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Mabuhay Coatings Ltd.

Income Taxation Practice Set

A Final Requirement for the Subject

Income Taxation (TAX 1: Subject Code)

AY 2018-2019

Submitted by:

Aduan, Christian John M.

Alvez, Shania Shaine F.

Cano, Paul Christian Q.

Viray, Renzo Q.

Submitted to:

Crisfolo S. Montareal, CPA


ANALYSIS

SALES

The Sales have no adjustment in Income Statement. The total amount of Sales is
1,421,093,918 pesos. But the Sale of land, sales of shares are subjected to DST which are included in
computation of Schedule of Taxes and Licenses.

COST OF SALES

There’s no adjustment in Cost of Sales. The total amount of unadjusted Cost of sales is the
total amount also in adjusted Cost of sales.

RENTAL

The amount in the official receipts of rent is only 1,500,000. It should be actual rent for the
year, not based on PAS 17.

JANITORIAL and MESSENGERAL SERVICES

The Bureau of Internal Revenue rules that if the company uses Itemized deduction, it should
be supported by any supporting document and it should be correct in name of the business, tin,
address ,etc. In this problem, incorrect name included in OR.

ADVERTSING

The Bureau of Internal Revenue rules that if the company uses Itemized deduction, it should
be supported by any supporting document and it should be correct in name of the business, tin ,
address ,etc. In this problem, incorrect name included in OR.

REPAIR AND MAINTENANCE – LABOR


The Bureau of Internal Revenue rules that if the company uses Itemized deduction, it should
be supported by any supporting document and it should be correct in name of the business, tin ,
address ,etc. In this problem, incorrect name included in OR.
REPAIR AND MAINTENANCE-MATERIALS/SUPPLIES

The Bureau of Internal Revenue rules that if the company uses Itemized deduction, it should
be supported by any supporting document and it should be correct in name of the business, tin ,
address ,etc. In this problem, incorrect name included in OR
.
FUEL AND OIL

The Bureau of Internal Revenue rules that if the company uses Itemized deduction, it should
be supported by any supporting document and it should be correct in name of the business, tin ,
address ,etc. In this problem, incorrect name included in OR.
SECURITY SERVICES

The Bureau of Internal Revenue allows only sales invoice in Seller of goods and official
receipts in Seller of services. In this problem, the company has Non-VAT acknowledgement receipts
after Mabuhay Coatings LTD.

Representation and Entertainment

The Bureau of Internal Revenue rule provides for the following limitations on deductible
representation and entertainment to be 1% of gross receipts for the seller of services.

Interest Expense on Bank Loans

The Mabuhay Coatings LTD. has interest income subjected to 20% final tax and at the same
time incurred an interest expense during the taxable year, the interest expense shall be reduced by
thirty-three percent (33%).

Taxes and Licenses

The Payment of deficiency income tax, payment of surcharge, payment of interest on


deficiency income tax, and payment of compromise penalties did not met the requisites to be
deductible. The documentary stamp tax on sale of land, sale of shares of stock subject to CGT and
OPT are allowable deductions.

Losses

The loss for provision for inventory losses will not be included in the deductible from gross
business income because it does not met the requisites. The casualty losses are deductible.

Provision for Doubtful Accounts

It does not meet the requisites for doubtful accounts to be allowed as deductible from gross
income. The doubtful account is just a provision.

Depreciation

There will be no adjustments for depreciation because it is allowed as a deduction from gross
income to enable taxpayers to recover the acquisition cost of the property used in the practice of
profession, business or trade.

Charitable Contributions

The law specified that the contributions for Education, Health, Youth and Sports
Development, Human Settlements, Science and Culture and Economic Development shall be
deductible as full amount.

Pension Trusts

The allowable deduction as pension trust is equal to the provision for the payment of
reasonable pensions to employees(based on the normal or actuarian valuation) or actual contribution
to the plan whichever is lower, and the excess of actual contribution over the actuarian valuation is to
be amortized over the period of 10 years.

Accrual of Contributions to Retirement fund

This is an allowable deduction in full.

Amortization of Goodwill

For the purposes of valuing a company on the basis of earnings, amortization of goodwill is
simply not an expense. In this sense, amortization of goodwill is not allowable deduction.

Depreciation of Appraisal Increase - Fixed Assets

This is an allowable deduction. Depreciation expense in the Philippines refers to the


reasonable allowance for the exhaustion, wear and tear (including reasonable allowance for
obsolescence) of property used in the trade or business. This allowable deduction for income tax in
the Philippines would allow taxpayer to recover the cost of its property, plant and equipment
throughout the useful life of the property, plant, and equipment in the Philippines.

Loss on Write-off Obsolete Inventories

In this case, this is not an allowable deduction because it does not have supporting
documents.

Write-off of Accounts Receivable

It is allowed as deduction from gross income because the claim was written off within the
taxable year.

Realized Foreign Exchange Gain

Any foreign exchange gain or loss from a functional currency transaction is separate from the
gain or loss in the underlying transaction, and is treated as an ordinary gain or loss; it is not
characterized as interest income or expenses.

Dividend from PLDT

Exempt from tax. The tax is already going to be deducted by the company distributing the
cash dividend. The dividend income we’ll then receive is the income net of taxes.

ForEx Gain Resulting from offsetting of account

Foreign currency exchange (FOREX) gains/losses from collection of receivables and payment
of liabilities are considered realized and are considered taxable gains/deductible losses since these are
considered completed transactions.

Gain on Real Properties subjected to Capital Gains Tax (CGT)

Add back to income


Gain on sale of shares of stock subjected to Other Percentage Tax (OPT)

Add back to income

Reversal of prior year provision for bad debts

Add back to income

Interest income

These interests income on deposits made in banking institutions are passive income which is
subjected to final tax.

Share in equity earnings of Mabuhay Services, Inc. a local subsidiary

The original issue by a corporation of its shares of stock at more or less than the par value or
stated value shall have no recognition of gain or loss. Hence, it is not subject to capital gains tax.

Royalties already subjected to 20% FWT

Add back to income

Insurance proceeds on casualty losses

Net against casualty losses

Unrealized ForEx loss

Unrealized ForEx loss is not deductible.