Business income/ Practice of Profession
49.
Which of the following statements is incorrect?
a
Income from business is never subject to final withholding tax
b. Income from exercise of profession may be exempt from income tax c Income from business
may be subject to capital gams tax d . Income from exercise of profession may be subject to
income tax
Answer: “C”
rules shall be observed on what type of income shall apply: Ordinary Income
The following
0
0
0
0
Tax.«formal Tax
^aPI'o^Jle of shares of non-listed DC = CGT
n at© nf real properties in the Phils = CGT
* n" of shares d DC listed in the local stock exchange = Exempt income tax byt sub,ect to stock
transaction tax
.
other Capital Gains = Basic Tax
Ordinary incomes subject to basic tax are incomes derived from. 0 Employment (except FBs subject to
FBT)
0 Business income
Sale of ordinary income
Sale of capital assets not subject to CGTs
All other income not exempt from tax + not subject to FWT or CGT
50.
Which of the following dealings in property is subject to normal income ta
a.
b.
Sale of shares in a domestic corporation sold outside
All of the choices
9
❖ Answer: “A”
51.
Which of the following interest income is subject to normal tax?
I.
Interest income earned or derived from the normal course of trade or business
II.
Interest income earned or derived from notes receivable.
III.
Interest income earned or derived from the over-payment of income tax for previous
years
IV.
a.
Interest income derived from investments in government bonds
I only
c. I, II and III only
b.
I and II only
d. All of the above
❖ Answer: “C”
Q Item “IV" is a passive income (deposit substitute) subject to FWT.
Recovery of previously written-off bad debts
Refund of previously paid taxes
52.
The following data on net income, bad debt, write-off and recovery show 2017:
Net income (loss) before write-off
Case A
Case B
Less: Bad debt written-off claimed as deduction
P120.000
P60.000
Case C
(P40.000)
Net income (loss) after write-off
40,000
P80.000
40,000
P20.000
50.000
(P90.000)
P10.000
P50.000
2018:
Subsequent recovery
P40.000
The taxable recovery in 2018 is: ~
‘
CaseB
Case A
P20.000
Case C
a.
P40.000
P20.000
P50.000
b.
P40,000
P10,000
PPP
c.
P40.000
P0
d.
P40.000
Answer: “C”
LJ APPLY THE “TAX-BENEFIT-RULE"
Amount recovered during the current year shall be treated as taxable income
The receivables written-off during the previous year(s) were allowed as deduction from the gross income during
1.
write-off
e write-off resulted to a lower income tax payment due to the re uction in the taxable net income brought
2.
3.
about by the write-off. ere was recovery (partial or full) during the current taxable year.
LU CASE A:
0 Prior Year (2017) - The company was able to reduce the taxable income by P40,000 thereby resulting to a lower
tax payment.
0 Current Year (2018) - The entire amount was recovered. Hence, the entire recovery shall be recognized as taxable
income in 2018.
CASE B:
$ Prior Year (2017) - Thb company was able to reduce the taxable income by P20,000
0 Current Year (2018) - The recovery amounted only to P10.000, hence, only the amount recovered (P10,000) shall
be recognized as taxable income in 2018.
CASE C:
0 Prior Year (2017) - The company's operations resulted to a loss even prior to write-off of receivables. The writeoff did not result to a lower tax payment during the prior year. Consequently, applying the ‘taxbenefit-rule”,
the company did not benefit from prior year write-off. Hence, any amount recovered in the succeeding
period shall not be treated as taxable income.
54. The following were taken from the taxable income statement of domestic corporation for the
year 2018:
P800.000
P440.000
Deductible expenses Provision
80,000 (520,000)
for bad debts Net income before P280.000
tax
Gross profit on sales Less:
Additional information:
„
l4
■
Accounts written-off during the year and charged to allowance for bad debts ■
Recoveries on accounts receivable previously written off in 2016 and credited
to allowance for bad debts •
Allowed as deduction by the BIR Disallowed by the BIR as deduction - P20.000.
taxable income of the corporation in 2018 should be a
P280.000
b
260.000
c. P330.000
- d. P340.000