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OTHER TITLES:
1. Business and Transfer Taxation
2. Taxation Reviewer
3. Fundamentals of Accountancy,
Business and Management 1
4. Fundamentals of Accountancy,
Business and Management 2
5. Applied Auditing by Assuncion, Ngina
and Escala
AUTHOR’S CONTACT
For any queries, commentaries or anything
University
INCOME
TAXATIO
SOLUTIO
MANUA
2019 TRAIN Editi
for consultation. Please feel free to contact
Mr. Rex B. Banggawan at:
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
pervasive corruption. These disheartened many taxpayers not to properly reflect thei
on corrupt government practices.
Our solemn duty as academician is to lay the foundation for the future correction o
society by providing the best tax education our students deserve. Tax malpractices an
limited by adequate public tax education.
Most schools fail on their duty in transforming their graduates as agents of change
teaching tends to be too basic or too theoretical to be applied. As our mission, let us giv
practical knowledge by giving them the totality of taxation. Even if they are not tax ma
given the option and the chance to attain high level proficiency in taxation. This could
opportunity for them.
Teach well and you will live forever! Your influence will forever stay in the minds
students. That excellence will multiply. Let us give our students a legacy of true com
them the best tax education we can give. Let us give them the type of excellence whic
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 as
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
high quality books requires enormous time investments and efforts. I wrote this
continuous technical research, tax practice and conceptual refinement through my ac
undergrad and in the review.
I am not an entrepreneur. Like you, I am a full-blooded teacher. I teach and write boo
transform people. I hope and pray that you respect the dignity of my work in the s
yours. I am praying that you will NEITHER give the students or reviewees cop
manual NOR tolerate the photocopying of my book in your classes. As accountants, w
act under our conscience to be true guardians of integrity. Please help stop book p
suspected counterfeit books to realexcellence@yahoo.com.ph. God bless you!
REX B. BANGG
BANGGAWAN,
AWAN, CPA, MBA
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 int
students for them to understand and master the totality of the income taxation. Becaus
prepared in a sequential organization of topics. To optimize understanding and concep
may be briefly re-opened for discussion in future chapters of the book. This is no
deliberately intended for students to connect and interrelate new concepts with previou
The book devised a vertical presentation of income taxation and diverted from the usua
approach followed by most tax books. Under the horizontal approach, the tax sch
separately for individuals and corporations. It is repetitive, time consuming and res
understanding because students do not see the comparison of the two tax schem
taxpayers. The vertical approach discusses the tax schemes for both individual
simultaneously resulting in efficiency and better accuracy.
To maximize the effectiveness of your lecture, please follow the concept organization
devise other concept arrangements based on other books. Doing otherwise wil
students. Other authors have their own methods. We have ours. The income tax teach
the book is long proven in the undergrad and in the professional review to optimize
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 ta
are God’s blessing to me, to us. I hope na marami pa po kayong matulungan na students es
- 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 mabu
during review. Ang galing po ng pagkakaorganize ng topics at yung presentation m
maintindihan. Salamat po!” - Ednel Tanhueco Datu, Pampanga
3. “I am a working student, so pagdating ko sa school di na ako masyado nakikinig sa scho
Weekend lang po ang time ko mag-aral. Pero sa tuwing binabasa ko ang book niyo, pa
eexplain na teacher sa akin… Salamat po! Pinadali ninyo buhay ko.” Francis Reyes R
University, Angeles City
4. “Very helpful po ng book niyo sa tax Sir. I’m not a student of yours Sir nor have met y
thing is for sure, many students like me owe so much from you for introducing to us
 God bless po.” Angelica Balubal, Tuguegarao City
5. Replying to a social media user inquiry of which tax book is best, Paulo Relucio Dula rep
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 Taxa
simplified, principle-based approach.” – Jhoven Mabaquiao from Divine World College
7. “…. We are using your textbooks both Income and Business and Transfer Taxation. I am ve
way the topics are presented and the books help me a lot in understanding our lesso
8.
Joshtien Adorable, BSA student FEU Makati
“Good evening Sir. I am an accountancy student from Pampanga. Your book for taxation
able to appreciate tax even more…” – Mark Angelo Mallari
INCOME TAX SOLUTION MANUAL
In teaching, focus on the basics and main points. Let students take care of the details. D
time discussing the details. The book is designed to be self-teaching. It can teach
minimal teacher supervision. Students also need some extent of self-learning to devel
This is particularly vital to their future professional development.
CHANGES IN THE 2019 EDITION
This edition packages all changes introduced by the TRAIN la
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 o
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 scheme
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.
INCOME TAX SOLUTION MANUAL
Notes for non-accountancy classes
The following specialized and complex and concepts may be dispensed wi
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 incom
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 neg
income is deductible to other income
d. Tax reporting of compensation income (highlight the exceptional treatment
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
5. Deductions – discusses expenses of business that are deductible from gross inco
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 c
H. Taxation of corporate taxpayers
1. Special corporations
l
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 b
Constitutional limit)
C
N (A principle but not a limitatio
C
C
I
C
N (A principle but not a limitatio
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 c
9. False (The Constitution requires the majority of all members of congress to pass a ta
10. False (It will not produce additional benefit if the government taxes itself.)
MULTIPLE CHOICE Theory: Part 1
1. A
13. C
2. D
14. C
3 D
15 B
25. B
26. C
27 C
INCOME TAX SOLUTION MANUAL
MULTIPLE CHOICE – Theory: Part 2
1. A
10.
2. B
11.
3. B
12.
4. A
13.
5. C
14.
6. D (B is non-delegation)
15.
7. C (There is taxpayer class)
16.
8. C
9. B
C
D
C
C
D
C
A (different taxpayer
warrants different
treatment.)
17. B
18. D
19. C (Viol
territor
20. D
21. A
22. B
MULTIPLE CHOICE – Theory: Part 3
10.
1. B (i.e. category)
2. A
11.
12.
3. C
4. A
13.
14.
5. C
15.
6. A
16.
7. D
17.
8. B
18.
9. A
C
B
C
B
C
C
A
B
D
19.
20.
21.
22.
23.
B
D
C
D
D (Bes
inheren
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
6. Tax
7. Debt
8. Toll
9. Penalty
EXERCISE DRILL NO. 3
--- 2019 INCOME TAXATION SOLUTION MANUAL --MULTIPLE CHOICE – Theory: Part 1
1.
2.
3.
4.
5.
B
A
C
C
B (best answer, RPT is
local tax as to collection)
A
A
B
C
D
A
B
B
C
C
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
MULTIPLE CHOICE – Theory: Part 2
1. C
6.
2. C
7.
3. A
8.
4. D
9.
5. D
10.
C
C
A
D
B
11.
12.
13.
14.
C
D
D
A
D
C
A
A
D
B
D
C
16.
17.
18.
19.
20.
21.
22.
D
C
A
C
D
D
B
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
MULTIPLE CHOICE – Theory: Part 3
1. B
2. C (LGU for assessed
value.)
3. A
4. A
5. D
6. B
7. B
8.
9.
10.
11.
12.
13.
14.
15.
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 C
P 1,000,000
1.
P 1,000,000
Health
2.
P 500,000
P400,000 car
P 400,000
P
3.
P 300,000
P350,000 building
P 300,000
P0
P
4.
P 600,000
Income
5.
P 1,200,000
Health
P 1,200,000
EXERCISE DRILL NO. 2: Income tax and transfer tax
Transaction
Income Tax
1
Barter of properties

Transfer Tax
--- 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










*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.
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
Class
NRA
NR
d th NIRC
ti if il t d
ti )
14. A joint venture organized under a foreign law and is not operating in
the Philippines
N
--- 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
Within
1. Rey earned P100,000 interest income. 40% of these were
from non-resident debtors.
P 60,000
2. A finance company earned P1,000,000 royalties from a
franchise; 40% of these were derived abroad.
P 600,000
3. Raymond earned P100,000 rent from OFWs in his
apartment in the US. He also earned P40,000 rent from his
P 40,000
Philippine condominium unit.
4. Chester, a resident citizen, works home online and submits
P 120,000
(situs is where
his output to clients. He collected P100,000 service fee from
rendered)
foreign clients and P20,000 from resident clients.
5. Mark rendered audit services to client in Afghanistan for
P0
P500,000. The services were paid in Afghanistan.
6. Jun has a store in a tourist park in Baguio City, Philippines. P 40,000 (stitus
is place of sale)
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
P2M
(situs is location)
located in Quezon City, Philippines at a gain of P2,000,000.
8. John sold his stocks in a domestic corporation to a foreign
P 50,000
investor at a gain of P50,000.
9. Manso received P20,000 dividends from a domestic
P 20,000
corporation and P30,000 dividend income from a nonresident foreign corporation.
10. Andrew received P40,00 dividend from a resident foreign
P 24,000
corporation 60% of its historical income is from the (60% x P40,000)
Philippines.
11. CDO, Inc. manufactures in the Philippines and sells to
P 100,000
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
P 150,000
--- 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 3Problem 3Problem 3Problem 3Problem 3Problem 31. 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
P
P
40,000
200,000


P300 000 salary from a resident employer
P100,000 gain from sale of merchandise imported and sold to
300 000
--- 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
200,000
50,000
P 950,000
Case Problem 3
In this problem, billing is based on free market conditions. TC bills its foreign outlet (br
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
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 r
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 ren
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
--- 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 i
withheld at source.)
12. False (Only large taxpayers that meet certain criteria are required to file through th
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
hand with imprisonment.)
15. True (The imposition of a penalty upon another penalty is illegal. Hence, the BIR can
interest to the amount of the surcharge.)
16. False
17. True
18. True
19. True
20. True
Multiple Choices – Theory: General Concepts
8. A
1. A
9. B
2. D
10. A
3. B
11. B
4. C
12. B
5. D
13. C
6. D
14. B
7. D
Multiple Choices – Problem 4-1: Accounting period
1. B
5. B
2. C
6. B
3. B
7. B
4. C
8. C
15.
16.
17.
18.
19.
20.
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
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 [(P40
17. B (Leas
comme
comple
18. A [(P1.
19. B
20. D (P90
EXP +P
*Note that the deductible amount for inventory (a form of prepayment) shall be the expired (sold) portio
and accrual basis. Advanced income is taxable upon receipt for both methods. For cash basis collected in
income is included. For both accrual and cash basis, unrealized income is not subject to tax.
--- 2019 INCOME TAXATION SOLUTION MANUAL --Note teachers that the “exact day method” will be used for all assessment start
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
compromise penalty is P15,000).
6. The problem has no answer. April 16, 2020 to July 18, 2020 is 94 days. P1M x 12%
P30,904. You may consider rewarding students who objectively answered P30,904.
should have identified the lack of answer and objectively indicated their correct ans
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
February 2020 is 29 days since 2020 is a leap year. Hence, P500,00 x 12% x 174/36
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 part
following presumption rules are followed in answering:
a. Between whether the taxpayer is an individual or a corporation, an individual
presumed
(This is because there are more individuals than corporations.)
b. Between whether the individual is resident or non-resident, residency is presu
(This is because we are very likely to be of concern with resident entities than non-resi
c. Between whether the corporation is domestic or foreign, domestic is presume
(This is because there are more domestic corporations than foreign corporations.)
d. Between whether the foreign corporation is resident or non-resident, resident
presumed
(This is because we are very likely to be of concern with resident entities than non-resi
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 r
different from what he previously owned or when the declaration of stock divid
declaration of cash dividends.)
12. False (The NIRC did not contemplate final taxation of prizes on corporations, hence,
deemed subject to regular income tax.)
13. False (subject to final tax of 10%)
14. False (They are exempt from any income tax.)
15 T
(O l
id
li
bj
7 5% fi
l
)
--- 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 incom
Multiple Choices – Theory 1
1. A
2. B
3. D
4. D
5. B
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
6.
7.
8.
9.
10.
8.
9.
10.
11.
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
A
B [($1M
A
D [($1M
P45]
C
C
D
A
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%]
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.
Multiple Choices – Problems 2
1. C If we assume the $46,250 as
4. D (A resident corporation is a
12. D
13. C (P1M
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%.
6.
7.
8.
9.
foreign corporation)
A (P120K X 24%)
B (P100K/90%) X 10%
B (P200K X 40% X 10%)
2. B
3. C (P1M X 60% X 10%)
5.
6.
7.
8.
9.
10.
11.
Multiple Choices – Problems 3
1. B (P22,100 X 20%)
11. D (Surcharge = P90,000 x 25%,
D
C (P200K X 10%)
D
D
problem
be withh
dividend
14. A (P800
15. B (P8M
tax rate
2. A (The P10K final tax threshold
on prizes is on a per event and
per organizer basis).
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
surcharg
25% = P
shall be
30/360
--- 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
exchanges) to student for their detailed study at home. These are time consuming topic
much classroom time. You may focus on the basic rules of the 5% and 10% CGT and
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
is deducted in the measurement of the gain. If assumed by the buyer, it should not be d
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
Multiple Choices – Theory: Part 1
1. C
2. A
3. C
4. D
5. D
6. C
7.
8.
9.
10.
11.
12.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
True
True
True
False
False
False (only domestic stock
True
False (tax is based on selli
False (tax is based on SP o
False (only real property c
within)
12.
13.
14.
15.
False
True
True
False (Assessed Value and
independent valuations)
True
False (foreign corporation
True
False (Only on domestic st
True
16.
17.
18.
19.
20.
A (NIRC question)
C
D
A
C
D
13. A
14. D (MOS
TECHN
15. C
Multiple Choices Theory: Part 2
1. D
2. C
3 D
7. C
8. D
9 C
13. A
14. D
15 B
--- 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
TRAIN law. If the problem is silent, use TRAIN law. If the problem is inconsistent
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 i
of the net gain. The understanding is that the buyer paid for the DST . If the pr
documentary stamp or data (i.e. par value) which enables us to compute the sa
documentary stamp tax expense in measuring the net capital gain. The question is
relevant to the case otherwise it would not have provided it.
Multiple Choices – Problems: Part 1
8.
1. A [The net gain is (P200K
– P5K – P8K) x 15%]
9.
2. A
3. D
4. D
5. D
6. A (DST=P300K x
10.
1.5/200=P2,250).
[(P500k-P350k-P2, 250
dst-P100k) x 15%]
11.
7. B [(P350K-300K) X 15%]
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 [ P32
25)]
13. C [(120
15%
14. B [(P12
P240K
15. A (thro
16. A (thro
5. C (P40
5K sha
covere
6. D [(P40
P160K
7. C [(1,5
1,500 x
15%
8. A
The documentary stamp tax is P1.5/P200 of par value. It is 0.0075 of the par. Hence
have been P7,500.00/.0075 = P1,000,000, the cost would have been P1,500,000 (P
date of sale, the value of the stocks doubled to P3,000,000 (P1.5M value at purchase
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,
days was inadvertently used in the interest computation resulting into 630 intere
P26,880, the question answer. Consider rewarding students who indicated the exac
Note to professors:
In the CPA Exam examinees must be able to identify defective assumptions of the examiner
--- 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
11. C**
12. B (P4M
*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
150,000
37,500
18,049
205,549
**No. 11:
Higher of selling price or fair value (P9,000 /1.5%) P
Multiply by: Tax rate
Capital gains tax
P
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)
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.
Multiple Choices – Theory: Part 2
1. D
10. A
B
B
D
B
B
A
C
D
6.
7.
8.
9.
10.
True (As a rule)
False
True
False (only in lieu of person
True
6.
7.
8.
9.
10.
True
True
True
True
True (effectively, yes)
17.
18.
19.
20.
21.
22.
C
D
A
A
D
A
19. C
2. D
3. C
4 D
11. B
12. A
13 B
20. D
21. D (best
22 D
--- 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 [(P19
32%]+
13. D (P1M
6. A (P20K Deposit+P100K R
Dividend)
7. B (P200K BI+ P300K CI+ P
Lending+P20K Car+ P10K
8. B ( The P40K sale directly
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 (
asset, n
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)
10. C (Inco
operat
3. C
4. C
5. B (the P100K premium is
)
8. A (P2M P.8M + P.5M).
The P800K is exempt but is
not specifically mentioned by
the law as exclusion
11.
12.
13.
14
B (P25
C
C
D
--- 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)
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. False (
an alte
after d
17. True
18. False
19. True
20. True
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
False
True
True
False
False (
taxpay
True
False (
True
False (
True
False
True
8.
9.
10.
11.
12.
13.
14.
B
B
C
B
D (This is withholding tax)
D
A
15.
16.
17.
18.
19.
A
A
C
D
B (No C
proper
20. A
6.
7.
8.
9.
10.
B (This is an old question.)
D (subject to final tax)
B
C
C
11. D (The
domest
12. B
13. D
14. C
15. A
*D is the best answer. Passive royalties are generally subject to final tax; hence, non-reporta
royalties earned from sources abroad are subject to regular tax, hence reportable. The capital
through PSE is not subject to tax; hence, non-reportable.