,000) –P250,000) x 8%)
6. Thor operates a smithy in Naga City and offers his very professional service of providing
electricity to his clients. The smithy generates a gross sale of P2,300,000 and his gross receipt
is P1,200,000. His cost of sales and other expenses amounted to P500,000 and P390,000. All
residents of Naga City are grateful for his business and service. What is his income tax due?
a. P685,200
b. P183,000
c. P682,500
d. P435,000
Answer: A. Solution:

NTxI=(2300k+1200k)–(500k+390k) = 2610k

ItxD=490k+(2610k-2000k) x 32%=685.2k

7. Ms. To Fu, a resident alien individual, provided the following information:

Gross Income, Philippines ₱2,200,000
Gross Income, Japan 2,000,000
Expenses, Philippines 1,750,000
Expenses, Japan 1, 500,000
Tax Payments 40,000

How much is Ms. To Fu’s Net Taxable Income?

a. ₱2,500,000
b. ₱450,000
c. ₱950,000
d. ₱2,000,000
Answer: B. ₱450,000

Solution: Resident Alien:

(Gross Income, Philippines – Expenses, Philippines) = Net Taxable Income

(2,200,000 – 1,750,000) = 450,000

8. Compute Mr. Juan’s Income Tax Payable given the information below:
Gross Income, Philippines Expenses, USA
3,000,000 950,000

Gross Income, USA Tax Payments 80,000

1,500,000

Expenses, Philippines
1,750,000

Mr. Juan is a resident citizen.

a. 300,000
b. 250,000
c. 350,000
d. 200,000
Answer: C. 350,000

Solution: Resident Citizen:

Gross Income, Philippines 3,000,000

Gross Income, USA 1,500,000

Expenses, Phlippines (1,750,000)

Expenses, USA (950,000)

Net Taxable Income 1,800,000

Income Tax Due 430,000

Tax Payments (80,000)

Income Tax Payable 350,000

 9. Mr. Yoso, a resident citizen, earns P 1,200,000 annually salary from employment. 20% of his
compensation is income from his nightshifts and overtime in the company. He also owns a
sari-sari store that earns about 25,000 per month registered as NON-VAT and being tax at
8%. The cost of sales was P 50,000 for the whole year. His mandatory contribution was P
250,000 last year. Recently he received his 13th – 15th month salary. What is the total income
tax due?
A. P 242,000
B. P 238,000
C. P 250,000
D. P 210,000

Answer: A

Solution:

Compensation P 960,000 (1,200,000 * 80%)

Nightshift and overtime pay 240,000 (1,200,000 * 20%)
Total Compensation 1,200,000
13th MP&OB (120,000/12) = 10,000 x 3 300,000
Threshold (90,000) 210,000
Mandatory Contribution (250,000)
Total Taxable Income on compensation P 1,160,000
Income tax due on compensation 130,000 + [1,160,000 – 800,000] x 30% P
238,000
Gross Sales (25,000 x 12) P 300,000
Threshold (250,000)
Gross Income P 50,000
Income tax rate x 8%
Income tax due on sari-sari store
4,000
TOTAL INCOME TAX DUE P
242,000
 10. Ms. Ter, a resident citizen, is a teacher in a private school waging P 27,000 per month. Aside
of teaching, he is a part-time piano instructor and tutors for P 10,000 per 15 days. Her Cost
of Service for three (3) months was 21,000. She is registered as NON-VAT taxpayer but
didn’t want to tax at 8%. Monthly mandatory contribution of P 3,000. How much is her
annual total income tax due?
A. P 40,250
B. P 42,250
C. P 41,000
D. P 30,000

Answer: B

Solution:

Compensation (27,000 x 12) P 324,000

Mandatory Contribution (36,000)
Net Taxable Income from compensation P 288,000

Gross Receipt (10,000 x 2 x 12) P 240,000

Cost of Service (21,000/3 x 12) (84,000)
Net Taxable Income from professional P 156,000

Net Income from compensation P 288,000

Net Income from professional 156,000
Total Taxable Income P 444,000
Income tax due [30,000 + (444,000-400,000) x 25%] P 41,000
REGULAR INCOME TAX: CORPORATION

1. The gross sales of Grey Sloan Corporation amounted to P7,000,000, with cost of sales
amounting to P3,600,000. It incurred operating expenses amounting to P1,580,000. It opted
to avail of the 40% OSD. How much is the Taxable Income?
a. P1,092,000
b. P4,200,000
c. P612,000
d. P2,040,000
Answer: D. RR 8-2018 Section 8 Illustration 14

SOLUTION:

Computation of OSD:
Gross Sales P7,000,000
Less: Cost of Sales ( 3,600,000)
Gross Income P3,400,000
Less: OSD (3,400,000 × 40%) ( 1,360,000)
Taxable Income P2,040,000

2. Mr. Sheldon Cooper is a partner of Big Bang Co., a general professional partnership. He
owns 20% interest. In 2018, the gross receipts of Big Bang amounted to P12,000,000. Its
cost of sales and operating expenses are P3,600,000 and P1,720,000, respectively. Big Bang
Co. opted to avail of the OSD. How much is the Net Income for distribution to
partners?
a. P5,040,000
b. P4,800,000
c. P2,672,000
d. P1,008,000
Answer: A. RR 8-2018 Section 8 Illustration 15

SOLUTION:

Gross Receipts P12,000,000

Less: Cost of Sales ( 3,600,000)
Gross Income P 8,400,000
Less: OSD (8,400,000 × 40%) ( 3,360,000)
Net Income for distribution to partners P 5,040,000

3. Wakanda corporation gross sales amounted to P12,000,000 with cost of sales and operating
expenses amounting to P4,250,000 and P1,235,000, respectively. The corporation has
signified its intention to avail Itemized Deduction. What is Wakanda Corporation’s income
tax due?
a. P1,575,000
 b. P1,954,500
c. P2,325,000
d. P1,395,000
Answer: B.

Computation of ID and Tax Due:

Gross Sales P12,000,000

Less: Cost of Sale 4,250,000
Gross Income P7,750,000
Less: Operating Expenses 1,235,000
Taxable Income P6,515,000

Tax Due:
30% x P6,515 000 P1954,500
4. The gross sales of Wayne Corporation for 2018 amounted to P8,000,000 with cost of sales
amounting to P3,325,000. It incurred operating expenses amounting to P1,575,000, and on
the filing of its First Quarter Income Tax Return, it signified its intention to avail of the
OSD. What is Wayne company’s income tax due?
a. P841,500
b. P903,000
c. P841,050
d. P930,000
Answer: A.

Computation of OSD and Tax Due:

Gross Sales P8,000,000
Less: Cost of Sale 3,325,000
Gross Income P4,675,000
Less: OSD (4.675M*40%) 1,870,000
Taxable Income P2,805,000

Tax Due:
30% x P2,805 000 P841,500

5. Avengers Corporation’s gross sale amounted to P5,800,000 for 2018. It incurred a cost of
sale of P1,000,000 and an operating expense of P850,000. On filing of its Initial Quarterly
Income Tax Return, signified its intention to avail OSD. What is Avengers’ income tax due?
a. P567,300
b. P785,500
c. P864,000
d. P664,000
 Answer: C.

Computation of OSD and Tax Due:

Gross Sales P5,800,000
Less: Cost of Sale 1,000,000
Gross Income P4,800,000
Less: OSD (4800k*40%) 1,920,000
Taxable Income P2,880,000

Tax Due:
30% x P2 880 000 P864 000

6. Stop Dilly Dallying Corporation earned a gross sale of P6,700,000 in their operation for
2018. The cost of sale and operating expenses incurred amounted to a total of P4,300,000.
He signified his intention to avail the ID (Itemized Deduction). What is Dilly Dallying’s
income tax due?
a. P2,400,000
b. P618,000
c. P600,000
d. P720,000
Answer: D.

Computation of ID and Tax Due:

Gross Sales P6,700,000
Less: Cost of Sale & Operating Expense 4,300,000
Net Taxable Income P2,400,000

Tax Due:
30% x P2,400,000 P720,000

7. A domestic corporation has the following information:

Gross Income, Philippines 5,000,000 Expenses, Philippines 2,500,000

Gross Income, USA 3,500,000 Expenses, USA 1,000,000

How much is the corporation’s Net Taxable Income?

a. 8,500,000
b. 5,000,000
c. 2,500,000
d. 2,000,000
Answer: B. 5,000,000
Solution: Domestic Corporation

Gross Income, Philippines 5,000,000

Gross Income, USA 3,500,000

Expenses, Philippines (2,500,000)

Expenses, USA (1,000,000)

Net Taxable Income 5,000,000

8. AVT Co., a resident foreign corp., has the following information:

Gross Income, Philippines 2,500,000

Gross Income, USA 2,000,000

Expenses, Philippines 800,000

Expenses, USA 1,000,000

Tax Payments 50,000

What should AVT Corp. record as Income Tax Payable?

a. 810,000
b. 2,700,000
c. 1,300,000
d. 760,000
Answer: C. 1,300,000

Solution: Resident Foreign Corporation

Gross Income, Philippines 2,500,000

Gross Income, UK 2,000,000

Net Taxable Income 4,500,000

X 30%

Income Tax Due 1,350,000

Tax Payments (50,000)

Income Tax Payable 1,300,000

 9. Air-Beans and Bee Company, a non-resident foreign corporation, gross income was P
5,000,000 within the Philippines. On the same date, the company earned a gross income of $
150,000 on a transaction on U.S.A. Their combined expense in the Philippines and from
U.S.A. was $ 100,000 with a ratio of 8:2 respectively. The tax credit and tax payment of the
company totals to P 250,000. Assuming the dollar to peso exchange is $1=P50. What is the
company’s income tax due?
A. P 2,250,000
B. P 675,000
C. P 1,500,000
D. P 425,000

Answer: C

Solution:

Gross Income P 5,000,000

Income tax rate x 30%
Income tax due P 1,500,000
Note: The taxpayer is a non-resident foreign corporation subjected to 30% final tax.

10. Juan, Ponce, and Riles Incorporation (JPR Inc.), a resident corporation, Gross Income is P
5,000,000. Half of this amount is equivalent to their Cost of Sales. The company has P
500,000 operating expense. The company usually uses itemized deduction but they see that
they need to use optional standard deduction. How much is the income tax due if JPR Inc.
uses itemized deduction and optional standard deduction?
A. P 550,000 and P 400,000
B. P 500,000 and P 450,000
C. P 600,000 and P 400,000
D. P 600,000 and P 450,000

Answer: D

Solution:

A. Using Itemized Deduction

Gross Income P 5,000,000

Cost of Sales (50% of P 5,000,000) (2,500,000)
Gross Income 2,500,000
Operating Expense (500,000)
Net Taxable Income P 2,000,000
Income tax rate x 30%
Income tax due P 600,000
 B. Using Optional Standard Deduction

Gross Income P 5,000,000

Cost of Sales (half of P 5,000,000) (2,500,000)
Gross Income 2,500,000
OSD ( x 40%)
Net Taxable Income 1,500,000
Income Tax Rate x 30%
Income tax due P 450,000
FINAL TAX (COMPUTATIONS)

1. Denny Duquette Co. (a domestic company) granted Ms. Izzie Stevens (a Filipino branch
manager employee), in addition to her basic salaries, P5,500 cash per quarter for her
membership fees at Avery’s Fitness Club. How much is the fringe benefit tax that Denny
Duquette Co.. should withhold and remit to BIR per quarter?
a. P8,884.62
b. P8,461.54
c. P3,024.54
d. None of the Above
Answer: C. RR 11-2018 Section 1(G)

SOLUTION:

Value of FBT per quarter P 5,500

Gross-up Rate ÷ 65%
Gross-up Monetary Value P 8,461.54
Fringe Benefit Tax Rate × 35%
Fringe Benefit Tax per quarter P 3,024.54

2. Mr. Zoku is a Director of Fire Nation Corp., a local plumbing company. Apart from his
basic salary, the company pays for the monthly wages of Mr. Zoku’s maid at P12,500. How
much is the Fringe Benefit Tax of Fire Nation Corp.?
a. P4,166.67
b. P6,730.77
c. P2,205.88
d. Cannot be determined

Answer: B

FBT= (P12,500 ÷ 65%) x 35%

FBT= P6,730.77
 3. All Villain Alliance Corporation, a Non-Resident Foreign Corporation, has the following
information:
Gross Income, Philippines P1,800,000 Expenses, Philippines P600,000

Gross Income, New York P2,000,000 Expenses, New York P850,000

What is All Villain Alliance Corporation’s final tax?

a. P540 000
b. P360 000
c. P705 000
d. P0
Answer: A. P540,000. [RR 11-2018 Section 1 – (F) Income Derived from All Sources
Within the Philippines by Non-Resident Foreign Corporation] Solution: FTx =1,800,000 x
30% = P540000.

4. Golden Knight Co., a domestic company, granted its branch manager, Mr. Claro, ₱4,500
cash for his personal membership fees at Gold’s Gym. What is Mr. Claro’s Fringe
Benefit Tax?
a. ₱3,441.28
b. ₱2,962.31
c. ₱2,423.08
d. ₱4,188.21
Answer: C. ₱2,423.08 [RR 8-2018 Section 7 – Special Treatment of Fringe Benefits] Solution:
FBT= (Monetary value of fringe benefit ÷ 65%) x 35%

FBT= (₱4,500 ÷ 65%) x 35%

FBT= ₱2,423.08

5. Compute for the Final tax of each taxpayer:

Depositors Amount
Resident Citizen P 9,000,000
Non-resident Citizen 8,000,000
Resident Alien 2,500,000
Non-resident Alien engage in trade or business 3,200,000
Non-resident Alien not engage in trade or business 4,000,000
Domestic Corporation 6,000,000
Non-resident Corporation 7,500,000
Non-resident foreign Corporation 8,900,000
How much is the final tax due for flight risk taxpayer?
 A. P 2,540,000
B. P 3,670,000
C. P 2,880,000
D. P 3,760,000

Answer: B

Solution:

Non-resident Alien Not Engage in trade or business

P 4,000,000 x 25% = P 1,000,000

Non-resident Foreign Corporation

P 8,900,000 x 30% = P 2,670,000

Total Flight risk taxpayer = P 3,670,000

Source: [R.B. Banggawaan, CPA, MBA (2016), Income Taxation – Laws, Principles and Application.
Chapter 5 – Final Income tax, p. 133]

CAPITAL GAIN TAX (COMPUTATION)

1. Cristina Yang sold her permanent residence for P5,000,000. The amount of the zonal value
was P4,000,000 and an assessed value of P3,700,000. How much is the Capital Gains Tax?
a. P222,000
b. P282,000
c. P300,000
d. P240,000
Answer: C.

SOLUTION:

Choose whichever is the highest.

P5,000,000 × 6% = P300,000

2. Mr. Avatar Aang bought 10,000 shares of Earth Nation Corporation at. P15 per share. After
2 months he sold them to Ms. Toph for 35 per share. How much is the Capital Gains Tax?
a. P30,000
b. P15,000
c. P40,000
d. P20,000
Answer: A
Selling Price P30
Less: Acquisition Cost P15
Gain on Sale P20
No. of Shares Sold 10,000
Capital Gain P200,000

CGTx

P200,000 x 15%= 30,000

3. Tatay Samuel on his birthday chugged 5 jars of beer. He was so drunk that night but was
sober when he sold his permanent resident. He was so devastated that he failed to construct
another within the allocated time given of 18 months. The house was sold for P3,000,000.
The zonal value was estimated to be at P2,900,000 and an assessed value of P2,500,000.
Calculate the Capital Gain Tax for Tatay Samuel.
a. P200,000
b. P160,000
c. P180,000
d. P220,000
Answer: C. Solution: Choose the value which is the highest. In this case it is P3,000,000.
CGT=3000000 x 6% = P180,000.

4. Ms. Torres, who is not engaged in a real estate business, sells a residential lot in Quezon
City with a selling price of ₱3,000,000 and a zonal value of ₱2,500,000. The proceeds from
the sale will be used for personal expenses. How much shall be subject to Capital Gains tax?
a. ₱250,000
b. ₱180,000
c. ₱150,000
d. ₱300,000
Answer: B. ₱180,000
Solution: [Selling Price or Zonal Value (whichever is lower)] x 6%
₱3,000,000 x 6% = ₱180,000

5. On the start of the year 2018, Ms. Sis, a resident citizen, acquire an asset (building)
amounting to P 800,000 for his business needs. During on the mid-year of 2018, Ms. Sis sold
the asset to other party with a markup of 50% of the total cost of the asset. Zonal Value of
the asset is P 750,000. Assessed value is P 700,000 How much is the Capital Gain tax due?
A. P 30,500
B. P 32,500
C. P 30,000
D. P 30,250

Answer: C
Solution:

Selling Price P 1,200,000

Cost of the Asset (800,000)
Gross Income P 400,000

Based on Regular Income tax rate:

Capital Gain tax due [(400,000 – 250,000) x 25%] P 30,000

Note: the asset is use in business so it is an Ordinary asset not Capital Asset [R.B.
Banggawaan, CPA, MBA (2016), Income Taxation – Laws, Principles and Application. Chapter 16 –
Capital Gain Taxation, p. 164]