INCOME TAX SOLUTION MANUAL
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INCOME
TAXATION
SOLUTION
MANUAL
2019 TRAIN Edition
AUTHOR’S CONTACT
For any queries, commentaries or anything
for consultation. Please feel free to contact
Mr. Rex B. Banggawan at:
Globe #: 0995-464-7728
Facebook: Real Excellence
E-mail: realexcellence@yahoo.com.ph
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specifically encrypted for each college or university.
Please do not allow student access.
Note:
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invited to provide tax seminar or lecture in your
school for a reasonable fee.
1
INCOME TAX SOLUTION MANUAL
Dear Tax Professors,
Greetings in God’s grace!
Our taxation system in the Philippines is besmirched by reported abuses in tax administration and
pervasive corruption. These disheartened many taxpayers not to properly reflect their taxes rationalizing
on corrupt government practices.
Our solemn duty as academician is to lay the foundation for the future correction of this defect in our
society by providing the best tax education our students deserve. Tax malpractices and corruption can be
limited by adequate public tax education.
Most schools fail on their duty in transforming their graduates as agents of change in society because
teaching tends to be too basic or too theoretical to be applied. As our mission, let us give our students more
practical knowledge by giving them the totality of taxation. Even if they are not tax majors, they should be
given the option and the chance to attain high level proficiency in taxation. This could transcend to career
opportunity for them.
Teach well and you will live forever! Your influence will forever stay in the minds and hearts of your
students. That excellence will multiply. Let us give our students a legacy of true competence. Let us give
them the best tax education we can give. Let us give them the type of excellence which is not feigned, not
masked, but real. Always remember that your service to fellow man is a service to God.
Let us join hand to promote a better tax education. Contact me whenever you need assistance. I will assist
in the best way I could. God bless you!
MY HUMBLE REQUEST TO MY BELOVED FELLOW PROFESSORS
Being a teacher myself, I strongly admit that books are excellent partners in classroom teaching. Creating
high quality books requires enormous time investments and efforts. I wrote this book over years of
continuous technical research, tax practice and conceptual refinement through my actual teaching in the
undergrad and in the review.
I am not an entrepreneur. Like you, I am a full-blooded teacher. I teach and write books to empower and
transform people. I hope and pray that you respect the dignity of my work in the same way you value
yours. I am praying that you will NEITHER give the students or reviewees copies of the solution
manual NOR tolerate the photocopying of my book in your classes. As accountants, we must collectively
act under our conscience to be true guardians of integrity. Please help stop book piracy. Please report
suspected counterfeit books to realexcellence@yahoo.com.ph. God bless you!
REX B. BANGGAWAN, CPA, MBA
2
INCOME TAX SOLUTION MANUAL
INCOME TAXATION: LAWS, PRINCIPLES AND APPLICATIONS
TAX TEACHER’S MANUAL
Rex B. Banggawan, CPA, MBA
ABOUT TEACHING METHODOLOGY OF THE BOOK
Please be advised that the book is not written to impress tax experts. The book is intended as a guide to
students for them to understand and master the totality of the income taxation. Because of this, the book is
prepared in a sequential organization of topics. To optimize understanding and concept recall, some topics
may be briefly re-opened for discussion in future chapters of the book. This is not repetition. This is
deliberately intended for students to connect and interrelate new concepts with previous ones.
The book devised a vertical presentation of income taxation and diverted from the usual horizontal or NIRC
approach followed by most tax books. Under the horizontal approach, the tax schemes are discussed
separately for individuals and corporations. It is repetitive, time consuming and results to less accurate
understanding because students do not see the comparison of the two tax schemes for each class of
taxpayers. The vertical approach discusses the tax schemes for both individuals and corporations
simultaneously resulting in efficiency and better accuracy.
To maximize the effectiveness of your lecture, please follow the concept organization of the book. Do not
devise other concept arrangements based on other books. Doing otherwise will only confuse your
students. Other authors have their own methods. We have ours. The income tax teaching methodology of
the book is long proven in the undergrad and in the professional review to optimize understanding and
instill mastery.
Here is a list of some of the numerous student testimonials regarding our book:
1. “I am thanking you because without your books, siguradong nahirapan po ako sa taxation… I know you
are God’s blessing to me, to us. I hope na marami pa po kayong matulungan na students especially sa taxation.”
- May Anne Reyes from UST Manila (Top 7 in the October 2015 CPA Board Exam)
2. “Aminado pu ako wala akong natutunan sa undergrad sa tax kaya binasa ko po ng mabuti yung book nyo
during review. Ang galing po ng pagkakaorganize ng topics at yung presentation madaling
maintindihan. Salamat po!” - Ednel Tanhueco Datu, Pampanga
3. “I am a working student, so pagdating ko sa school di na ako masyado nakikinig sa school sa sobrang pagod.
Weekend lang po ang time ko mag-aral. Pero sa tuwing binabasa ko ang book niyo, para na rin may nageexplain na teacher sa akin… Salamat po! Pinadali ninyo buhay ko.” Francis Reyes Remegio – Holy Angel
University, Angeles City
4. “Very helpful po ng book niyo sa tax Sir. I’m not a student of yours Sir nor have met you in person but one
thing is for sure, many students like me owe so much from you for introducing to us your taxation book.
 God bless po.” Angelica Balubal, Tuguegarao City
5. Replying to a social media user inquiry of which tax book is best, Paulo Relucio Dula replied, “Tax – Rex
Banggawan. Bago lang pero sobrang personal teacherna yung book kapag binabasa”
6. “Good day Sir! Just drop by to say thanks for your wonderful masterpiece, Income Taxation. Truly
simplified, principle-based approach.” – Jhoven Mabaquiao from Divine World College of Legaspi
7. “…. We are using your textbooks both Income and Business and Transfer Taxation. I am very happy with the
way the topics are presented and the books help me a lot in understanding our lessons very well….” –
Joshtien Adorable, BSA student FEU Makati
8. “Good evening Sir. I am an accountancy student from Pampanga. Your book for taxation is amazing. I was
able to appreciate tax even more…” – Mark Angelo Mallari
9. “...Dumali ang taxation dahil sa book mo… Yung dating minememorize lang namin, ngayon naisapuso
na namin even without memorizing kasi the way you illustrate the topic eh naiintindihan agad.” Kusela Mae Uganiza from University of St. Louis Tuguegarao
10. “We find your book comprehensive, simple and direct to the point.” Alberto Calubaquib, Jr. – University of
Saint Louis – Tuguegarao City
The book is your teaching partner. You can capitalize on its teaching capability to lessen extensive lectures.
By following and reinforcing the concept arrangement as the lecture progresses, it will save you more time
and effort; thus, giving you more time in monitoring and assessing student understanding and skills in
applying the tax concepts and procedures.
3
INCOME TAX SOLUTION MANUAL
In teaching, focus on the basics and main points. Let students take care of the details. Do not consume your
time discussing the details. The book is designed to be self-teaching. It can teach students even with
minimal teacher supervision. Students also need some extent of self-learning to develop their self-esteem.
This is particularly vital to their future professional development.
CHANGES IN THE 2019 EDITION
This edition packages all changes introduced by the TRAIN law.
CONCEPTS TO FOCUS
A. Fundamental principles of taxation
1. Theories of cost allocation
2. Tax as a lifeblood to the government (Lifeblood doctrine)
3. Limitations of the taxation power
4. The concept of situs
5. The concept of double taxation and the remedies to double taxation
B. The concept of income – discuss what income is taxable under the NIRC
1. The concept of gross income
a. The different concepts of capital (with finite and infinite values)
b. The meaning of realized benefit – connect this to the ability to pay theory
2. The classification of income taxpayers
a. Individuals (RC, NRC, RA, NRA-ETB, NRA-NETB)
b. Corporations (DC, RFC, NRFC)
3. The situs of income – students need to know the place of taxation of each type of income
4. The difference between active and passive income
C. The taxation schemes
 Emphasize how income is taxed under the NIRC.
 Important: Make sure students well comprehend and mastered the tax schemes.
D. Concepts of accounting periods and accounting methods
1. Accounting period
a. Who uses calendar
b. Who uses fiscal year
c. When to file income tax return in either type of accounting period
2. Accounting methods
a. Accrual basis
b. Cash basis
c. Installment method
E. Exceptional taxation scheme
1. Final income taxation –
Important: Emphasize the importance of mastery of final income tax
a. The list of passive income subject to final tax and their final tax rates
b. Taxpayers subject to final taxation and their final tax rates
Please refer the students to Appendix 1 for the comprehensive list of final taxes.
2. Capital gains taxation –
a. The distinction between ordinary assets and capital assets
b. The particular types of capital assets subject to capital gains tax
c. Computational procedures of the capital gains tax on domestic stocks
1. Transactional and annual compliance
2. Installment payment of capital gains tax on domestic stocks
d. Tax bases and computational procedures to the capital gains tax on real properties
1. Exemption rule and alternative taxation rule
2. Pay as you file and installment payment
4
INCOME TAX SOLUTION MANUAL
Notes for non-accountancy classes
The following specialized and complex and concepts may be dispensed with because they are
time consuming not to mention their circumstantial relevance in practice:
 Wash sales rule
 Tax free exchanges
F. Regular income tax
1. Introduction
Important concepts to emphasize:
a. Regular tax gross income includes all income that qualifies the gross income test in Chapter 3
but is not subject to tax under Chapter 5 and Chapter 6
b. Deductions are deductible from gross income from business only
c. Personal exemptions are deductible from compensation income but a negative compensation
income is deductible to other income
d. Tax reporting of compensation income (highlight the exceptional treatment on fringe benefits –
this serves as a preliminary introduction to Chapter 11)
e. Tax reporting of business or professional income
f. Determination of taxable income
2. Exclusions – discusses income not subject to any income tax schemes
3. Inclusions – discusses income that are subject to regular income tax
a. Compensation income
b. Fringe benefits
c. Dealings in properties
4. Compensation income vs. Fringe benefits
a. Items of non-taxable compensation
b. Components of compensation income
c. Treatment of fringe benefits (those subject to regular tax vs. those subject to final tax)
5. Deductions – discusses expenses of business that are deductible from gross income
a. Itemized deductions
1. Cost of sales or cost of services
2. Regular allowable itemized deductions
3. Special allowable itemized deductions
4. Net operating loss carry-over
b. Optional standard deduction – in lieu of itemized deductions
6. Determination of taxable income
a. Individual income taxpayers
b. Corporate income taxpayers
G. Taxation of individual taxpayers
1. Personal exemption
2. Determination of tax due and tax payable
a. Revisit the computation of individual income tax due in Chapter 7
b. Review the computation of foreign tax credits in Chapter 13-A, foreign tax credit
H. Taxation of corporate taxpayers
1. Special corporations
2. Regular corporations
a. Gross income tax
b. Regular corporate income tax
c. Minimum corporate income tax
3. Improperly accumulated earnings tax
4. Branch profit remittance tax
5
INCOME TAX SOLUTION MANUAL
TEACHER’S SOLUTION MANUAL
CHAPTER 1: INTRODUCTION TO TAXATION
Exercise Drill
1.
2.
C and I (This is non-delegation)
I
11.
12.
3.
4.
5.
6.
7.
8.
9.
10.
I
N (real property tax not income tax)
C
C and I
C
C
N (Non-payment of tax = imprisonment)
C
13.
14.
15.
16.
17.
18.
19.
20.
C
I (“properties” excludes it from being a
Constitutional limit)
C
N (A principle but not a limitation.)
C
C
I
C
N (A principle but not a limitation)
N (Should be non-imprisonment)
TRUE OR FALSE 1
1. False (This is police power.)
2. True
3. True
4. True
5. False (The receipt of benefit is conclusively presumed.)
6. False (Taxation power is inherent to the State.)
7. True
8. False (It is inherent power not requiring Constitutional mandate.)
9. True
10. True
TRUE OR FALSE 2
1. False (Property tax only)
2. False (Different taxpayers warrants different tax treatments.)
3. True
4. True
5. True (It will result to violation of substantive due process)
6. True
7. False (The constitutional guarantee for non-imprisonment applies to debt not tax)
8. False (The Constitution guarantees the sanctity of contract by its non-impairment clause)
9. False (The Constitution requires the majority of all members of congress to pass a tax exemption law
10. False (It will not produce additional benefit if the government taxes itself.)
MULTIPLE CHOICE – Theory: Part 1
1. A
2. D
3. D
4. A
5. D
6. D
7. A
8. A
9. B
10. C
11. D
12. D
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
C
C
B
A (Absolutely)
D
A
D
D
C
C
C
C
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
B
C
C
D
C
A
B
D
A
B
6
INCOME TAX SOLUTION MANUAL
MULTIPLE CHOICE – Theory: Part 2
1. A
2. B
3. B
4. A
5. C
6. D (B is non-delegation)
7. C (There is taxpayer class)
8. C
9. B
MULTIPLE CHOICE – Theory: Part 3
1. B (i.e. category)
2. A
3. C
4. A
5. C
6. A
7. D
8. B
9. A
10.
11.
12.
13.
14.
15.
16.
C
D
C
C
D
C
A (different taxpayer
warrants different
treatment.)
17. B
18. D
19. C (Violation of
territoriality)
20. D
21. A
22. B
10.
11.
12.
13.
14.
15.
16.
17.
18.
C
B
C
B
C
C
A
B
D
19.
20.
21.
22.
23.
B
D
C
D
D (Best being also
inherent.)
24. B
CHAPTER 2: TAXES, TAX LAWS AND TAX ADMINISTRATION
EXERCISE DRILL NO. 1
1.
Percentage tax
2.
Donor’s tax
3.
Regressive tax
4.
Indirect tax
5.
Ad valorem tax
6.
Fiscal/General/Revenue tax
7.
National tax
8.
Excise tax* or sin tax
9.
Estate tax
10. Community tax or residency tax
11. Proportional tax
12. Specific tax
13. Direct tax
14. Regulatory tax
15. Excise tax or privilege tax
*This is different with excise tax as a privilege tax
EXERCISE DRILL NO. 2
1.
Revenue
2.
Tax
3.
Special assessment or Special levy
4.
Customs duties
5.
License
EXERCISE DRILL NO. 3
As to payment
1.
Value Added Tax
2.
Excise Tax
3.
Income Tax
4.
Withholding Tax
5.
Percentage Tax
6.
Documentary Stamp Tax
As to conditions and operations
1.
Gross receipts or sales
2.
Net worth
3.
Gross purchases
6. Tax
7. Debt
8. Toll
9. Penalty
10. Debt
≥ P200,000/quarter
≥ P1,000,000/year
≥ P1,000,000/year
≥ P1,000,000/year
≥ P200,000/quarter
≥ P1,000,000/year
≥ P1,000,000,000 in a year
≥ P300,000,000 at year end
≥ P800,000,000 in the preceding year
7
--- 2019 INCOME TAXATION SOLUTION MANUAL --MULTIPLE CHOICE – Theory: Part 1
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
B
A
C
C
B (best answer, RPT is
local tax as to collection)
A
A
B
C
D
A
B
B
C
C
MULTIPLE CHOICE – Theory: Part 2
1. C
2. C
3. A
4. D
5. D
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
D
D
D
C
D
D
B
A
B
B
A
D
B
B
C
D
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
45.
D
C
A
C
D
B
D
D
A
B
A
D
A
A
6.
7.
8.
9.
10.
C
C
A
D
B
11.
12.
13.
14.
C
D
D
A
8.
9.
10.
11.
12.
13.
14.
15.
D
C
A
A
D
B
D
C
16.
17.
18.
19.
20.
21.
22.
D
C
A
C
D
D
B
MULTIPLE CHOICE – Theory: Part 3
1. B
2. C (LGU for assessed
value.)
3. A
4. A
5. D
6. B
7. B
CHAPTER 3: INTRODUCTION TO INCOME TAXATION
EXERCISE DRILL NO. 1: Return of capital and Return on capital
Consideration
For the loss of
Return OF Capital
Return ON Capital
1.
P 1,000,000
Health
P 1,000,000
P0
2.
P 500,000
P400,000 car
P 400,000
P 100,000
3.
P 300,000
P350,000 building
P 300,000
P0
4.
P 600,000
Income
P0
P 600,000
5.
P 1,200,000
Health
P 1,200,000
P0
EXERCISE DRILL NO. 2: Income tax and transfer tax
Transaction
Income Tax
1. Barter of properties

2. Sale of goods

3. Rendering of services

4. Donation of properties
5. Transfer of properties from a
decedent to his heirs upon death
6. Transfer for less than full and

adequate consideration
Transfer Tax



8
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--- 2019 INCOME TAXATION SOLUTION MANUAL --EXERCISE DRILL NO. 3: The tax concept of income
Item
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
Winnings from gambling
Income from swindling
Indemnity for moral damages
Harvest of fruits from an orchard
Compensation income
Interest income
Amount received by the insured in excess of insurance premiums paid
Proceeds of life insurance received by the heirs of the insured
Gain on sale of goods by the home office to its branch
Gain on sale of goods and services between relatives
Gain on sale of goods by a parent corporation to a subsidiary
corporation
Appreciation in the value of land
Birth of animal offspring
Income of a registered Barangay Micro-Business Enterprise
Cancellation of debt out of gratuity of the creditor
Cancellation of debt by the creditor in exchange of services rendered
by the debtor
Matured interest from coupon bonds
Receipt of bank loan
Salaries of a minimum wage earner
PCSO or lotto winnings
Benefits from GSIS, SSS, Pag-Ibig or PhilHealth
Discovery of hidden treasure (taxable only when sold)
Taxable


Exempt

 *








 *









*This are unrealized income taxable upon realization by sale or disposition
EXERCISE DRILL NO. 4: Income taxpayer classification
Person or Entity
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
A fat Mexican tourist
An overseas Filipino worker
An expatriate employee
A Filipino who is privately employed in the Philippines
An unemployed Filipino residing in the Philippines
A Chinese businessman who have his domicile in the Philippines for 6
months
A Japanese who married a Filipina and residing in the Philippines for 2
years
A 2nd year Korean college student studying in the Philippines
A corporation incorporated under Philippine law
A foreign corporation doing business in the Philippines
Donation of a property in trust designated by the donor as irrevocable
Donation of a property in trust designated by the donor as revocable
A business partnership (Partnership are classified as corporations
under the NIRC, presumption if silent = domestic)
A joint venture organized under a foreign law and is not operating in
the Philippines
An estate of a Filipino citizen judicially administered in the Japan
An estate of a Filipino citizen extra-judicially administered in the
Philippines
A taxable joint venture organized in the Philippines
A non-profit corporation organized in the Philippines
Classification
NRA-NETB
NRC
NRC
RC
RC
NRA-ETB
RA
RA
DC
RFC
RC*
NT
DC
NRFC
NRC*
NT
DC
DC
*Treated as individual income taxpayers by the law
9
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--- 2019 INCOME TAXATION SOLUTION MANUAL --EXERCISE DRILL NO. 5: General Income Tax Rule
Taxpayer
1. Non-resident citizen
2. Resident alien
3. Non-resident alien engaged in trade or
business
4. Resident foreign corporation
5. Resident citizen
6. Non-resident alien not engaged in business
7. Non-resident foreign corporation
8. Domestic corporation
9. Taxable trusts established by a Filipino
citizen in the Philippines (treated as RC)
10. Taxable estate of a non-resident citizen
judicially administered abroad
World
income
Philippine
income









EXERCISE DRILL NO. 6: Location and situs of income
Income description
1. Rey earned P100,000 interest income. 40% of these were
from non-resident debtors.
2. A finance company earned P1,000,000 royalties from a
franchise; 40% of these were derived abroad.
3. Raymond earned P100,000 rent from OFWs in his
apartment in the US. He also earned P40,000 rent from his
Philippine condominium unit.
4. Chester, a resident citizen, works home online and submits
his output to clients. He collected P100,000 service fee from
foreign clients and P20,000 from resident clients.
5. Mark rendered audit services to client in Afghanistan for
P500,000. The services were paid in Afghanistan.
6. Jun has a store in a tourist park in Baguio City, Philippines.
He earned a total of P40,000 gain from selling souvenir
items. 40% were from foreign tourists.
7. Don Mariano sold to his friend abroad a commercial building
located in Quezon City, Philippines at a gain of P2,000,000.
8. John sold his stocks in a domestic corporation to a foreign
investor at a gain of P50,000.
9. Manso received P20,000 dividends from a domestic
corporation and P30,000 dividend income from a nonresident foreign corporation.
10. Andrew received P40,00 dividend from a resident foreign
corporation 60% of its historical income is from the
Philippines.
11. CDO, Inc. manufactures in the Philippines and sells to
unaffiliated export clients. A total of P100,000 gross income
were earned during a period.
12. ABC manufactures abroad and sells to its Philippines branch at
market prices. Production cost abroad were P200,000. Billings to
branch totaled P300,000 while branch sales totaled P450,000.
13. James received P100,000 dividend from a resident foreign
corporation which realized 40% of its income from the
Philippines.
14. Ellis received P20,000 dividend from a non-resident foreign
corporation.
15. Davao plant manufactures tables and sells to resident
clients. A total of P400,000 gross income were realized
during a period.

Within
Without
P 60,000
P 40,000
P 600,000
P 400,000
P 40,000
P 100,000
P 120,000
(situs is where
rendered)
P0
P0
P 500,000
P 40,000 (stitus
is place of sale)
P0
P2M
P0
(situs is location)
P 50,000
P0
P 20,000
P 30,000
P 24,000
P 16,000
(60% x P40,000)
(40% x P40,000)
P 100,000
P0
Income is
presumed within*
P 150,000
P 100,000
P 100,000
P 0
(fails dominance
test)
P 0
P 20,000
P 400,000
P0
*Since manufacturing activity is within, the sale is presumed agreed within. Hence, the entire gain is earned
within.
10
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--- 2019 INCOME TAXATION SOLUTION MANUAL --MULTIPLE CHOICE – Theory: Part 1
1.
2.
3.
4.
5.
6.
C
D
A
A
A
D
7.
8.
9.
10.
11.
12.
B
B
B
B
B
B
13.
14.
15.
16.
C
D
D
A
9.
10.
11.
12.
13.
A
A
C
B
A (The partnership is
presumed organized
herein if silent.)
14. D
15.
16.
17.
18.
C
A
D
C
4. B
5. D
6. D
7. D
Problem 3-9: C (P30K is
expense)
Problem 3-10: D
Problem 3-11: C
Problem 3-12: D
Problem 3-13: D
Problem 3-14: C
Problem 3-15: A
Problem 3-16: D
Problem 3-17: C
Problem 3-18: D
Problem 3-19: D
Problem 3-20: A
Problem 3-21: B
Problem 3-22: C
Problem 3-23:
1. D
2. C
3. B
4. D
MULTIPLE CHOICE – Theory: Part 2
1.
2.
3.
4.
5.
6.
7.
8.
A
B
B
C
D
B
C
A
MULTIPLE CHOICE – Theory: Part 3
1. B
2. A
3. A
MULTIPLE CHOICES – Problems
Problem 3-1: B
Problem 3-2: C (22 + 15-12)
Problem 3-3: C (120 – P80)
Problem 3-4: A
Problem 3-5: C [1M – 120K –
(20Kx4)]
Problem 3-6: C (200 – 20x7)
Problem 3-7: A
Problem 3-8: C
MULTIPLE CHOICES – Case Problems
Case Problem 1
Within



P10,000 interest income from a non-resident Japanese friend
P40,000 interest income from Philippine residents
P500,000 rent income from a commercial complex located in the USA
leased to resident Filipinos
 P200,000 rent income from a boarding house in Baguio City,
Philippines
 P200,000 professional fees rendered to Chinese clients in Hong Kong
 P300,000 salary from a resident employer
 P100,000 gain from sale of merchandise imported and sold to
Filipino residents
 P50,000 gain on sale of merchandise purchased locally and sold
during his business travel in Hong Kong
 P400,000 gain on sale of the boarding house located in Baguio City to
a non-resident buyer
Total
P
Without
P
10,000
40,000
500,000
200,000
200,000
300,000
100,000
50,000
400,000
P1,040,000
P
760,000
11
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--- 2019 INCOME TAXATION SOLUTION MANUAL --Case Problem 2






P500,000 royalty fees from local Hot Burger outlets
P200,000 royalty fees from foreign Hot Burger outlets
P100,000 gain from sales of equipment to foreign franchisees
P200,000 gain from sales of equipment to local franchisees
P50,000 gains from sale of investment in domestic stocks to foreign
investors
P40,000 gains from sale of investments in foreign stocks to Filipino
investors (The stock is presumed stocks of a non-resident foreign
corporation.)
Total
Within
P 500,000
Without
P 200,000
100,000
200,000
50,000
P 950,000
40,000
P 340,000
Case Problem 3
In this problem, billing is based on free market conditions. TC bills its foreign outlet (branch) at the same
rate as it bills foreign clients. The transfer pricing is considered arms’ length.
Gross income without = P2,720,000 x 100/200%
Profit from foreign operation
Billings on foreign operation = P2,720,000 – P1,360,000
Gross income within
From sales to unrelated clients (P3,400,000 x 70%/170%)
Add: Profit on sales to foreign operation
P1,360,000 x 70/170
Total
= P1,360,000
= P 1,360,000
= P1,400,000
=
560,000
P 1,960,000
The answer is A.
CHAPTER 4: INCOME TAX SCHEMES, ACCOUNTING PERIODS AND
ACCOUNTING METHODS
TRUE OR FALSE 1
1. False (Only passive income)
2. True
3. False (They are mutually exclusive. One excludes the others.)
4. True (Active income is subject to regular tax. Capital gains are generally subject to regular tax. There
are only two types of capital gains that are exceptionally subject to capital gains tax)
5. True (Most types of passive income are subject to final tax with the exception of rent.)
6. False (from capital assets, not any assets)
7. Correct (two types: ordinary asset and capital asset)
8. False (The definition of capital asset is a residual definition.)
9. True
10. True
11. True
12. False [Only corporations (and partnerships) can change accounting periods.]
13. True
14. False (The accounting period shall be terminated at the point of death.)
15. True
TRUE OR FALSE 2
1. True (Advanced income is taxable upon receipt)
2. True (Deductible as they are used up or are expired in the business of the taxpayer.)
3. True
4. True (The mix of the different methods is referred to as hybrid method.)
5. True
6. False (Contract price is the total amount receivable in money or property from the buyer. This amount
is usually the selling price but will differ when there is an encumbrance on the property to be assumed
by the buyer.)
7. True (Crop year method is not an accounting period)
8. False (Based on percentage of progress of the construction project)
12
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--- 2019 INCOME TAXATION SOLUTION MANUAL --9. True
10. False (These are tax credits of the recipient of the income.)
11. False (Only capital gains tax and regular income tax has tax returns. Note that final income tax are
withheld at source.)
12. False (Only large taxpayers that meet certain criteria are required to file through the EFPS. Small
taxpayers shall file their returns in their respective Revenue District Office.)
13. True
14. False (The compromise is in lieu of criminal prosecution over a tax violation. It does not apply hand in
hand with imprisonment.)
15. True (The imposition of a penalty upon another penalty is illegal. Hence, the BIR cannot impose the
interest to the amount of the surcharge.)
16. False
17. True
18. True
19. True
20. True
Multiple Choices – Theory: General Concepts
1. A
8. A
2. D
9. B
3. B
10. A
4. C
11. B
5. D
12. B
6. D
13. C
7. D
14. B
15.
16.
17.
18.
19.
20.
Multiple Choices – Problem 4-1: Accounting period
1. B
5. B
2. C
6. B
3. B
7. B
4. C
8. C
C
B
C
A
B
D
9. C
10. A
Multiple Choices – Problems 4-2: Tax schemes and accounting methods
Please pattern your solution to the book illustration. If you encounter any problem, feel free to contact me.
Thank you!
1. A
2. B
3. B (P2M – P1.1M COGS +
P30K + P30K). *
4. D (P2M – P1.1M COGS +
P30K + P40K)
5. C
6. D [(P400K+P150KP100K)+P100K]
7. C [P900K GP x
(P600K/P2.4M)]
8. C (P 1M-P600K)
9. D [(P250K 2015GP x20%)
+ (P360K 2016GP
x62.5%)]
10. A
11. B [P540K 2015GP x
(P300K/P1.35M)];[(P540
K 2015GP x
P360K/P1.35M)+P720K
2016GP]
12. C (350K/1.2M x 400K)
13. A
14. B (80% x P1M – P600K)
15. B
16. A [(P40M x 10/50)/40]
17. B (Lease will not
commence until building
completed).
18. A [(P1.2M x4/12)/8]
19. B
20. D (P900K SALES-P400K
EXP +P50K)
*Note that the deductible amount for inventory (a form of prepayment) shall be the expired (sold) portion for both cash basis
and accrual basis. Advanced income is taxable upon receipt for both methods. For cash basis collected income excluding accrued
income is included. For both accrual and cash basis, unrealized income is not subject to tax.
Multiple Choices – Problems 4-3: Tax Compliance
1. A, computed as (196/365) x 12% x P40,000 = P2,278
2. C (P40,000 x 25%)
3. D (50% surcharge apply. There is a BIR prior notice.)
4. C
Since this is an assessment after Dec. 31, 2017, TRAIN law counting rule applies:
April 16, 2017 to December 31, 2017 is 260 days.
P100,000 x 20% x 260/365
P100,000 x 12% x 15/365
Total
P 14,246.57
493.15
P
14,740
13
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--- 2019 INCOME TAXATION SOLUTION MANUAL --Note teachers that the “exact day method” will be used for all assessment starting January 1,
2018 even if the assessment covers NIRC era tax deficiency or delinquency.
5. B, please check the Appendix (For unpaid tax amounting P50,000 but not exceeding P100,000, the
compromise penalty is P15,000).
6. The problem has no answer. April 16, 2020 to July 18, 2020 is 94 days. P1M x 12% x 94/365) =
P30,904. You may consider rewarding students who objectively answered P30,904. Good student
should have identified the lack of answer and objectively indicated their correct answer.
7. C (50% apply since he received a notice from the BIR before filing)
8. A (The return deadline is December 15, 2019. December 16, 2019 to June 6, 2020 is 174 days. Note that
February 2020 is 29 days since 2020 is a leap year. Hence, P500,00 x 12% x 174/365 = P28,603.
9. A (interest penalty + 500K + 25%xP500K)
CHAPTER 5: FINAL INCOME TAXATION
Note: Please share these rules of presumptions to your students
If the problem is silent regarding the identity or characteristics of the taxpayer in a particular case, the
following presumption rules are followed in answering:
a. Between whether the taxpayer is an individual or a corporation, an individual taxpayer is
presumed
(This is because there are more individuals than corporations.)
b. Between whether the individual is resident or non-resident, residency is presumed
(This is because we are very likely to be of concern with resident entities than non-resident entities.
c. Between whether the corporation is domestic or foreign, domestic is presumed
(This is because there are more domestic corporations than foreign corporations.)
d. Between whether the foreign corporation is resident or non-resident, resident corporation is
presumed
(This is because we are very likely to be of concern with resident entities than non-resident entities.
TRUE OR FALSE 1
1. True (Final tax on interest covers only interest income from banks and trust funds)
2. False
3. False (Final tax applies only on identified passive income from sources WITHIN.)
4. True (They are considered deposits substitutes.)
5. False (Passive income are generally subject to final tax, but not ALL)
6. True
7. False (Only inter-corporate dividend from DOMESTIC corporation)
8. False (Only individual taxpayers are exempt)
9. True
10. False (REIT dividends are generally subject to 10% final tax.)
11. False (Stock dividend is generally exempt, except when it confers upon the recipient an interest
different from what he previously owned or when the declaration of stock dividends amounts to a
declaration of cash dividends.)
12. False (The NIRC did not contemplate final taxation of prizes on corporations, hence, corporate prizes is
deemed subject to regular income tax.)
13. False (subject to final tax of 10%)
14. False (They are exempt from any income tax.)
15. True (Only resident aliens are subject to 7.5% final tax.)
16. False (Active royalties are subject to regular tax. Passive royalties are subject to final tax.)
17. False (It applies only to non-resident foreign corporations)
TRUE OR FALSE 2
1. False
2. False
3. False (Passive income abroad, including winnings are subject to regular tax.)
4. False (This rule applies to taxable price.)
5. False (PCSO / lotto winnings are now generally subject to 20% final tax)
6. True
7. False
14
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--- 2019 INCOME TAXATION SOLUTION MANUAL --8.
9.
10.
11.
12.
13.
14.
15.
False (Active or passive income are subject to final tax)
True
True
True
False (It is exempt)
True
False (On the 10th day, not on the 15th day)
True (They are exempt from income tax: final tax, capital gains tax or regular income tax.)
Multiple Choices – Theory 1
1. A
2. B
3. D
4. D
5. B
C
A
D
C
C
11.
12.
13.
14.
15.
A
C
C
C
A
would result in multiple
answers hence inconsistent with
the problem. Student should use
the law which gives the rational
answer. That is, they should use
the NIRC.
12.
13.
14.
15.
16.
17.
18.
D
A
A
D
D
D
C
6.
7.
8.
9.
C (P80K/80% X 20%)
C [(P1M X 10%) X 80%]
D (P100K X 30%)
B [(P1M X 10% X 6/12) X
20%]
10. B [(P1M/4 X 10%) X 20%]
11. A
12.
13.
14.
15.
A
B [($1M X 8% X 15%)/2]
A
D [($1M X 10% X 15%) X
P45]
Multiple Choices – Problems 2
1. C If we assume the $46,250 as
4. D (A resident corporation is a
2. B
3. C (P1M X 60% X 10%)
5.
6.
7.
8.
9.
10.
11.
12. D
13. C (P1M X 40% X 10%) The
Multiple Choices – Theory 2
1. B
2. B
3. D
4. B
5. D
6. D
7. A
This problem is a transition
problem. Applying TRAIN law
Multiple Choices – Problems 1
1. D [(P2M X 180/360) X
8%X20%]
2. C (P80K X 25%)
3. A (P42,000/80%) X 20%
4. A
5. C [(P2M X 10% X 4.5) X
5%]
net of tax, there would be no
answer [i.e. $46,250/85%) x
15%]. The next correct
assumption is that $46,250
gross is credited then the
account must be debited for
$46,250 x 15%.
Multiple Choices – Problems 3
1. B (P22,100 X 20%)
2. A (The P10K final tax threshold
on prizes is on a per event and
per organizer basis).
3.
4.
5.
6.
7.
8.
9.
10.
D
D
B (P500K X 20%)
D
D (P1M maximum x 90%)
A
C (P1M X 8.75%/70% X 30%)
C
6.
7.
8.
9.
10.
8.
9.
10.
11.
C
C
D
A
foreign corporation)
A (P120K X 24%)
B (P100K/90%) X 10%
B (P200K X 40% X 10%)
D
C (P200K X 10%)
D
D
problem is asking for final tax to
be withheld to all not from the
dividend income of Sison.)
14. A (P800K/80% X 20%)
15. B (P8M X 10% X 80%)
interest is P90,000 x 20% x
10/360, compromise is P15,000
per table.) Total amount due is
P90K+22.5K+500 + P 15K =
P128,000
tax rate = P240,000). The
surcharges shall be P240,000 x
25% = P60,000. The interest
shall be P240,000 x 20% x
30/360 or P4,000. Total
penalties before compromise =
P64,000.
Note: This is an NIRC case not a
TRAIN law case since
compliance date is March 20,
2017.
This is also an NIRC assessment
era assessment case.
11. D (Surcharge = P90,000 x 25%,
12. C (The interest payment was
actually P1,200,000 x 20% final
15
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--- 2019 INCOME TAXATION SOLUTION MANUAL --CHAPTER 6: CAPITAL GAINS TAXATION
Note to Professors:
You may assign the special tax rules in capital gains or loss measurement (wash sales and tax-free
exchanges) to student for their detailed study at home. These are time consuming topics which may eat too
much classroom time. You may focus on the basic rules of the 5% and 10% CGT and the 6% CGT. These
specialized topics may be skipped for non-accountancy students.
Need emphasis:
In law, documentary stamp tax (DST) is payable by either the seller or buyer. If paid by the seller, the same
is deducted in the measurement of the gain. If assumed by the buyer, it should not be deducted against the
gain.
TRUE OR FALSE 1
1. True
2. True
3. True
4. False
5. False
6. False (See sales of RFC and the RIT option on
individual sale to government)
7. False
8. True
9. True
10. True
TRUE OR FALSE 2
1. True
2. False (or the fair value whichever is lower)
3. False (by moving average method)
4. False (adjusted basis of the shares received)
5. True
6. True
7. False (not downpayment but initial payment)
8. True
9. False (not selling price but contract price)
10. True
11. True
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
True
True
True
False
False
False (only domestic stocks)
True
False (tax is based on selling price)
False (tax is based on SP or FMV)
False (only real property capital assets
within)
12.
13.
14.
15.
False
True
True
False (Assessed Value and Zonal value are
independent valuations)
True
False (foreign corporations are exempt)
True
False (Only on domestic stocks.)
True
16.
17.
18.
19.
20.
Multiple Choices – Theory: Part 1
1. C
2. A
3. C
4. D
5. D
6. C
7.
8.
9.
10.
11.
12.
A (NIRC question)
C
D
A
C
D
13. A
14. D (MOST CORRECT
TECHNICAL ANSWER! )
15. C
Multiple Choices – Theory: Part 2
1. D
2. C
3. D
4. D
5. C
6. A
7.
8.
9.
10.
11.
12.
C
D
C
B
D
D
13.
14.
15.
16.
17.
A
D
B
A
B
Multiple Choices – Theory: Part 3
1. A
2. C
3. A
4. B
5. C
6.
7.
8.
9.
10.
D
A
D
C
D
11.
12.
13.
14.
15.
A
B
D
D
A
16
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--- 2019 INCOME TAXATION SOLUTION MANUAL --Note to professors:
1. If the problem is dated 2017 and prior years, apply NIRC. If the problem is dated 2018 onwards, use
TRAIN law. If the problem is silent, use TRAIN law. If the problem is inconsistent with TRAIN law by
having no answers or having multiple answers, apply NIRC.
2. If the problem did not provide documentary stamp tax on the sale of stocks, ignore it in the computation
of the net gain. The understanding is that the buyer paid for the DST. If the problem provided the
documentary stamp or data (i.e. par value) which enables us to compute the same, we deduct the
documentary stamp tax expense in measuring the net capital gain. The question is implying that DST is
relevant to the case otherwise it would not have provided it.
Multiple Choices – Problems: Part 1
1. A [The net gain is (P200K
8.
– P5K – P8K) x 15%]
2. A
9.
3. D
4. D
5. D
6. A (DST=P300K x
1.5/200=P2,250).
10.
[(P500k-P350k-P2, 250
dst-P100k) x 15%]
7. B [(P350K-300K) X 15%]
11.
A (Stocks is an ordinary
asset to a dealer in stocks)
A This is NIRC. [P92K(P20K X 2 per share of the
1st purchase) -(P20K X 2.1
per share of the 2nd
purchase)] X 5%
B This is NIRC. [P92K(P40K X 2.06 WA per
share)]x 5%
D
Multiple Choices – Problems: Part 2
1. A. The cost per share as of
2. C [(P50k Dp. + P50K
5/1/2020 is 11.2 per share
computed as (P112K-P100K)
X 8/10] +P80k) =
P89,600/8,000 shares as of
5/1/2020. The CGT on
6/7/2020 is computed as
[P60K-(5K x 11.2)]
inst.)/P500K] x P45K Total
CGT
3. B [(P300K - P1.5K dst) x
15%]
4. A (P1.5/200 x P200K)
12. B [ P320K-(2K x 30)- (8K x
25)]
13. C [(120K-10K+250K) x
15%
14. B [(P120K-P100K) +
P240K]
15. A (through PSE)
16. A (through PSE)
5. C (P40K x 5K/20K). Note
5K shares were not
covered-up.
6. D [(P40K x 15K/20K) +
P160K]
7. C [(1,500 x (P120-P90)] –
1,500 x 85 x 1.5/200) x
15%
8. A
The documentary stamp tax is P1.5/P200 of par value. It is 0.0075 of the par. Hence, the par value must
have been P7,500.00/.0075 = P1,000,000, the cost would have been P1,500,000 (P1M x 150%). At the
date of sale, the value of the stocks doubled to P3,000,000 (P1.5M value at purchase x 2).
9. D
The net gain is P3M-P1.5M = (P1.5M – P7,500 – P10,000) x 15%.
10. A (nearest answer)
Basic tax due (140K x 15%)
Surcharge (21K x 25%)
Interest (21K x 90/365 x 12%)
The exact answer
P
P
21,000
5,250
621
26,871
Deadline is March 22 since February 2019 is a 28-day period. March 22 to July 20, 2019 is 90 days. 360
days was inadvertently used in the interest computation resulting into 630 interest. This would yield
P26,880, the question answer. Consider rewarding students who indicated the exact answer.
Note to professors:
In the CPA Exam, examinees must be able to identify defective assumptions of the examiner in the problems when
the exact technical solution is not with the choices. They are not supposed to shade letter E. When the most correct
solution does not yield an answer, examinees must test every possible assumption the examiner used. The rule of
the game is getting the “intended answer” when the technical answer is not with the choices.
Multiple Choices – Problems: Part 3
1. A
5.
2. D
6.
3. C (P3.2M x 6%)
7.
4. A (Parking lot is an
8.
ordinary asset.)
9.
D (P2.5M x 6%)
C (P1M x P1.8M/P2M)
B (P150K x P1.5M/P2M)
D (P5K x 500 +1.5M) x 6%
D (13M x 6%)
10. A (P12M x 6%)
11. A
12. B (P12M/1K x 15)
17
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--- 2019 INCOME TAXATION SOLUTION MANUAL --Multiple Choices – Problems: Part 4
1. A (Initial acquisition of
4.
control is a tax-exempt
5.
transaction.)
6.
2. B
7.
3. C [(P 200K-P100K) x 10%]
8.
+ P5K
9.
B
C
D [(P250K-P100K) x 15%
B
C
D
10. E* (No answer)
11. C**
12. B (P4M x 7.5%)
*No. 10: No answer
Basic tax due (P2.5M x 6%)
Surcharge (P150,000 x 25%)
Interest (P150,000 x 12% x 366/365)
Exact answer
P
P
**No. 11:
Higher of selling price or fair value (P9,000 /1.5%)
Multiply by: Tax rate
Capital gains tax
P
P
150,000
37,500
18,049
205,549
600,000
6%
36,000
CHAPTER 7: INTRODUCTION TO REGULAR INCOME TAX
TRUE OR FALSE 1
1. True
2. False (NRA-NETB and NRFC are subject to FIT)
3. False
4. False
5. True
TRUE OR FALSE 2
1. True
2. False
3. False (only against business gross income)
4. True
5. False (deductions apply to individuals and
corporations)
6.
7.
8.
9.
10.
True (As a rule)
False
True
False (only in lieu of personal expense)
True
6.
7.
8.
9.
10.
True
True
True
True
True (effectively, yes)
Multiple Choices – Theory: Part 1
1. C
2. A
3. D
4. C
5. A
6. D
7. A
8. D
9.
10.
11.
12.
13.
14.
15.
16.
B
B
D
B
B
A
C
D
17.
18.
19.
20.
21.
22.
C
D
A
A
D
A
Multiple Choices – Theory: Part 2
1. D
2. D
3. C
4. D
5. A
6. A
7. B
8. A
9. D
10.
11.
12.
13.
14.
15.
16.
17.
18.
A
B
A
B
B
D
C
D
A
19.
20.
21.
22.
23.
24.
25.
C
D
D (best answer)
D
A
B
A
Multiple Choices – Problems 1
1. A (P400K-P100K+P3K)
2. C (P300K+P5K-P50K)
3. A (P800K-P300K-P100K)
4. D (P200K-P150K)
5. A (P500K-P200K+P8K)
6. C (P50K+308K)
7. B [(P120K CI-P150K PE)+
P300K BI + P8K OI]
8. A (P450K- P100K)
18
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--- 2019 INCOME TAXATION SOLUTION MANUAL --9. C [(P350K-P250K) X
30%]+ P50K
10. A [(P4M-P2M)+(P6MP3.6M+P80K)-P75K]
11. C (P4M-P2M-P75K)
Multiple Choices – Problems 2
1. B [(P10M-P8.7M)+(P12M-P9.8M+P200K)]
2. C (P3.7M X 30%)
3. D (P10M-P8.7M)
4. A (P1.3M X 30%)
5. B (P10M+50K+80K) x 30%
12. A [(P1925K-P500K) X
32%]+P125K
13. D (P1M+40K) x 25%
6. A (P20K Deposit+P100K Royalty+P50K
Dividend)
7. B (P200K BI+ P300K CI+ P100K
Lending+P20K Car+ P10K Furniture)
8. B ( The P40K sale directly to buyer)
CHAPTER 8: REGULAR INCOME TAX: EXCLUSION FROM GROSS INCOME
TRUE OR FALSE 1
1. True
2. True
3. False
4. False
5. False (Other requisites
exist.)
6.
7.
8.
9.
10.
11.
TRUE OR FALSE 2
1. False
2. True
3. False (It depends on
source and amount)
4. True
5. True
6. False
Multiple Choices – Theory 1
1. C
2. B
3. C
4. D
5. B
Multiple Choices – Theory 2
1. D
2. D
3. A
4. B
5. A
6. C
True
True
False
True
True
True
12.
13.
14.
15.
True
False
False
False
7. True
8. True (As a rule)
9. False (They are still
taxable on income from
unrelated operations.)
10. True
11. False (More than 5 years)
12.
13.
14.
15.
True
False
True
False (The rule is total
asset, not net asset)
6.
7.
8.
9.
10.
B
A
D
B
C
11.
12.
13.
14.
15.
A
D
C
A
C
7.
8.
9.
10.
11.
D
C
A
C
B (Old question, C is also
acceptable.)
12.
13.
14.
15.
C
A
C
A
Multiple Choices – Problem: Part 1
1. D
7. D (The excess is payment
2. D
for health)
3. C
8. A (P2M – P.8M + P.5M).
The P800K is exempt but is
4. C
not specifically mentioned by
5. B (the P100K premium is
the law as exclusion.
an expense)
9. C (P1.8M+P.4M)
6. B
Multiple Choices – Problems: Part 2
1. B (This is voluntary
8.
resignation.)
2. A
3. A (She is 48-year old.)
4. C
9.
5. D
10.
6. D
7. A (125 + max 100 PERA)
C (The interest income is
included in gross income
while the gain on sale is
excluded.)
D
B (P9K and P6.8K are
inclusion to gross income
subject to final tax)
10. C (Income from related
operations only)
11. B (P25+P12+P9+P10+P5)
12. C
13. C
14. D
11.
12.
13.
14.
B (9K + 6.8K)
C (P400K+20K+18K)
A
C (Income from property
and commercial activity is
taxable.)
15. D
19
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--- 2019 INCOME TAXATION SOLUTION MANUAL --CHAPTER 9: REGULAR INCOME TAX: INCLUSION IN GROSS INCOME
TRUE OR FALSE 1
1. True
2. True
3. False
4. True
5. False
6. True
7. True
8. True
TRUE OR FALSE 2
1. True (Not final tax)
2. False (Not taxable)
3. True
4. True
5. False (FIT do not apply
abroad)
6. True
7. True (generally, exception
is when no tax benefit is
derived)
8. False (This is a normal
realization of income)
9. False (No tax benefits).
Multiple Choices – Theory: Part 1
1. D
2. A
3. C
4. C
5. B
6. C
7. D
Multiple Choices – Theory: Part 2
1. A
2. D (The best answer*)
3. D
4. B (Note: “progressive” tax)
5. C (Those taxable on world
income)
9.
10.
11.
12.
13.
14.
15.
True
True
True
False
True
True
False (Subject to RIT, as a
rule)
16. False (Taxable if there is
an alternation in interest
after declaration.)
17. True
18. False
19. True
20. True
10. False (GPPs are also
exempt from FIT and
CGT.)
11. False
12. False (It depends. There is
tax benefit to the excess of
the recovery over the
loss.)
13. True (No tax benefit)
14. False (This is carried over
as NOLCO in the future
measurement of the
income of the GPP.)
15. False (Accounting
method)
16.
17.
18.
19.
20.
8.
9.
10.
11.
12.
13.
14.
B
B
C
B
D (This is withholding tax)
D
A
15.
16.
17.
18.
19.
6.
7.
8.
9.
10.
B (This is an old question.)
D (subject to final tax)
B
C
C
11. D (The situs on interest on
domestic bonds is within.)
12. B
13. D
14. C
15. A
21.
22.
23.
24.
25.
26.
27.
False
True
True
False
False (applicable to all
taxpayers)
True
False (not required)
True
False (including domestic)
True
False
True
A
A
C
D
B (No CGT on real
property for FCs.)
20. A
*D is the best answer. Passive royalties are generally subject to final tax; hence, non-reportable. However, passive
royalties earned from sources abroad are subject to regular tax, hence reportable. The capital gain on sale of stocks
through PSE is not subject to tax; hence, non-reportable.
Multiple Choices – Problems: Part 1
1. D (P800K-P124K+P150K)
8.
th
2. C (P400K-P20K). 13
9.
month pay is below P90K.
10.
3. B (P480K+P80K+P1M)
11.
4. A (P1.5M GP +P200K
12.
Commission income +
P20K Interest income
13.
from customers)
14.
5. C
15.
[(P400K+P300K)+P70K+P
16.
30K]
17.
6. C
7. A [(P1.9M/95%)+P50K]
C (P30K+P70K+P10K)
A (P3M-P2.4M)
A
B (P600K+P200K)
D [P400K+P200K+(P35KP30K)]
B
C
B
A
C (Not D. There is tax
benefit by carry-over.)
18. C (The NOLCO has no tax
benefit.)
19. D
20. B (Only interest is
deductible and hence have
tax benefits.)
21. A (P40K + P4K), Note that
basic local tax and interest
are deductible.)
22. B (As is method.)
23. C (As is method.)
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--- 2019 INCOME TAXATION SOLUTION MANUAL --Multiple Choice – Problems: Part 2
1. D (P500K x 20% (Exempt JV similar to GPPs
are not subject to FIT, their passive income is
part of the distributable income taxable to
their venturers.)
2. A (P490K – P200K – P120K)
3. C (P120K – P30K)
4. D (P90K + P170K)
5. D (P1,140K)/2
6. A (Subject to final tax since this is a business
partnership.)
7. A (This is an old question. This is subject to
final tax)
8. D*
9. D (Gains on long term bonds with more than
5 years is exempt. No holding period rule for
corporation. Holding period will be discussed
in Chapter 12.)
10. A (DCs are taxable on world income but the
capital gains on real property is subject to
CGT. Hence, P300K+P800K+P200K)
11. C (RFCs are taxable only on Philippine income
but are not subject to CGT on real properties;
hence, P300K+P400K)
12. C (RAs are taxable only on Philippine income
but are subject to CGT on real properties;
hence, P300K only)
13. C (P800K+P100K+P400K+P200K)
14. D
15. B (P10K +P400K prizes abroad+P100K
winning abroad). Note prizes not exceeding
P10K are subject to RIT.
16. C (Corporate prizes and winnings are subject
to RIT. DC is taxable on world income while
RFC is taxable only on Philippine taxable
income.)
17. A (Income from related operations are
exempt. The unrelated income is subject to
final tax)
18. A (This is subject to 5% GIT.)
19. D (P400K-100K cost of services + P8K)
20. A [None to report since all the income are
subject to final withholding tax (i.e. no ITR)]
*The employee will not be subject to final tax notwithstanding satisfaction of the compensation threshold test because he is not a
managerial or technical employee
Multiple Choice – Problems: Part 3
1. D (P80K+P100K)
2. B (P150K+P120K)
3. D (P45K + P5K)
4. D (P66,600 + P600 – P7,200)
5. C (P79,200/99%). There is no VAT because the taxpayer is non-VAT.
6. A (P45,900 is inclusive of 12% VAT but net of 10% CWT. It is 102% (100%+12%-10%) of the gross
income). Hence, P45,900/102% = P45,000.
7. A. ZERO. Interest income is subjected to final tax. The same is not subject to regular income tax.
8. A. ZERO. (Income is subject to final tax.)
9. B (P12M x 80% = P9.6M goods transferred x 50% markup = P4,800,000. This should be the gross profit
of the resident foreign corporation subject to Philippine income tax.
10. C (P500,000 sales x 40% = P200,000)
CHAPTER 10: COMPENSATION INCOME
TRUE OR FALSE 1
1. True (This is an NIRC
concept.)
2. False
3. True
4. True
5. True
6. False (Generally taxable)
7. False (Considered resident
citizens and taxable)
TRUE OR FALSE 2
1. False
2. True
3. False
4. False (There are directors
who are part of
management.)
5. True
8.
9.
10.
11.
12.
13.
14.
True (As a rule)
True
False
False
True
True (As a rule)
False (No limit for
government employees)
6. False (still MWE, but
taxable on business
income)
7. True
8. False (whichever is
higher)
15. False (Under current rule,
only those listed by the
regulations)
16. False (rank and file only)
17. False (Vacation leave
credits not sick leave
credits)
18. True
9. False (For a foreign bank,
FCDU or EFCDU for a local
bank)
10. False (Note position and
function test)
11. True
12. False
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--- 2019 INCOME TAXATION SOLUTION MANUAL --13. True
14. True
15. True (Non-resident citizen
with income abroad)
16. False (Considered resident
citizen in taxation)
17. False (100% exempt)
18. False (regular
compensation)
19. False (taxable to final tax)
20. True
21. False
22. True
23. False (Exemption is
prospective)
24. True
25. True
26. True
Exercise Drill No. 1
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
Rank and file
employee
DM
SC
DM
DM
OB
RC
DM
OB
OB
DM
DM
EB
OB
RC
SC
OB
SC
SC
EB
RC*
OB
DM & OB for excess
EB
EB
SC**
Manager or
supervisor
DM
SC
DM
DM
OB
RC
DM
OB
OB
DM
DM
EB
FB
RC
SC
FB
SC
SC
EB
RC*
FB
DM & FB for excess
EB
EB
SC**
*Note, this is integrated to the basic pay of the employee and is not separately paid for
**The 13th month pay and other benefits exceeding P82,000 is also considered a supplemental compensation
Exercise Drill No. 2
1.
Limit
P62.50/day
Annual Excess
P5,925
(P37.50/day x 158 days)
2.
P4,000 year,
P2,000
(P6,000 x 10/15)
3.
P250/mo.
4.
5.
6.
P0
P10,000/year
P6,000/year
7.
P300/mo.
P9,000
(P750/mo. x 12)
P6,000
P2,000
P2,000
(P2k x 4 – P6k)
P2,400
(P200/mo. x 12)
8.
9.
10.
P 0*
P5,000/year**
P2,000/mo.
P 10,000
P3,000
P12,000
(P 1,000/mo. x 12)
*This should be in non-cash to be exempt.
**This limit pertains to both anniversary gift and Christmas gift
Note: Medical allowance to dependents is P1,500/semester translated to P250/month.
22
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--- 2019 INCOME TAXATION SOLUTION MANUAL --Exercise Drill No. 3
Basic salary
Less: Employee share in SSS, PHIC, HDMF and union dues
Regular compensation income
Supplemental compensation – OT
13th month pay and other benefits (P21,000 – P82,000)
Gross taxable compensation income
P 250,000
24,000
P 226,000
16,000
0
P 242,000
Note: The SSS benefits and retirement pay are exempt
Exercise Drill No. 4
13th month pay
Profit sharing (this is supplemental)
De minimis benefits
De minimis within their limits
Excess de minimis benefits
Other de minimis benefits
Other fringe benefits
Total 13th month pay and other benefits
Less: Exclusion limit
Taxable 13th month pay and other benefits**
Rank & File
Employee
P 60,000
0
30,000
10,000
25,000
P 125,000
90,000
P 35,000
Managerial/
Supervisory
P 60,000
0
P
P
***60,000
90,000
0
*Taxable under fringe benefits tax
**This will be included in compensation income as supplemental/additional compensation
Exercise Drill No. 5
1.
2.
Progressive tax
P 1,420,000*
P 1,408,000**
Fringe benefits tax
P0
P 13,000
*P1,068,000 + P340,000 + (P89,000 + P13,000 – P90,000)
**P1,068,000 + P340,000; Note 13th month is below P90,000 threshold
Exercise Drill No. 6
1.
2.
P 48,000
P 97,000*
*13th month pay do not exceed the P90,000 threshold; hence, not taxable
Multiple Choice –Theory: Part 1
1. D
2. C
3. C
4. A
5.
6.
7.
8.
Multiple Choices – Theory: Part 2
1. A
2. D
3. A
4. B
5. A
6. D
7. C
8. D
9. C
10. C
11. D (NIRC limit is P1,500.
Now P2,000/mo.)
12. D
13. C and D
14. B
15. C (Statement 2 depends
on type of employee.)
16. B
17. C
18. C
C
C
A (i.e. employee)
B
9. D
19.
20.
21.
22.
C
D
A
D (Embassies have tax
immunity and cannot be
obligated to withhold by
virtue of international
comity.)
23. B
23
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--- 2019 INCOME TAXATION SOLUTION MANUAL --Multiple Choices – Problems: Part 1
1. B (P300,000 + P30,000)
2. C (P1,068 – 44 + P45)
3. A (P20,000 x 12 – P18,000)
4. B (P11,000 x 12 + P12,000 OT– P5.2K exclusions)
5. A
Note that Johnny is a minimum wage earner for being a recipient of annual salary of P60,000. Note that
overtime is an exempt benefit to a minimum wage earner. Note also that his 13 th month pay and other
benefits do not exceed P90,000.)
6. C {P128K regular + P8K supplemental + {(P120K x140/150 + P12K) – P90K}]
Note that the retirement benefit is exempt.
7. C (P1,090 + 240 + 5)
8. C (P258K regular – P24K + P20K supplemental + P0 excess)
9. A (P780K regular + P43K supplemental + P19K excess computed as [P65K + (P22K –P10K) + P32K) –
P90K]
10. B (P780K regular + P43K supplemental + P0K excess computed as [P65K – P90K]
Multiple Choice – Problems: Part 2
1. C (P12K + P12K + P8K + P24K)
Note that the 13th month pay and other benefits in excess of P90,000 is part of additional or
supplemental compensation. However, in this case, the 13th month pay and other benefits did not
exceed the P90,000 exclusion threshold.
2. D (P8K + P24K).
3. C (P 45,000 – P30,000)
4. Please disregard choices. There was a computational slippage. Consider giving extra points for
students who provided the correct amount of answer.
Exempt de minimis: P 24,000 rice allowance + P5,000 Christmas gift = P29,000
5. Non-taxable compensation income:
13th month pay and other benefits
Exempt de minimis
Contribution to SSS, PhilHealth and HDMF
Total non-taxable compensation
P
P
90,000
29,000
21,000
140,000
6. Supplemental compensation:
Commission income
P
th
Excess 13 and other benefits
(P45,000 + P45,000 + P2,000 + 3,000 – P90,000)
Total supplemental compensation
P
12,000
5,000
17,000
7. Taxable compensation income:
Regular compensation (P540,000 – P21,000)
Supplemental compensation
Taxable compensation income
Alternatively:
Gross compensation (540+45+45+26+12+8)
Less: Non-taxable compensation
Taxable compensation income
P
P
P
519,000
17,000
536,000
P
676,000
140,000
536,000
P
982,000
8. A [P1,080 + 5 x 12 + (95-90)]
9. D
Regular compensation (P1,044K – P62K)
Supplemental compensation
(P87+5K+24K addcom + 100x 12 – 90K)
Taxable compensation income
27,200
P 1,009,200
24
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--- 2019 INCOME TAXATION SOLUTION MANUAL --10. D (P314K + 12K + 24K); Note 13th month and other benefits is below P90K exclusion
11. No answer. P300 x 12 + 5,000 = P8,600
12. B
13th month
Excess de-minimis (P8,000 – P3,600*)
13th and other benefits (i.e. below P90K)
De minimis ( P5,000 + 3,600)
Total non-taxable income
P
P
P
28,000
4,400
32,400
8,600
41,000
*P3,600. Note that the P500/month rate given does not match with the P8,000 annual total indicating
that additional allowances were given. Hence the P8,000 shall be used in the computation.
13. B (33K + 33K + 3K + 6K – 1.2K – 1.2K)
14. B (24,750 + 6,000 – 1,100)
CHAPTER 11: FRINGE BENEFITS TAX
TRUE OR FALSE 11-1
1. False
2. False
3. True
4. True
5.
6.
7.
8.
True
False (Final tax)
False
False (100% exempt)
9. True
10. True
TRUE OR FALSE 11-2
1. False (5%)
2. True
3. True
4. True
5. False (fringe benefits)
6. True
7.
8.
9.
10.
11.
12.
True
True
True
True
True
False
13. True (only business class
ticket is exempt)
14. True
15. False (Still a taxable fringe
benefit)
Multiple Choice –Theory 1
1. D (13th month pay)
2. A
3. A
4. B
5. C
6.
7.
8.
9.
10.
B
D
A
D
C
11.
12.
13.
14.
15.
A*
C **
A
C
A
*(A is the intended answer but the most appropriate answer to this question is (50% x 5%) or 2.5% since the problem
talks about percentage of the fair value)
** (The problem speaks bout percentage of the depreciation value)
Multiple Choice –Theory 2
1. D (gross-up)
2. D
3. A
4. B
5. C
6. C
7. A (Yatch is considered real property in fringe benefit taxation)
8. D
9. A
10. A
Multiple Choice –Problem: Part 1
1. B (The amount actually
subject to fringe benefits
tax is the grossed-up
monetary value. Hence,
P50,000/68%)
2. A (P10,000 X 50% X 3)
3. D (The basis is [P2M+1.5M
or P3.5M + P1.5M] w/e is
higher). Hence, P5M x 5%
x 50%/4 = P31,250.
4. B
5. C
6.
7.
8.
9.
10.
D (P4M/20 X 50% /4)
A
C
A (P500,000 X 50%)
C (P2M + P4M) x 60%
25
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--- 2019 INCOME TAXATION SOLUTION MANUAL --Multiple Choice –Problem: Part 2
1. C
2. D (P19,000 X 35/65)
3. B
4. B (P800,000 X 25/75)
5. B (P2M + 1.5M)
6.
7.
8.
9.
Multiple Choice –Problem: Part 3
1. C (P16,000+P24,750) X 35%/65%
2. D (P16.4M/20 X ½)
3. B (P10K+P15K+P15K) x 3 months + P4K +
P100 x 4 weeks x 3 months
4. D (P10K + P200K x 12% x 3/12 + P12K)
5. A (P12,000+P300,000) x 35%/65%
6. D (P27,200 x 3 x 50%) x 35%/65% and
(P27,200 x 2 x 50%) x 35%/65%*
7. D**
8. A
D (P1.2M X 20% X 50% /4)
C [(P1,200,000 X 20%)/4] X 50%) X 35/65
D (Convenience of the employer.)
C
9. C
10. C (P500K/5 X 50%)/4 + P30K
11. A
Cash
FB expense
Lot
500,000
300,000
800,000
12. D (P700K X 35%/65%)
*Nearest answer. The actual answer is (P21,969; P14,646).
** Basis is P2M zonal value of land+ P2M assessed value of improvement or P4.5M w/e is higher. Hence, P4.5M x 5% x
50%/4 x 35%/65%.
CHAPTER 12: DEALINGS IN PROPERTIES
TRUE OR FALSE 1
1. True
2. True
3. True
4. True
5. False
6. True
7. True
8. False
9.
10.
11.
12.
13.
14.
15.
TRUE OR FALSE 2
1. True
2. True
3. True
4. False (fair value or cost to original donorpurchaser w/e is lower)
5. False
6. True
7. True
8. False (as a rule both is not recognized, but
gain may be recognized when there is cash or
other assets received as consideration)
Multiple Choice –Theory: Part 1
1. D
2. A
3. D
4. C
5. A
6. D
7. A
8. B
9. D
10. A
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
C
B
C
A
A
C
B
C
C
A
False (bonds & debentures only)
False (within one year, not less than)
False (more than one year)
False
False
False
True (ordinary loss is deductible in full)
9.
10.
11.
12.
True
False
False (one to five persons)
False (this is an ordinary exchange
transaction)
13. True
14. True (the wash sales rule)
15. False (SP – cost)
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
A
B
B
C
D
C
A
D
C
B
26
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--- 2019 INCOME TAXATION SOLUTION MANUAL --Multiple Choice –Theory: Part 2
1. A
2. B
3. C
4. A
5. A
6. B
7.
8.
9.
10.
11.
12.
B
C
C
A
B
D
Multiple Choice –Problems: Part 1
1. D
2. C (P200K OG – P150K OL)
3. B (P200K-P100K)+[(P100K-P150K) X 50%]
4. D (P200K+P100K-P100K-P150K)
5. A [(P150K-P120K)+P200K]
6. C [P300K+(P80K-P90K)]
7. B
8. D (P60K-P70K);0
9. C [(P1.5M-P1.2M) X 50%]
10. D [The total items of GI is computed as P200K
ST CG+(P100K LT CG X50%)+P50K ST
OG+P150K LT OG –P100K ST CL-(P150K LT
Multiple Choice –Problem: Part 2
1. D (There is a P45k Net Capital Loss in 2015 to
be carried over in 2016 with a Net Capital
Gain of P12, 500.)
2. D [(P60K+P25K)-(P50K+P20K)]
3. C
4. A [(P30K X 50%)-P8K]
5. B [The OG is P400k; the net capital gain is
P80k-(P40K X 50%)]
6. C
7. D [(P50K X 50%)+(P100K X 50%)]
8. D [P10K X(P13-P10)]
9. D
13.
14.
15.
16.
17.
11.
12.
13.
14.
15.
16.
A
A
C
B
D
CL X 50%); The total items of deduction is
computed as P200K ST OL+P120K LT OL.]
D [The total items of GI is computed as P200K
ST CG+P100K LT CG+P50K ST OG+P150K LT
OG –P100K ST CL-P150K LT CL; The total
items of deduction is computed as P200K ST
OL+ P120K LT OL.]
D
A (P1M – P800K)
A (4.5M-P3M)
A (P50K-P20K)
D [(P60K-P25K)-P20K 2015NCL]
10. D (The tax basis is P120K ; the gain to be
recognized is P120K-P80K)
11. C
12. A (The basis of the new shares is P400K
+P50K-P90K; the gain to be recognized
isP360K+P90K-P400K)
13. B
14. D
15. B
16. A
17. D
CHAPTER 13: PRINCIPLES OF DEDUCTIONS
Exercise Drill No. 1
Business Expense
Personal expense

1.
2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

13.

14.
 *
15.

*if silent personal, if business seminar, it is an expense
27
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--- 2019 INCOME TAXATION SOLUTION MANUAL --Exercise Drill No. 2
1.
2.
3.
4.
5.
2011
2012
P 25,000
P 50,000
P 200,000
P 200,000
P 100,000
P 100,000
2013
P 200,000
P 50,000
Exercise Drill No. 3
Beginning inventory
Purchases (P800,000 + P1,200,000)
Total cost of goods available for sale
Less: Ending inventory
Zircon (400/1000 x P800,000)
Ruby (800/4,000 x P1,200,000)
Cost of goods sold
P
520,000
2,000,000
P 2,520,000
P
320,000
240,000
560,000
P 1,960,000
Exercise Drill No. 4 (You can skip this for classroom drills. It is complicated and time consuming. It
may be given as an assignment. )
SLM
2010
2011
2012
2013
2014
2015
Expense
P 225,000
450,000
450,000
450,000
225,000
0
SYD
Tax basis
P 1,775,000
1,325,000
875,000
425,000
200,000
200,000
Expense
P 360,000
630,000
450,000
270,000
90,000
0
Sum of the years digit method
Annual dep’n
2010
4
720,000.00
2011
3
540,000.00
2012
2
360,000.00
2013
2014
SYD
1
180,000.00
Tax basis
1,640,000
1,010,000
560,000
290,000
200,000
200,000
Semi-annual
360,000.00
360,000.00
270,000.00
270,000.00
180,000.00
180,000.00
90,000.00
90,000.00
150%DB
Expense
P 375,000
609,375
380,859.38
238,037.11
196,728.52
0
200% DB
Tax basis
P 1,625,000
1,015,625
634,765.63
396,728.52
200,000
200,000
Expense
P 500,000
750,000
375,000
150,000
25,000
-
Actual dep’n
360,000.00
Book value
1,640,000.00
630,000.00
1,010,000.00
450,000.00
560,000.00
270,000.00
90,000.00
290,000.00
200,000.00
Tax basis
P1,500,000
750,000
375,000
225,000
200,000
200,000
10
150% Declining balance
Declining rate*
2010
0.375 Annual
4
750,000.00
2011
3
468,750.00
2012
2
292,968.75
2013
1
183,105.47
2014
105,175.78
Semi-annual
375,000.00
375,000.00
234,375.00
234,375.00
146,484.38
146,484.38
91,552.73
91,552.73
105,175.78
Actual dep'n
375,000.00
Tax Basis
1,625,000.00
609,375.00
1,015,625.00
380,859.38
634,765.63
238,037.11
396,728.52
196,728.52
200,000.00
Declining rate = 1/4x150% = 37.50%
28
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--- 2019 INCOME TAXATION SOLUTION MANUAL --Double declining balance
Declining rate*
2010
0.5
4
Annual
1,000,000.00
2011
3
500,000.00
2012
2
250,000.00
2013
1
175,000.00
2014
2015
Semi-annual
500,000.00
500,000.00
250,000.00
250,000.00
125,000.00
125,000.00
25,000.00
25,000.00
-
-
Actual dep'n
500,000.00
Tax Basis
1,500,000.00
750,000.00
750,000.00
375,000.00
375,000.00
150,000.00
-
25,000
-
225,000.00
200,000.00
200,000
*1/4 x 200% = 50%
Exercise Drill No. 5
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
NDE
DE
CE
NDE
CE
NDE
CE
NDE
DE
CE
NDE
NDE
NDE
NDE
NDE
DE
CE
CE
CE
DE
DE
DE
NDE
NDE
NDE
NDE
DE
NDE
NDE
NDE(best answer but this is not an expense)
TRUE OR FALSE 1
1. True
2. False**
3. False
4. True
5. False
6.
7.
8.
9.
10.
True
True
False *
False
True
*In taxation, this is a capital expenditure
** Tax basis or book value not cost
29
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--- 2019 INCOME TAXATION SOLUTION MANUAL --TRUE OR FALSE 2
1. False*
2. True
3. True
4. False
5. True
6.
7.
8.
9.
10.
True
True
False
False (records of gross income)
False (because allowed by law)
*As a rule, expense of regular income only.
Multiple Choice – Theory – Part 1
1. C
2. A
3. A
4. A
5. C
6. B
7. B
8. B
9. B
10.
11.
12.
13.
14.
15.
16.
17.
18.
C
D
D
B
D
B
D
A
A
19.
20.
21.
22.
23.
24.
25.
B
D
D
C
C
D
C
Multiple Choice – Theory – Part 2
1. D
2. D
3. A
4. B
5. B
6. A
7. D
8. D
9. D
10.
11.
12.
13.
14.
15.
16.
17.
18.
A
D
D
C
C
D
D
A
D
19.
20.
21.
22.
23.
24.
25.
A
D
B
C
A
D
D (no outflow)
13.
14.
15.
16.
A
B
D
A (NRFC is subject to final
tax. No deduction is
allowed.)
Multiple Choice – Problem – Part 1
1. A
2. A (P40K+P250K-P80K)
3. A
4. C (P80K+P70K)
5. B
6. C (P45K/12 X 10)
7. B [(P15K X 2)+ P18K]
8. B
(P30K+P12K+P8K+P20K)
9. C (P4.5M/9)
10. A
11. C (P120K+P300K-P140K)
12. D
[(P100K/5)+(P90K/3)+(P
20K X ½)]
Multiple Choice – Problem – Part 2
1. A (P600K+P200K)
8. B
2. A
9. A
3. C (P42M-P41.7M)
10. D [(P400K X 7/8)+(P150K
4. B
X 1/3)+P80K
5. C
+P25K];NOTE: Supplies is
6. B
a from prepayment.
7. A (P800K-P500K)
11. C [P400K+(P150K X
1/3)+P80K +P25K]
12. A
13. B
14. B
15. D
Multiple Choice – Problem – Part 3
1. B (The input VAT must be excluded.)
2. D (The VAT is part of supplies expense.)
3. D (The cost of the equipment for a non-VAT taxpayer shall be (P150,000 + P18,000) or P168,000/5
years = P33,600.)
4. D (P5,600 / 5%, note that the 5% is based on the rent expense, exclusive of VAT.)
5. A (Zero.
6. D (P10,000 x 25% surcharge)
7. C
8. B (P27,440 x 2% = P548.8; P27,440 – P548.80 = P26,891.20)
9. C (The supplier is non-VAT, so there is no difference as there is no Input VAT to account for.)
10. B
30
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--- 2019 INCOME TAXATION SOLUTION MANUAL --CHAPTER 13-A: REGULAR ALLOWABLE ITEMIZED DEDUCTIONS
TRUE OR FALSE 1
1. False (non-deductible)
2. True
3. False (no qualification)
4. True
5. False
6. True
7. False
8. True
9. False (as tax expense, basic only)
10. True
11. False
12. False
13. True
14. False
15. True
TRUE OR FALSE 2
1. True
2. False
3. False
4. True
5. True
6. True
TRUE OR FALSE 3
1. True
2. True
3. True
4. False (tax basis of value
given)
5. True
6. True
7. True
8. True
Multiple Choice – Theory 1
1. C
2. A
3. A
4. D (D is fringe benefit
expense. Mandatory payroll
deduction is deduction
against compensation.)
7.
8.
9.
10.
11.
True
True
False
True
False
9.
10.
11.
12.
True
True
True
False (expensed or
capitalized)
13. False (5%)
14. False (fixed by law as 10
years)
15. False
16.
17.
18.
19.
20.
21.
False
True
True* (not less than)
False
True
False
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
C
A
B
C
C
C
C
C
D
C
D
Multiple Choice – Theory 2
1. C
2. D
3. A (securities becoming worthless is generally
a capital loss)
4. A
5. D
Multiple Choice – Problems 1
1. A
2. C (P200K+P50K)
3. D
4. A
5. D
6. B [P400K-(P100K X 33%)]
7. C (P50K+P70K)
12. True (This is recovery
of lost profits)
13. True
14. False
15. True
8.
9.
10.
11.
12.
6.
7.
8.
9.
10.
C
A
A
D
D
D
B
A
C
C [(P400K GI-P300K Bus.
Exp.) +P70K-P60K
2014NOLCO]
13. C
14. C [(P500K-P400K)-P70K
2012 NOLCO]
15. C [(P150K/P500K) X
P125K]
31
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--- 2019 INCOME TAXATION SOLUTION MANUAL --Multiple Choice – Problems 2
1. B
2. A
3. D (P32,000/32%)*
4. C (P270K Limit for
Malaysia+P175K Income
tax paid for Singapore);
Note: The foreign tax to be
credited is whichever is
lower b/n the Limit and
the Income tax paid.
5. B [(P500K-P200K)/10+ P
200K CSC]
6. B (P1M – 20%XP1M)
7. C [(P300K/10)+ P400K
CSC]
8. C [P400K+(P300K
2015PSC/10)+(P200K
2016PSC/10)]
9. C (P50K Limit for
contribution to the
Government in NPA
+P30K+P100K); The limit
is computed as 5% of the
P1M NI before
contribution expense for
corporations.
10. B (P50K+P30K Limit); The
limit is computed as
(P500K-P200K) x 10% for
individuals.
11. B (P400K-P75K)
12. C [(P500K-P200K)-P80K]
13. C (P325K+P220K)
14. C (P2M X 0.5% Limit)
15. B (The limit is P2M x 1%
or 20K, since the limit is
greater than the actual
EAR, the actual is used)
16. C (P15K S + P14K R)
*This is an NIRC question. The grossed-up value inclusive of the monetary value and fringe benefits tax is an expense to
the employer.
CHAPTER 13-B: SPECIAL ALLOWABLE ITEMIZED DEDUCTIONS AND NOLCO
TRUE OR FALSE
1. False (25%)
2. False (additional 50%)
3. True
4. False (only distribution of income)
5. True
6. True
7. False
8. True
9. False (20%)
10. False (15%)
11. True (deductible amount in total is twice the
amount of expense)
12. True
13. True
14. True
15. True
16. False
17. True
18. False
19. True*
20. True (Note: acquirer’s own NOLCO)
*(Both of them however can be carried over so long as both of them did not arise from the same year. In other words the
NOLCO occurred earlier than the NCLCO)
Exercise Drills
1.
2.
3.
4.
5.
6.
7.
8.
Deduction incentive
15% of salaries to senior citizen
25% of salaries paid to disabled persons
50% of training expense
50% of the cost of improvement
50% of the contribution
100% of the compliance expense
Value of pro-bono services
50% of productivity incentive bonus
Multiple Choice – Problem 1
1. D(P345K X 20%)
2. B (P182K X 15%)
3. B (P144K X 15%)
4. A
5. B [(P900K-P350K-P45K) X
20%]
6. B (P3.5M-P3.2M)
7. B (P4.1M-P2.1M)
8. D [(P3M-P2.4M) X 50%]
9. B (P800K X 20%)
Incentive limit
None
None
None
None
None
None
10% of gross income
None
10.
11.
12.
13.
D [(P93,750/75%) X 20%]
D (P2.1M X 25%)
D (P300K X 50%)
A [P900K-P500K-(P500K
X 50% Contribution
expense)]
14. D [P900K-(P900K X 10%)(P500K X 50%
Contribution expense)]
15. D (P300K X 50%)
Multiple Choice – Problem 2
1. B (P2.5M GI-P1M ID-P300K DI)
2. A
3. B (P1.8M GI-P1.2M RID-P800K SID)
4. A
5. B (P400K+P200K+P100K)
6.
7.
8.
9.
10.
16.
17.
18.
19.
C (P350K X 100%)
A
C (P1M X 100%)
B ( P1.4M X 10% Limit
)+[(180-60) x 1k Pro
bono]
20. B [P8M +P6M) X 10%
Limit]
21. D (P800K X 50%)
22. C (P200K X 50%)
A
B
C (P400K +P200K-P800K)
D
A
32
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--- 2019 INCOME TAXATION SOLUTION MANUAL --CHAPTER 13-C: OPTIONAL STANDARD DEDUCTIONS
TRUE OR FALSE
1. True
2. False
3. False (Note: or gross income)
4. True
5. False
6. False
7. False (when OSD is used, 60% of sales or
gross receipts)
8. True
9. True
10. True
11. False
12.
13.
14.
15.
16.
17.
18.
19.
True
True
False
True
False
False
True
False (Note that NCLCO is used in the
measurement of an item of gross income (i.e.
net capital gain) and is not an expense.
20. False
Exercise Drill No. 1
1. RC
2. RA
3. NRC
4. NRA
5. Regular DC
6. Regular RFC
7. Special corporations
8. Corporations under special regimes
9. Business partnership
10. GPP







Exercise Drill No. 2
1. P2,008,000 (P5,020,000 x 2%)
2. P1,008,000 (P2,520,000 x 2%)
Exercise Drill No. 3
Taxpayer
1. Individual
2. Corporation
Cash basis
P 3,120,000
1,380,000
Accrual basis
P 3,600,000
1,740,000
Exercise Drill No. 4
1. P2,000,000, computed as (P5,000,000 x 40%)
2. P840,000, computed as (P2,000,000 + P100,000) x 40%
Multiple Choice – Theory 1
1. A
2. D
3. A
4. B
5.
6.
7.
8.
A
D
A
B
9. D
10. A
11. D
Multiple Choice – Theory 2
1. C
2. A
3. D
4. D
5. C
6.
7.
8.
9.
10.
B
D
D
A
C
11.
12.
13.
14.
Multiple Choice – Problem 1
1. D [(P800K+P600K+P300K+P400K) X 40%]
2. A(P2.1M-840K)
3. A
4. D (P600K+P400K+P300K+P150K)
5. B (P400K+P300K+P150K)
6.
7.
8.
9.
10.
D
C
C
A
C [(P3.4M+P120K) X 40%]
B [(P3.4M-P1.2M)+P120K+P80K]X40%
A (P800K X 40%)
B [(P800K+P100K+P20K)X40%]
A [(P800K+P200K+P20K)X40%]
33
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--- 2019 INCOME TAXATION SOLUTION MANUAL --Multiple Choice – Problem 2
1. C [(P7.2M+P100K) X 40%]
2. B [(P7.2M-P4.7M COGS)+P100K+P20K]X 40%
3. B (P200K+P2.5M-P400K)
4. C (P2M X 40%)
5.
6.
7.
8.
A
A
B (P1M-400K)+P60K
C [(P1M-P600K)+60K] X 40%
CHAPTER 14: INDIVIDUAL INCOME TAXATION
True or False
1. True
2. True
3. False (some are not
subject to FIT)
4. True
5. True
Multiple Choice Theory – Part 1
1. A
2. C
3. D
4. A
6.
7.
8.
9.
10.
11.
True
True
False
True
True
False
12.
13.
14.
15.
True
True
True
False
5.
6.
7.
8.
A
B
A
D
9.
10.
11.
12.
A
D
B
D
Multiple Choice Theory – Part 2
1. C
2. A
3. A
4. A
5. D
6.
7.
8.
9.
10.
C
A
D
C
D
11. C
Multiple Choice Theory – Part 3
1. A
2. C
3. C
4. C
5. B
6. A
7. C
8.
9.
10.
11.
12.
13.
14.
A
B
B
D (Errata: B is employers)
A
D
A
15.
16.
17.
18.
19.
20.
21.
C
C
C
C
D
A
D
Multiple Choice – Problems: Part 1
1. A
2. A
3. C
4. B
5. B
6. A
7.
8.
9.
10.
11.
12.
B
C
C
B
C
D
13.
14.
15.
16.
17.
B
D
B
C
C
Multiple Choice – Problems: Part 1
1. C (P180K + P200K + P210K + P250K)
2. C (P280K + P50K + P100K + P25K + P40K)
3. A (P280K + P50K)
4. C (P4M + P800K + P200K; Note: Car usage
and the house and lot are subject to fringe
benefit tax.)
5. C [(P2.5M/5 X 50%)/65% X 35%] +
(P5M/65% X 35%)
6. B
(P600K + P20K O. gain – P200K expense –
P40K O. loss +10K Net Capital gain); Net
capital gain = 80K x 50% + 45K - 90K x 50% 30K.)
7. A (P600K Gross profit - P100K Other
deduction - P50K Fully deductible – P50K
Contribution subject to limit); Limit on NANPI
contribution = (P600K GP - P100K ODE) x
10% = P50K; lower than P55K actual.
8. B (Taxable income = P455K + P15K. Please
use tax table.)
9. C (Taxable income = P700,000; Taxable
income per tax table is P105,000. Foreign tax
credit limit is P300K/P700K x P105,000 =
P45,000. Tax credit is P45,000 since lower
than P55,000.
10. A (Only taxpayers subject to tax on global
income such as resident citizen is qualified
for tax credit for foreign taxes paid.)
34
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--- 2019 INCOME TAXATION SOLUTION MANUAL --Multiple Choice – Problems: Part 2
1. C (P400K - P15K tardiness
4. D (P617.5K/95% service
- P10K SSS - P8K PH - P7K
fees - P230K deductible
Pag-ibig - P2K Union dues)
expense)
2. C (P321K + P59K WH tax)
5. D (Tax due per tax table is
3. B (P30K utilities + P120K
P35,000 – P32,500
salaries + P80K rent &
withholding tax, computed
miscellaneous)
as (P617,500/95%) x 5%)
6. D (P617,500/95%) x 8%
7. B
(P100K+P15K+P50K+[P3
0K-(P16K/80% X 33%)]
8. A (500K-188400-150KPE)
9. B
Salaries expense
Depreciation expense
Rent and other expense
Interest expense (P30K – 33% x P16K/80%)
Total deduction
P
P
100,000
15,000
50,000
23,400
188,400
10. B
Gross profit from operation
Interest income from notes
Total gross income subject to regular tax
Less: Total deductions
Net income
P
P
500,000
12,000
512,000
188,400
323,600
P
800,000
P
11. C
Compensation income
Less: Non-taxable compensation
Taxable compensation income
P
Gross receipts
Less: Cost of services
Gross profit from operations
Other income subject to RIT
Total gross income subject to RIT
Less: Deductions
Net income
Taxable income
P 1,800,000
500,000
P 1,300,000
100,000
P 1,400,000
300,000
Tax due of P1.9M per tax table
Less: Tax credits
WH tax on compensation
CWT on gross income
Estimated quarterly tax payments
Tax still due
P
820,000
20,000
130,000
14,000
94,000
1,100,000
P 1,900,000
P
460,000
P
238,000
222,000
P
800,000
12. B (Errata: The problem seeks tax STILL Due)
Compensation income
Less: Non-taxable compensation
Taxable compensation income
P
820,000
20,000
Gross receipts
Less: Cost of services
Gross profit from operations
Other income subject to RIT
Total gross income subject to RIT
Less: OSD (P1.8M x 40%)
Net income
Taxable income
P 1,800,000
P 1,800,000
100,000
P 1,900,000
720,000
1,180,000
P 1,980,000
35
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--- 2019 INCOME TAXATION SOLUTION MANUAL --Tax due of P1.98M per tax table
Less: Tax credits
WH tax on compensation
CWT on gross income
Estimated quarterly tax payments
Tax still due
P
130,000
14,000
94,000
P
484,000
P
238,000
246,000
13. A
Compensation income
Less: Non-taxable compensation
Taxable compensation income
P
Gross receipts
Less: Cost of services
Gross profit from operations
Other income subject to RIT
Total receipts and other income
Multiply by:
Total tax due
P 1,800,000
P 1,800,000
100,000
P 1,900,000
8%
P
820,000
20,000
800,000
Tax due
P
130,000
P
152,000
282,000
14. C
Sales
Less: Cost of sales
Gross income from operations
Add: Other income
Share in GPP net income
Total gross income subject to RIT
Less: Deductions
Net income
P 2,500,000
1,000,000
P 1,500,000
Tax due of P1M per tax table
P
200,000
P 1,700,000
700,000
P 1,000,000
190,000
15. C
Sales
Add: Other income
Share in GPP net income
Total sales and other income
Less: Annual income exemption
Total
Multiply by:
Tax due
P 2,500,000
200,000
P 2,700,000
250,000
P 2,450,000
8%
P 196,000
CHAPTER 15-A: CORPORATE INCOME TAX – SPECIAL CORPORATIONS
True or False – Part 1
1. True
2. True
3. False (exempt)
4. True
5. True
6. False
7. False
8. True
True or False – Part 2
1. False (dominance test)
2. False
3. True
4. False (4.5% of gross
income)
5. True
9.
10.
11.
12.
13.
14.
True
False
False
False (Except FCDU)
True
False (gross Philippine
billings)
6. False (Philippine income)
7. False (gross income)
8. False (7.5% of gross
income)
9. True
10. True
15. False (world taxable
income)
16. False
17. False
18. True
19. False (They are subject to
compromise penalty.)
20. True
11.
12.
13.
14.
15.
True
True
True
True
False (three years)
36
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--- 2019 INCOME TAXATION SOLUTION MANUAL --True or False – Part 3
1. False
2. True
3. False (wherever billed so
long as outgoing)
4. True
5. True
6.
7.
8.
9.
10.
11.
True
True
False
True (the dominance test)
False
True
12.
13.
14.
15.
True
True
True
False (30% on world
taxable income)
Multiple Choice – Theory 1
1. D
2. A
3. A
4. D
5. A
6.
7.
8.
9.
10.
A
C
D
B
A
11.
12.
13.
14.
15.
C
D
D
C
D
Multiple Choice – Theory 2
1. C
2. C
3. D
4. B
5. C
6. B
7.
8.
9.
10.
11.
12.
D
B
D
C
B
D
13.
14.
15.
16.
17.
18.
C
B
A
A
B
C
6.
7.
8.
9.
10.
A (P350K Total TI x 30%)
B (P400K PH GI x 2.5%)
C (P200K PH TI x 10%)
C (P400K PH GI x 25%)
A (P400K PH GI x 4.5%)
11. C (P400K PH GI x 7.5%)
12. B (P350K Total TI x 60%)x
30%
Multiple Choices – Case Problems
Problem 1:
1. D (P350K Total TI x 30%)
2. A (P200K PH TI x 30%)
3. B (P400K PH GI x 30%)
4. B (P350K Total TI x 10%)
5. D
Problem 2:
1. A (P300K Total TI x 30%)
2. C (P300K Related GI x 10%)
3. B (P100K Unrelated TI x 30%)
Problem 3:
1. B (P3M FCDU II to other residents x 10%)
2. B (P1.2M RBU NI x 30%)
Problem 4:
1. A [(P500K GI-P200K DDP62.5K Allocated
CE)x30%]
2. D
3.
4.
5.
6.
D
C
D
C
7. C
8. B (P500K PH GI X30% FT)
Problem 5:
1. D (P1.5M Total NI x 30%)
2. B (P3M Outgoing GR x 2.5%)
Problem 6:
1. D [(P1M AUS)+(1K X P750 RUS)+P1.5M JAP]X2.5%; The P750 is computed as P1.5M/2K which is from
PH-JAP
2. B [(P1M+P1.25M+P2M+P1.5M)-P3M GE] X 30%
Problem 7:
1. C (P4M X 2.5%)
2. C (P4M X 4.5%)
37
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--- 2019 INCOME TAXATION SOLUTION MANUAL --Problem 8:
1. D [P4M x 60% - P3M x 50%) x 30% tax]
Note that the rule on non-profit school is classification not the dominance test. But the same is subject
to the Constitutional exemption. If the Constitutional exemption does not apply, the income from
unrelated activities would be taxed.
2. A (Everything will be exempt by virtue of Constitutional exemption.)
3. A (P4M x 60% - P3M x 50%) x 30% tax. Only the income from unrelated activities is taxable.
4. C (P4M – P3M) x 30%. Note that the dominance test is failed.
5. D (P4M – P3M) x 30%. Private hospitals are subject to the 30% regular income tax.
6. B (P4M – P3M) x 30%. The dominance test is failed.
7. B. Only the income from unrelated activities is taxable.
Problem 9:
1. D (P2M X 10%) Dominant test is passed.
2. D (Same answer. The Constitutional exemption for income actually, directly and exclusively for
educational purposes relates to non-profit, non-stock educational institutions.)
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CHAPTER 15-B: CORPORATE INCOME TAX – REGULAR CORPORATIONS
TRUE OR FALSE: Part 1
1. True
2. False (It apply to resident
foreign corporations.)
3. True
4. False
5. True
6. True
7.
8.
9.
10.
11.
False (Domestic only.)
False
True
False
False (also when RCIT <
MCIT)
12. True
13. True
14. False (on total gross
income)
15. False (start by 1/1/ 2015)
TRUE OR FALSE: Part 2
1. False
2. True
3. True
4. False (MCIT gross income
= OSD gross income)
5. False (cost of goods sold)
6.
7.
8.
9.
10.
11.
True
False
True
True
True (See. Chapter 13-C)
False
12. False (Third year)
13. False (comparison is made
with cumulative balances.)
14. True
15. True
TRUE OR FALSE: Part 3
1. False
2. False (not holding
companies)
3. False (if held by more than
20 people, it is closed
corporation)
4. True
5.
6.
7.
8.
9.
10.
11.
False (Sec. of Finance)
False (domestic only)
True
True
False
True
True
12.
13.
14.
15.
True
True
True
False (excluding domestic
corporation branches)
MULTIPLE CHOICE – Theory: Part 1
1. C
2. C
3. A
4. D
5. D
6.
7.
8.
9.
10.
D
C
C
A
B
11.
12.
13.
14.
15.
A
C
D
C
D
Multiple Choice – Theory: Part 2
1. B
2. B
3. C
4. A
5. D
6.
7.
8.
9.
10.
D
A
A
D
C
11.
12.
13.
14.
15.
A
D
A
B
A
38
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--- 2019 INCOME TAXATION SOLUTION MANUAL --Multiple Choice – Theory: Part 3
1. A
2. A
3. A
4. B
5. A
Multiple Choice – Problem: Part 1
1. C [(P1.6M GI + P150K
GOS) X 2%]
2. B [(P1.6M+ P150K GOSP1.7M AD) X 30%]
3. C (for 2013 the P120K
MCIT; for 2014 the P220K
RCIT-P10K 2013Excess
MCIT)
4. A (for 2015,the P190K
MCIT; for 2016,theP180K
RCIT-P180K 2015 Excess
MCIT)
5. D
6. D
7. B (P100K NI x 30%)
8. C (MCIT=P2M Total GI x
2% o=P40K; RCIT=P2M
Total GI+P250K Interest
6.
7.
8.
9.
10.
D
C
A
D
D
11.
12.
13.
14.
15.
on deposit abroad- P2.1M
Bus Exp= P45k)
C (MCIT=P800K PH GI x
2%= P16K; RCIT=(P800K
PH GI-P800K Bus Ecp) x
30%=0)
C (MCIT=P7MTotal GI x
2%= P140K; RCIT=100K
Within GI x 30%=P30K)
D (MCIT=P4M Within GI x
2%=P80K;RCIT=P500Kx3
0%=P150K)
A
C [MCIT= P7M GI x
2%=P140K; RCIT=(P600K
NI-P300K 2013NOLCO)x
30%=P90K)
14. C [MCIT=(P500K
GI+P200K
RI)x2%=P14K;RCIT=(P50
0K GI+P200K RI-P820K
BE) x30%=0]
15. D [MCIT=(P1M GI+P200K
RI)x2%=P24K;
RCIT=(P1M GI +P200K RIP850K BE-P120K
NOLCO)x30%=P69K; Tax
Due=P69K-P14K
2013MCIT=P55K]
16. B (P8M x 2% MCIT) is
greater than the RCIT.
17. D (Net income is P8M x
60% x 30% tax rate.)
8. D (P230K RCIT-P40K
2013MCIT-P50K
2014MCIT-P10K
2015MCIT)
9. A (P1.6M RCIT-P180K
MCIT of PY-P120K Excess
CWT of PY-P220K CWT of
Current Quarter-P250K
CWT of Previous QuarterP430K Income tax
payment of Previous
Quarter)
10. B (P3M RCIT-P180K MCIT
of PY-P120K Excess CWT
of PY-P260K CWT of
Current Quarter-P810K
CWT of Previous QuarterP1.47M Income tax
payment of previous
Quarter)
11. B
[(P4M-3.2M)x70%
+40K+60K-400K+500K400K] x 10%
12. B
[(4M-3.8M)+600K
NOLCO+240K+120K-600K
Dividend-80K MCIT] x
10%
13. A [(P1.2M – P380K higher
MCIT +400K+100K -700K
dividends – P400K
Approp. – P50K excess
paid-up) x 10%
14. C
15. C
16. B (Tax due = MCIT
(P6M+100K) x 2% - P5K
CWT – P45K est. tax
payments)
17. C (P6M – P5M+100K –
122K + 160K + 800K 700K) + P1.8M – P2.0M =
P103,800.
9.
10.
11.
12.
13.
D
B
C
B
A
Multiple Choice – Problem: Part 2
1. C (P970K RCIT-P70K
2014MCIT-P130K
2015MCIT-P120K CWT of
Current Quarter-P150
CWT of Previous QuarterP350K Income Tax
payment of Previous
Quarter)
2. D (P2150K RCIT- P160K
CWT of Current QuarterP410 CWT of Previous
Quarter-P880K Income
Tax payment of Previous
Quarter)
3. A
4. D (P105K RCIT-P80K
2012 MCIT- P25K
2013MCIT)
5. B (P140K-P45K 2013
MCIT-P20K 2014MCIT)
6. B (P100K-P35K 2013
MCIT)
7. C (P60K RCIT-P150K
CWT-P5K-P10K)
18. D (P6M – P4M – P1.5M
approp.) x 10%
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39
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