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3.3 Exercise - Improperly Accumulated Earnings Tax

Aunt Julie Co. was a closely-held domestic corporation in its 15th year of operations with retained earnings of P3 million from prior years and a net loss of P200k in 2017. For 2019, the corporation had net sales of P4.2 million and costs of P1.2 million, resulting in a taxable income of P2 million. The corporation owed P90k in income tax for the year and was also subject to an improperly accumulated profits tax of P80k.

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Renzo Karunungan
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167 views2 pages

3.3 Exercise - Improperly Accumulated Earnings Tax

Aunt Julie Co. was a closely-held domestic corporation in its 15th year of operations with retained earnings of P3 million from prior years and a net loss of P200k in 2017. For 2019, the corporation had net sales of P4.2 million and costs of P1.2 million, resulting in a taxable income of P2 million. The corporation owed P90k in income tax for the year and was also subject to an improperly accumulated profits tax of P80k.

Uploaded by

Renzo Karunungan
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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By 2018, Aunt Julie Co.

, a domestic corporation, a closely-held corporation, was in its


15th year of operations. It had a Retained Earnings at the beginning of 2018 of
P3,000,000 (from profits in years prior to 2018), even as there was a net loss in 2017 of
P200,000. The BIR was imposing the improperly accumulated profits tax on the
accumulation of profits. The paid-in capital at the end of 2018 was P3,500,000. For
2019, the corporation had:
 
Net Sales                                                                                    P4,200,000
Cost of Sales                                                                               1,200,000
Business expenses                                                                       800,000
Dividend from domestic corporation                               200,000
Quarterly income tax paid, (1st-3rd qtrs.)                       510,000
Income tax due, end of the year                                              90,000
Dividend declared, 2018 (paid in 2019)                          500,000
 
For the year, compute the taxable income, the income tax of the corporation and the
IAET.

Net Sales P4,200,000


Less: Cost of sales (1,200,000)
Gross: profit from sales P3,000,000
Less: business expenses 800,000
Dividend from domestic corporation 200,000 (1,000,000)
Taxable income P2,000,000

MCIT (P3M x 2%) 60,000


RCIT (P2M x 30%) 600,000
Which is higher 600,000
Less: Quarterly income tax paid (510,000)
Income tax still due P90,000
Taxable income, end of year P2,000,000
Add: dividend from domestic corp. 200,000
NOLCO 200,000 400,000
Total P2,400,000

Less: RCIT at 30% 600,000


Dividend declared 500,000 (1,100,000)
Balance 1,300,000
Add: RE from prior years 3,000,000
Total P4,300,000

Less: paid-in capital, end of year (3,500,000)


Taxable income P800,000
IAET 10% P80,000

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