Bustax and Ia 3

BUSINESS TAXATION
(6 questions; 3 theories 3 problems)
1. Y, a Filipino resident, died on November 5, 2002 and his estate incurred losses due to:
1st Loss: From fire on February 2, 2002 of improvement on his property not compensated by
insurance.
2nd Loss: From flood on February 25, 2003 of household furniture also not compensated by
insurance.
a. 1st loss is not deductible and 2nd loss is deductible
b. Both losses are not deductible
c. Both losses are deductible from gross estate
d. 1st loss is deductible and 2nd loss is not deductible
2. Which of the following shall be included in the decedent’s gross estate?

I. Share in common properties of the surviving spouse
II. Capital or paraphernal property of the surviving spouse
III. Properties outside the Philippines of a non-resident citizen decedent
IV. Intangible personal property in the Philippines of a non-resident alien
a. I only
b. I and II only
c. I, III, and IV only
d. I, II, III, and IV
3. Statement 1: In all cases, void donations are not subject to donor’s tax
Statement 2: Every donation between the spouses during the marriage shall be void
a. Only I is correct
b. Only II is correct
c. Both I and II are correct
d. Both I and II are incorrect
REASON: Moderate gifts between husband and wife during family rejoicing or family
mourning is a valid gift, subject to donor’s tax
4. A resident decedent, single, died February 14, 2018. The estate’s decedent showed the
following:
Real property in the Philippines P4,000,000
Personal property outside the Philippines 2,000,000
Proceeds of life insurance upon the life of decedent, decedent’s estate 1,000,000
designated as irrevocable beneficiary
Proceeds of life insurance, decedent’s spouse designated as irrevocable 500,000
beneficiary
Medical expenses one year prior to decedent’s death (including unpaid amount 700,000
of P 400,000)
Funeral expenses (only P 100,000 paid) 250,000
Claims against the estate 1,000,000
How much is the taxable net estate?

a. P 4,300,000
b. P 4,100,000
c. P 1,000,000
d. None of the above
5. Using the information from the preceding number, how much was the estate tax payable?
a. P 443,000
b. P 388,000
c. P 60,000
SOLUTION:
Real property in the Philippines P4,000,000
Personal property outside the Philippines 2,000,000
Proceeds of life insurance upon the life of decedent, decedent’s estate 1,000,000
designated as irrevocable beneficiary
Total taxable gross estate P 7,000,000
Less: Deductions
Claims against the estate (1,000,000)
Net Estate before special deductions P 6,000,000
Less: Special deductions
Standard deduction (5,000,000)
Taxable Net Estate P 1,000,000
ESTATE TAX PAYABLE: P 1,000,000 x 6% = P 60,000

6. A taxpayer is engaged in VAT-subject transactions but his annual gross sales do not exceed
the VAT threshold. Hence, he did not register under the VAT system. However, during the
current year, his quarterly gross sales follow:
First Quarter P 1,000,000
Second Quarter P 1,000,000
Third Quarter P 1,000,000
Fourth Quarter P 1,000,000
How much is the percentage tax due?

a. P 480,000
b. P 120,000
c. P 90,000
SOLUTION:
First Quarter P 1,000,000
Second Quarter P 1,000,000
Third Quarter P 1,000,000
Total Gross Sales P 3,000,000
Tax Rate 3%
Percentage Tax P 90,000
IA 3
(6 questions; 3 theories 3 problems)
Payments made for income taxes P 760,000

Income tax payable increased by: 200,000
Deferred tax liability, Jan. 1 360,000
Deferred tax liability, Dec. 31 470,000
Deferred tax asset, Jan, 1 85,000
Deferred tax asset, Dec. 31 65,000
1. Income tax expense under accrual basis accounting is:

a. 1,090,000
b. 960,000
c. 850,000
d. 830,000
2. On 15 March 20x1, the entity authorized for issue its annual financial statements for the year
ended 31 December 20x0. On 10 March 20x1, the entity’s factory and several items of
equipment were damaged in an earthquake. The event (quake damage):
a. Is an adjusting event after the end of the 31 December 20x0 reporting period
b. Is a non-adjusting event after the end of the 31 December 20x0 reporting period
c. Is neither an adjusting event after the end of the 31 December 20x0 reporting period
nor a non-adjusting event after the end of the 31 December 20x0 reporting period.
d. None of these
3. A building is owned by a subsidiary (lessor) to earn rentals under an operating lease from
its parent (lessee). The parent manufactures its products in the rented building. The fair
value of the building can be measured reliably without undue cost or effort on an ongoing
basis. The building is:
a. Accounted for as an item of property, plant, and equipment by the subsidiary and an
investment property by the group
b. Accounted for as an investment property by the subsidiary and as an item of property,
plant, and equipment by the group
c. Accounted for as an investment property by both the subsidiary and the group
d. Accounted for as an item of property, plant, and equipment by both the subsidiary and
the group.
4. On 1 January 20x1, an entity acquired a building for P95,000, including P5,000 non-
refundable purchase taxes. The purchase agreement provided for payment to be made in
full on 31 December 20x1. Legal fess of P2,000 were incurred in acquiring the building
and paid on 1 January 20x1. The building is held to earn lease rentals and for capital
appreciation. An appropriate discount rate is 10 percent per year. The entity shall measure
the initial cost of the building at:
a. P88,364
b. P97,642
c. P102,000
d. P107,000
SOLUTION:
₱95,000 including non-refundable tax multiplied by PV of ₱1 @10%, n=1 (or simply divide by
1.1) plus ₱2,000 legal fees = ₱88,364.
5. On 31 December 20X1, an entity has an asset of ₱4,000 for interest receivable that will be
taxed when the cash is received in 20X2. Tax is payable at 20 per cent on the first
₱500,000 of taxable profit earned and 30 per cent on any remainder (i.e., excess above
₱500,000). In 20X1 the entity earned taxable profit of ₱450,000. In 20X2 the entity
expects to earn taxable profit of ₱550,000. What amount should the entity recognize for the
deferred tax liability relating to the interest receivable?
a. P 1,200
b. P 1,000
c. P 940
d. P 836
6. Which of the following statements is correct?
a. According to the PFRS for SMEs, SMEs are prohibited from disclosing earnings per
share and operating segment information.
b. According to the PFRS for SMEs, SMEs are prohibited from preparing interim
financial reports.
c. According to the PFRS for SMEs, SMEs may choose not to present a statement of
comprehensive income if there are no other comprehensive income in any of the periods
for which financial statements are presented, or they may present a statement of
comprehensive income in which the ‘bottom line’ is labeled “profit or loss”.
d. According to the PFRS for SMEs, SMEs should not use titles for financial statements
other than those used in the PFRS for SMEs

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BUSINESS TAXATION

(6 questions; 3 theories 3 problems)

2. Which of the following shall be included in the decedent’s gross estate?

How much is the taxable net estate?

ESTATE TAX PAYABLE: P 1,000,000 x 6% = P 60,000

How much is the percentage tax due?

Payments made for income taxes P 760,000

1. Income tax expense under accrual basis accounting is:

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