INDIVIDUALS

1. Ms. Y operates a pharmaceutical store and offers tax preparation services to her clients. In
2021,

her gross sales amounted to P800,000, in addition to her receipts from tax preparation services
of P300,000.

Scenario 1: If she already signified her intention to be taxed at 8% income tax rate in her 1st
quarter return, how much is the tax due in 2021?

Scenario 2: If she failed to signify her intention to be taxed at 8% income tax rate on gross
sales in her initial Quarterly Income Tax Return, and she incurred cost of sales and operating
expenses amounting to P600,000 and P200,000, respectively, how much is the tax due in 2021?

2. Ms. Y signified her intention to be taxed at 8% income tax rate on gross sales in her first
quarter

return. Her gross sales and other information during the taxable year are shown below.

1st quarter 2nd quarter 3rd quarter 4th quarter

Total sales P500,000 P1,000,000 P1,500,000 P6,000,000

Cost of sales 300,000 500,000 700,000 2,250,000

Operating exp 100,000 200,000 250,000 750,000

a. How much is the income tax payable for the second quarter?

b. How much is the income tax payable for the final return?

3. Mr. X, a senior manager of a huge real estate company, earned an annual gross compensation

income of P1,700,000 in 2021. In addition, he earned 13th month pay and other benefits
amounting

to P50,000. The total mandatory contributions to SSS, Pag-ibig and Philhealth amounted to
P10,000.
Aside from employment income, he owns a Korean store with gross sales of P2,600,000. Sales
discounts totaled P120,000, while sales returns and allowances totaled P80,000. Cost of sales
and operating expenses are P1,200,000 and P400,000, respectively, and with non-operating
income of P80,000

a. If the best option is availed of by Mr. X, being a mixed income earner, the income tax payable
for 2021 is.

b. If Mr. X chose to be taxed at the progressive income tax rates under Sec. 24 (A) of the Tax
Code, the income tax payable for 2021 is.

Question 3: Which is the better option to choose from: (a) the special income tax rate of eight

percent (8%); or (b) the graduated income tax rate under Sec. 24 (A) of the Tax Code?

a. Progressive rates under Sec. 24 (A)

b. 8% income tax rate based on taxable income

c. Indifferent, as the two options will result in the same total national internal revenue taxes

liability anyway of the taxpayer

d. It’s always the 8% income tax rate because of the twin benefits of not only avoiding the

graduated income tax rates under Sec. 24 (A) but also the exemption from the OPT under

Sec. 116

4. Mr. Y owns a nightclub and videoke bar, which are subject to Other Percentage Taxes. In
2021, the business generated gross sales of P2,500,000 with cost of sales and operating
expenses of P1,000,000 and P600,000, respectively and with non-operating income of
P100,000. How much is income tax due?
5. Mr. Z, a self-employed resident citizen provided the following data for 2021 taxable year:

Sales P2,800,000

Cost of sales 1,125,000

Business operating expenses 650,000

Interest income from peso bank deposit 80,000

Interest income from a depository bank under the

Expanded Foreign Currency Deposit System 120,000

Gain on sale of land in the Philippines held as capital asset

with fair market value (equal to the selling price)

of P2,000,000 and zonal value of P1,600,000 500,000

Question 1: How much is the total income tax expense of Mr. Z for the year?

Question 2: How much is the total income tax assuming Mr. Z opted to be taxed at 8%?

Question 3: Using the same data except that the gross sales for the year was P3,800,000, how

much is the total income tax assuming Mr. Z opted to be taxed at 8% income tax rate?

7. On July 1, 2021, Mr. X left the Philippines to go to Japan and planned to work there for five
(5) years.

The following data were provided as of December 31, 2021.

Gross Business Income Business Expenses

Period Philippines Japan Philippines Japan

Jan. 1 to Jun 30 P300,000 P200,000 100,000 P50,000

July 1 to Dec31 600,000 400,000 150,000 50,000

Question 1: His taxable income is

Question 2: Assuming he arrived from Japan on July 1, 2021 to permanently resettle in the

Philippines, after working abroad for 5 years, his taxable income as of December 31, 2021 is.

Question 3: If he did not leave Philippines at all, his taxable income is

8. Mr. Y, a CPA, had the following data for the current taxable year

(Exchange Rate $1 = P50):

Philippines Abroad

Business income P1,000,000 $20,000

Professional income 400,000 10,000

Salaries 200,000 -

Business and professional expenses 250,000 8,000

Income tax paid - 4,000

Scenario 1: Compute the income tax payable of Mr. Y assuming he is classified as a resident
citizen

Scenario 2: Compute the income tax payable of Mr. Y assuming he is classified as a resident
alien

Scenario 3: Disregarding professional and business income, the total income tax that should be
withheld from the salaries of Mr. Y assuming he is classified as non-resident alien not engaged
in trade or business (NRANETB)

9. A taxpayer provided the following data for 2021:

Compensation income

(10% represents SSS, Pag-ibig, Philhealth and Union dues contributions) P 825,000

Income from business 10,500,000

Other income (20% represents income from bank deposits abroad) 750,000

Expenses (15% represents personal expenses) 7,200,000

Income from bank deposit 300,000

Additional information:
1/4 of business income and deductible business expenses is from outside the Philippines.

Scenario 1: If the taxpayer is a resident citizen, his taxable income is.

Scenario 2: If the taxpayer is a non-resident alien engaged in trade or business, his taxable
income is

Scenario 3: If the taxpayer is a non-resident alien not engaged in trade or business in the

Philippines, his taxable income is

10. Mr. X, a resident citizen, has the following data for year 2021:

Gross sales, Philippines P1,250,000

Gross sales, USA 750,000

Sales returns and allowances, Philippines 125,000

Sales returns and allowances, USA 50,000

Cost of sales, Philippines 375,000

Cost of sales, USA 200,000

Business expenses, Philippines (itemized) 125,000

Business expenses, USA (itemized) 75,000

Interest income, peso bank deposit, BPI – Makati 10,000

Interest income, US dollar deposit, BPI – Makati 25,000

Gain from sale of residential house and lot 125,000

(selling price, P900,000; FMV at time of sale, P1,000,000)

Gain from sale of shares of stock listed and traded 30,000

in the local stock exchange (selling price, P100,000)

Gain from sale of shares of stock not traded in

the local stock exchange 150,000

Question 1: How much is the taxable income subject to the graduated tax table?
Question 2: How much is the total final tax on passive income?

Question 3: How much is the capital gains tax due?

11. Mr. Z, a non-resident Japanese stockholder, received a dividend income of P300,000 in

2021 from ABC Corporation, a foreign corporation doing business in the Philippines. The gross
income of ABC Corporation from sources within and without the Philippines for the past three
years preceding 2021 is provided as follows:

Source 2018 2019 2020

Philippines P16,000,000 P15,000,000 P17,000,000

Abroad 8,000,000 11,000,000 13,000,000

Question 1: The amount of income subject to tax should be

Question 2: Mr. Z is subject to

a. Basic income tax on P180,000

b. Basic income tax on gross income of P300,000

c. Final withholding tax of 25% on P180,000

d. Final withholding tax of 25% on gross income of P300,000

Question 3: Assuming ABC Corporation is a domestic corporation, the amount of income

subject to tax should be

12. Mr. X is a minimum wage earner. He is not engaged in business nor has any other source of
income other than his employment. In 2021, he earned a total compensation income of
P135,000. He also received overtime pay of P80,000, nigh shift differential of P30,000, hazard
pay of P15,000 and holiday pay of P15,000. He contributed to the SSS, Philhealth and HDMF
amounting to P5,000 and has received 13th month pay of P11,000. What is his income tax
liability in 2021?
13. Mr. Y, single, is a minimum wage earner. In addition to his basic minimum wage of
P150,000 for the year, he also received the following benefits:

• De minimis, P60,000 (P20,000 over the ceiling)

• 13th month pay and other benefits, P112,000

• Holiday pay, P30,000

• Overtime pay, P10,000

• Night shift differential, P15,000

• Hazard pay, P5,000

Question 1: How much is the income tax due of Mr. Y?

Question 2: How much is the income tax due of Mr. Y in 2021 assuming he also earned
P450,000 derived from his business?

CORPORATION

1. Company X, a retailer, has gross sales of P1,100,000,000 with a cost of sales of P750,000,000
and allowable deductions of P250,000,000 for the calendar year 2021. Its total assets of
P230,000,000 as of December 31, 2021 per Audited Financial Statements which includes the
land costing P90,000,000 and the building of P45,000,000 in which the business entity is
situated, with an aggregate amount of P135,000,000 as Fixed Assets. Assuming CY 2021 is the
5th year of operation of Company X.

Question 1: How much was the MCIT recognized during the current taxable year?

Question 2: How much was the income tax payable during the current taxable year?

2. Company X, a manufacturer, has gross sales of P400,000,000 for CY 2021, its 2nd year of
operations. Its total assets amounted to P100,000,000, net of the value of the land amounting
to P35,000,000, where its manufacturing plant and business operations are situation. Its cost of
sales and allowable operating expenses amounted to P180,000,000 and P70,000,000,
respectively. How much is the income tax due for CY 2021?
3. Company X, a manufacturer, has gross sales of P190,000,000 for CY 2021, its 2nd year of
operations.Its total assets amounted to P50,000,000, net of the value of the land of P6,000,000
where its manufacturing plant and business operations are situation. Its cost of sales and
allowable operating expenses amounted to P100,000,000 and P85,000,000, respectively.
How much is the income tax due for CY 2021?

4. ABC Corporation reported the following information in 2021:

Total assets (excluding land): P150,000,000
Philippines Japan
Gross sales P6,000,000 P4,000,000
Sales returns and allowances 200,000 150,000
Sales discounts 100,000 80,000
Cost of sales 2,000,000 1,500,000
Deductible expenses 1,000,000 500,000

Requirement: Compute for the income tax due under the following scenarios:
Scenario 1: Domestic corporation (DC)
Scenario 2: Resident foreign corporation (RFC)
Scenario 3: Nonresident foreign corporation (NRFC)
Scenario 4: Domestic corporation with total assets of P90 million
Scenario 5: Domestic corporation availing the Optional Standard Deduction (OSD)

5. ABC Corporation, a corporation organized in 2017 under Philippine laws, reported the
following
information from 2021 to 2024:
2021 2022 2023 2024
Total assets (including land) 110,000,000 120,000,000 140,000,000 120,000,000
Land value 20,000,000 20,000,000 25,000,000 25,000,000
Gross Income 8,000,000 10,000,000 7,000,000 10,500,000
Allowable Deductions (3,500,000) (4,500,000) ( 7,250,000) (9,000,000)

Requirement: Compute for the income tax payable for years 2021, 2022, 2023 and 2024.

6. ABC University is a non-profit private educational institution with an issued permit to

operate from the Commission on Higher Education (CHED). It is maintained and administered
by Company Y, a private domestic corporation registered under the Securities and Exchange
Commission. ABC University uses a fiscal year accounting ending December 31st of each year.

On December 31, 2021, it recorded total gross receipts amounting to P25,000,000, of which
P15,000,000 came from education-related activities, while P10,000,000 from other unrelated
business activities. Also, ABC University recorded cost of service and operating expenses from
related activities amounting to P5,000,000 and P4,000,000, respectively, and from unrelated
business activities amounting to P5,000,000 and P3,000,000, respectively.
How much was the income tax payable for the current year?

7. ABC Hospital, a private non-profit hospital, has gross receipts of P20,000,000 with a cost of
P8,000,000 and allowable deductions of P4,500,000 from related activities, while for its
unrelated activities, it incurred P5,000,000 and P2,000,000 as cost of sales and allowable
deductions, respectively, with a gross income of P13,000,000, for calendar year 2021.

How much was the income tax payable for the current year?

8. Company X is registered as a Regional Operating Head Quarters (ROHQ) since 2015. For
taxable years 2020 to 2023, its operation showed the financial results.

TY 2020 TY 2021 TY 2022 TY 2023

Annual Income 75,000,000 120,000,000 130,000,000 75,000,000
Cost of Services 41,250,000 66,000,000 71,500,000 41,250,000
Gross Income 33,750,000 54,000,000 58,500,000 33,750,000
Less: Allowable
Deductions 33,625,000 41,200,000 42,550,000 35,125,000

125,000 12,800,000 15,950,000 (1,375,000)

Compute the income tax payable for the years 2020 to 2023.

9. Company X, a domestic corporation, owns twenty percent (20%) of the outstanding shares
of Company Y, a non-resident foreign corporation (NRFC), since August 1, 2015. On June 30,
2021 it received dividend amounting to P1,000,000 from the said NRFC. The said dividends has
not been used until January 13, 2023.

Question 1: Based on the above problem, how much taxable income shall be declared for the
taxable year 2021?

Question 2: Assuming the entity has complied with the requirements under Sec. 27 (D) of NIRC
with respect to dividends received from NRFC, how much taxable income shall be declared for
the taxable year 2021?

10. Company X, a domestic corporation, owns twenty percent (20%) of the outstanding shares
of Company X, a non-resident foreign corporation (NRFC), since August 1, 2015. On May 1,
2021, the NRFC distributed dividends amounting to P1,000,000 to Company X. On September
1, 2022,Company X utilized 80% of the dividends it received for a qualified activity under Sec.
27 (D)(4) of NIRC. On January 1, 2023, it utilized the remaining P200,000 for its working
capital requirements.

How much taxable income shall be declared for the taxable year 2021?

11. Company X, a domestic corporation, holds 20% of the stocks of Company Y, a non-resident
foreign corporation, Company X a wholly-owned subsidiary of Company Z, a non-resident
foreign corporation. Company X’s holdings in Company Y started in 2018, and the holding
period is uninterrupted. On July 1, 2021, Company X received dividends from Company Y
amounting to P2,000,000 and subsequently paid out dividends on December 31, 2022, in the
amount of P1,500,000. The remaining amount of P500,000 has not been used in any qualified
activity or exempt foreign-source dividends.
Taxable income of shall be subject to income tax during the current taxable year?
12. Company X, a domestic retailer, has gross sales of P1,400,000,000 with cost of sales of
P560,000,000 and allowable deductions of P150,000,000 for calendar year 2020, its fifth year
of business operations. Its total assets of P180,000,000 include the land and building in which
the business is situated, amounting to P50,000,000 and P25,000,000, respectively.

Requirement 1: Compute the regular income tax (RCIT).

Requirement 2: Compute the minimum corporate income tax (MCIT).

Requirement 3: Determine the income tax payable to be reported for the current taxable year.

Requirement 4: Assuming the taxable period of Company X is ending on April 30, 2021,
compute the income tax payable to be recognized for the current year.

13. Company X, a resident foreign corporation, has gross sales of P500,000,000 cost of sales of
P300,000,000 and allowable deductions of P75,000,000 for fiscal year ending April 30, 2021,
its fifth year of business operations. Its total assets is P800,000,000 which included the land of
P50,000,000 and other fixed assets of P200,000,000.

What would be the taxable income for the current taxable year?

14. ABC Corporation provided the following data for calendar year ending December 31, 2021:
(Exchange rate: $1 : P50)
Philippines USA
Gross Income P4,000,000 $40,000
Deductions P2,500,000 $15,000
Income tax paid $3,000

Requirement 1: If the corporation is a domestic corporation, its income tax payable is

Requirement 2: If the corporation is a domestic corporation but it opts to claim the tax paid
abroad as deductions from gross income, its income tax payable is

Requirement 3: If the corporation is a resident corporation, its income tax payable is

Requirement 4: If the corporation is a non-resident corporation, its income tax payable is

Requirement 5: If the corporation is a resident international carrier, its income tax payable is

Requirement 6: If the corporation is a non-resident cinematographic film owner or lessor, its

income tax payable is

Requirement 7: If the corporation is a non-resident lessor of vessel chartered by Philippine

nationals, its income tax payable is

Requirement 8: If the corporation is a non-resident lessor of aircraft, machineries and

equipment, its income tax payable is
Requirement 9: If the corporation is a regional operating headquarters earning income in the
Philippines, its income tax payable is

Requirement 10: If the corporation is a regional or area headquarters of a multinational

corporation that does not earn or derive income from the Philippines, its income tax payable is

Requirement 11: If the corporation is a resident foreign corporation and it applied with the
Banko Sentral ng Pilipinas for a remittance of profits of P1,500,000, but only remitted
P1,275,000, net of tax:

ADDITIONAL EXERCISES
PROBLEM 1
ABC Corporation has the following records in 2021:
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
Gross profit P500,000 P850,000 P800,000 P770,000
Expenses 400,000 770,000 640,000 575,000
Div. domestic corporation 15,000 15,000 20,000 20,000
Interest on peso bank deposit 3,000 5,000 3,750 2,250
Income tax withheld 5,000 7,000 8,000 6,750
Rent income, gross of 5% w.t. 36,000 36,000 48,000 48,000

The company had an excess payment of P12,500 in 2020 from which it had decided to claim
tax credit on the excess.

Requirement: Compute for the income tax payable (refund) for each of the quarter and final
return.

PROBLEM 2
ABC Corporation, a domestic corporation, declared and paid the following dividends to its
shareholders in
2021:
To A, a resident citizen P300,000
To B, a non-resident citizen 200,000
To C, a resident alien 500,000
To D, a non-resident alien engaged in trade in the Philippines 600,000
To E, a non-resident alien not engaged in trade in the Philippines 700,000
To F, a domestic corporation 900,000
To a resident foreign corporation 400,000
To a non-resident foreign corporation (with tax sparing) 100,000

Requirement: Compute for the final tax to be withheld by ABC Corporation.

PROBLEM 3
The following information were taken from the records of ABC Inc., a domestic corporation
already in its fifth year of operations:
Gross profit from sales P3,100,000
Capital gain on sale directly to buyer of shares
in a domestic corporation 100,000
Dividend from:
Domestic corporation 20,000
Resident foreign corporation (complied with Sec. 27D) 10,000
Interest on:
Bank deposit 20,000
Trade receivable 50,000
Business expenses 2,100,000
Income tax withheld 115,000
Quarterly income tax payments 160,000
Excess payment from prior year 10,000
Requirement: Compute for the income tax payable at the end of the year.
PROBLEM 4
The following data were taken from the financial statement of ABC Corporation taxable for the
current year:
Philippines USA
Gross sales P950,000 P2,000,000
Sales returns 25,000
Cost of goods sold 425,000 300,000
Income from trade receivable 10,000 50,000
Interest income from bank deposit 20,000
Royalty income 20,000
sales shares of stocks of dom. corporation held
as capital asset local stock exchange 70,000
Operating expenses, 30% of the operating
expenses are non-deductible 250,000 300,000
Income from money market placement 35,000 100,000
Selling price of real property in the Philippines not used in
business, cost P4,000,000 5,000,000
(the FMV of the real property was P8,000,000 and
zonal value of P7,000,000 at the time of sale)

Compute for the following:

1. Income tax due
2. Total tax on passive income
3. Capital gain tax
PARTNERSHIP

1. B & Co., a partnership, had the following data for 2021:

Gross income from professional services P2,500,000

Expenses related to the income 800,000

With personal data of: Partner A Partner B

Gross income P1,000,000 P800,000

Deductible expenses 350,000 200,000

Scenario 1: If AB & Co. is classified as a general professional partnership (GPP), compute for

the following:

a. Net distributable income of the partnership

b. Income tax of AB & Co. Partnership

c. Income tax due from each partner

Scenario 2: If AB & Co. is classified as an ordinary partnership (OP), compute for the following:

a. Distributive share of each partner

b. Income tax of AB & Co. Partnership

c. Income tax due from each partner

2. On January 1, 2021, Atty. X, Atty. Y and Atty. Z established a law firm. The 2021 financial
records of the firm disclosed the following:

Service Revenue P4,990,000

Cost of Services 1,610,000

Operating expenses 800,000

Interest income from bank deposit 200,000

Interest income from FCDS deposit 280,000

Atty. Y is also engaged in business with the following data for 2021:

Sales P2,500,000

Cost of Sales 1,250,000

Operating expenses 550,000

Question 1: Compute for the distributive share of each partner in the total income of the
general professional partnership (GPP)

Question 2: Compute for the taxable income of Y on his separate capacity in 2021

Question 3: Compute for the taxable income of Y in 2021 assuming the GPP opted to use
Optional Standard Deduction (OSD)

Question 4: Compute for the taxable income of Y in 2021 assuming the GPP and Y opted to use

Optional Standard Deduction (OSD)

3. XYZ Company is a business partnership. Its gross sales amounted to P30,000,000 for taxable
year 2021. The recorded cost of sales and operating expense of the partnership were
P8,250,000 and P4,500,000, respectively.

It had also incurred an interest expense of P600,000 in connection with asset acquisition
andinterest income from bank deposit amounting to P300,000, net of final withholding tax.

Question 1: How much is the taxable income of the partnership?

Question 2: How much is the income tax liability of the partnership?

Question 3: Assuming the partnership avails of the Optional Standard Deduction, how much is
the tax liability of the partnership?

4. A and B are co-owners by inheritance of an income producing property. A and B merely

preserve and collect income from the said property. Data on the co-ownership and co-owners
A and B for the current year are as follows:

Co-ownership A B

Gross income P2,000,000 P 400,000 P 350,000

Expenses 1,000,000 150,000 200,000

Compute for the following:

a. Income tax due of the co-ownership

b. Taxable income of co-owners A and B

5. A and B inherited an income earning property. In 2020, without dividing the property, they
had a net income of P230,000 which they deposited in a joint bank account. In 2021, they used
the money in the bank to purchase another income-producing property. From the net income
of P500,000 in 2021 from the two properties, A and B each withdrew P100,000. A and B are
brothers. Which of the following statements is wrong?

a. In 2020, A and B each had an income from the properties, taxable to each as income of

individual taxpayers

b. The income of P500,000 in 2021 is income of a partnership, taxable income of a

corporation

c. In 2021, A and B each had an income of P250,000, taxable income of an individual

d. In 2021, A and B each had an income of P100,000, taxable as income of an individual

6. In 2020, X and Y inherited income-producing properties from their mother with a reported
value

of P1,000,000 to the court and the Bureau of Internal Revenue, and on which the estate tax was

paid. The properties remained registered in the name of the mother, but the net income of

P40,000 from the property was deposited in a joint account of X and Y. In 2021, the property
had

a net income of P70,000, from which each withdrew P15,000. In the same year, they sold the

property for P3,000,000. Which of the following statements is wrong?

a. X and Y in 2020 each had an income of P20,000 from the property, as individual taxpayers

b. X and Y became an entity taxable as a corporation beginning 2021

c. X and Y in 2021 each had an income of P35,000 from the property as individual taxpayers

d. X and Y each had a capital gain tax of on a selling price of P1,500,000

7. On January 1, 2021, A Co. and B Co., contractors, formed a joint venture (JV). Data on the JV
and parties to the venture for the year are as follows:
 Joint Venture A Co. B Co.

Gross income P10,000,000 P5,000,000 P6,000,000

Expenses 4,000,000 3,000,000 2,500,000

Quarterly income tax paid 500,000 900,000

Compute for the income tax due (before CWT) from the JV and joint venturers, A Co. and B Co.

Scenario 1: If the JV was entered into solely to construct an expressway north and south of

Manila and collect toll from users.

Scenario 2: If the JV was entered into solely to engage in petroleum operations pursuant to an

operating or consortium agreement under a service contract with the Government.

Scenario 3: If A Co. and B Co. are transportation companies and they entered a JV wherein A

Co. will transport units south of Manila and B Co. will transport units north of Manila and that

the JV has remitted a total of P1,500,000 quarterly tax payments.

8. X Builders and Y Development, both domestic corporations, are engaged in the construction
business. They formed a joint venture, XY Inc., with an agreed profit and loss sharing ratio of
60:40 for X Builders and Y Development, respectively. X, Y and the joint venture are all licensed
by the PCAB and eligible for tax incentives. Summary information for the three entities are as
follows:

Joint Venture X Builders Y Development

Gross income P12,000,000 P3,000,000 P4,500,000

Expenses 9,000,000 1,800,000 3,000,000

Question 1: Determine the income tax liability of the joint venture, XY Inc.

Question 2: Determine income tax liability before tax credits of X Builders

Question 3: Assume instead that X and Y are both engaged in the transportation business
determine the income tax liability of the joint
ESTATE AND TRUST

1. The following data for an estate and its heirs, X and Y, are available for year 2021.

Estate X Y

Gross income 1,200,000 900,000 700,000

Expenses 400,000 200,000 150,000

Distribution made to/received by heirs 200,000 100,000 100,000

The income tax was properly withheld by the estate. Compute for the income tax due of the
estate X and Y for 2021.

Scenario 1: The estate is under judicial settlement or administration.

Scenario 2: The estate is under extra-judicial settlement.

2. Mr. X died on March 1, 2021. He left an estate with a fair market value of P12,000,000.
During the year, the estate had a gross income of P1,000,000 and related expenses of P300,000.
During the year, the administrator gave P200,000 each to Y and Z (Mr. X’s beneficiaries). Of the
amounts given to Y and Z, 50% came from the income of the estate and the other 50% came
from the estate. The net taxable income of the estate of Mr. X in 2021 is

3. Mr. X, a resident citizen, died on January 10, 2021 and left an estate of P10,000,000, which is
under the administration of Mr. Y. It includes a portfolio of rental properties. In 2021, the
estate generated total rental revenue of P3,800,000, after 5% withholding tax. The estate also
incurred deductible expenses amounting to P800,000. Mr. Y distributed P500,000 and
P750,000 to Mr. X’s two kids, A and B, respectively. 60% of the distribution came from the
income of the estate while the rest came from the estate itself. Compute for the tax still due
from the estate in 2021.

4. On January 1, 2021, Mr. X established a trust fund for the benefit of his daughter, Y. Mr. X
appointed Z as the trustee. The property transferred to the trust is a piece of land earning
rental income. During the year, the trust earned P60,000,000 revenues and incurred expenses
of P25,000,000. Out of the trust’s income, Z gave Y P15,000,000 cash. In the same year, Y
earned compensation income of P5,000,000. Compute the taxable income of the trust and Y
under the following scenarios:

Scenario 1: The trust is revocable.

Final answers: Trust – P0; Grantor (Mr. X) – P35M; Beneficiary (Y) – P20M.

Scenario 2: The trust is irrevocable.

5. Mr. X designated two (2) irrevocable trusts in favor of his son. For year 2021, the trusts
earned the following income:

Trust 1 P4,000,000

Trust 2 6,000,000

Question 1: How much is the consolidated income tax payable of the two Trusts?

Question 2: How much is the income tax due of Trust 1?

Question 3: How much is the income tax due of Trust 2?

GROSS INCOME

1. In 2021, Ms. X earned P500,000 as income from her beauty parlor and received P250,000 as

Christmas gift from her aunt. She had no other receipts for the year. She spent P150,000 for the

operation of her beauty parlor. For tax purposes, her gross income for 2021 is

2. X took a life insurance from Z Insurance Company, with her husband Y as the beneficiary.
Under the policy, Z will pay X the amount of P500,000 when the policy matures, or to her
beneficiary husband in case she dies before the maturity. X will pay P10,000 annually for 20
years. Assuming that the policy matured when X reached 50 years old and she received the
entire P500,000 from the insurer, how much income should she report?

3. Interest income on trade notes receivable P 30,000

Interest income from government bonds 50,000

Interest income from money market placements 20,000

Interest income on Banko Sentral bonds 100,000

Interest income on bank savings deposit 60,000

Question 1: How much is the interest income subject to final tax, and how much is the final
tax?

Question 2: How much is the interest income in the taxable income at the end of the year?

4. X was allowed to deduct P200,000 bad debts written off in 2020, where she had a net income

before bad debts of P180,000 and a net loss of P20,000. In 2021, she was able to recover the
bad debts written off in full. The bad debts recovery is

a. Taxable to the extent of P180,000

b. Not taxable

c. Taxable to the extent of P200,000

d. Taxable to the extent of P20,000

5. The following data on net income, bad debt, write-off and recovery show:

2020

Case A Case B Case C

Net income (loss) before write-off P80,000 P40,000 (P20,000)

Less: Bad debts written-off and P50,000 P50,000 P 50,000

claimed as deduction

Net income (loss) after write-off P30,000 (P10,000) (P70,000)

2021

Subsequent recovery P50,000 P 50,000 P50,000

The taxable recovery is

a. Case A (P50,000); Case B (P40,000); Case C (P20,000)

b. Case A (P50,000); Case B (P0); Case C (P0)

c. Case A (P50,000); Case B (P50,000); Case C (P50,000)

d. Case A (P50,000); Case B (P40,000); Case C (P0)

6. ABC Corporation reported the following figures on net income, bad debts, write-offs and

recoveries:
2020 Case 1 Case 2 Case 3

Net income (loss) before write off P80,000 P40,000 (P20,000)

Less: Bad debts written off

and claimed as deduction

50,000 60,000 70,000

Net income (loss) after write-off P30,000 (P20,000) (P90,000)

2021

Subsequent recovery P50,000 P50,000 P50,000

Question 1: The taxable recovery is

Case 1 Case 2 Case 3

e. P50,000 P50,000 P50,000

f. P50,000 P0 P0

g. P50,000 P40,000 P20,000

h. P50,000 P30,000 P0

Question 2: If the subsequent recovery for Case 1 – P30,000, Case 2 – P30,000 and Case 3 –

P30,000, the taxable recovery is

Case 1 Case 2 Case 3

a. P30,000 P30,000 P30,000

b. P30,000 P30,000 P0

c. P30,000 P20,000 P0

d. P30,000 P10,000 P0

7. Mr. X leased his land to Mr. Y. The terms of the contract of lease is for fifteen (15) years and
the rental fee is P36,000 a year. The contract provides that Mr. Y, the lessee, will construct a
building and at the end of the term of the contract, the building will be owned by Mr. X, the
lessor. The building was constructed at a cost of P600,000 and has a useful life of 30 years.
Assuming Mr. X will spread his income over the term of the contract of lease, for income tax
purposes, his yearly income is.

8. A lessee made the payments to a lessor in 2021:

Advance rental, applicable to two years P480,000

Security deposit P400,000

The lessee also made leasehold improvements on January 2, 2021 that will belong to the lessor

when thelease expires, with the following data:

Cost of leasehold improvements 2,000,000

Estimated useful life 25 years

Remaining term of the lease 10 years

Question 1: How does a lessor recognize income from a prepaid rent of the lessee?

Question 2: How does a lessor recognize income from a security deposit of the lessee?

Question 3: How does a lessor recognize income from leasehold improvements made by the

lesseeusing spread-out method?

Question 4: How much was the income of the lessor in 2021?

9. On January 1, 2020, Mr. X leased his vacant lot for a period of 10 year. It was agreed that the

lessee will pay the following:

• Rent of P1,500,000 for 2020 and 2021

• Refundable security deposit of P250,000

• Real property tax of P60,000 per year

The lease contract provides that the lessee will construct a building at a cost of P2,800,000
which shall belong to the lessor upon expiration of the lease term. The building was completed
on July 1, 2020, with an estimated useful life of 12 years. Using the spread-out method, Mr. X
shall report total income from lease in 2020 for

10. Cost of leasehold improvement P1,000,000

Estimated useful life of improvements 50 years

Estimated useful life of improvements 40 years

Question 1: Income from the improvements, if reported in one lump sum

Question 2: If the income from the improvements is reported annually, the annual income is

Question 3: If the income from the improvements was reported annually, and at the beginning
ofthe twenty-first year of the improvements, when the fair market value thereof was P250,000,

thelessor took possession of the improvements, his income in Year 21 is

Question 4: If the income was reported annually, and the leasehold improvements were

destroyed by fire before the end of Year 10, when the fair market value was P800,000 and

insurance recovery for the lessor was P40,000 only, the deductible loss of the lessor is:

11. Mr. X bought a 2,000 square meter land at a cost of P500,000. He leased the land to Mr. Y at
an annual rental of P40,000. The term of the contract of lease is 15 years. The contract of lease
provides that Mr. Y shall construct a building on the land and the building shall belong to
thelessor at the end of the term of the lease or at the termination of the lease. The building was
constructed at a total cost of P400,000 and has an estimated useful life of 20 years which is the
basis of a straight-line method of depreciation.

Question 1: Assuming that Mr. X shall spread his income over the term of the contract of lease,

the annual income of Mr. X is

Question 2: Assuming the contract of lease was terminated after the tenth (10th) year of the

beginning of the eleventh (11th) year due to the fault of the lessee, the income of M. X in the

eleventh (11th) year is

12. An individual had:

Refund of graduated income tax P500,000

Refund of fringe benefit tax 300,000

Refund of estate tax 50,000

Refund of donor’s tax 10,000

Refund of income tax paid to a foreign country

(previously claimed as deduction) 100,000

Refund of value-added tax 60,000

Refund of city business taxes 15,000

Damages recovered for physical injuries 40,000

Recovery of lost profits from patent infringement 300,000

Prize won in an essay contest 10,000

Bad debt recoveries:

a. Write off in a year with a net income of

P100,000 before write-off 10,000

b. Write off in a year with a net loss of

P60,000 before write-off 12,000

c. Write off in a year with a net income of

P5,000 before write-off 20,000

Cancellation of indebtedness to a friend to whom the taxpayer rendered services

amounting to P50,000. How much is the gross income?

13. Mr. X, a resident citizen had the following data on income and expenses for taxable year
2021:

Gross business income P1,500,000

Business expenses 600,000

Interest from local savings deposit 150,000

Prize in a literary contest he joined 300,000

Prize received for scientific achievement (did not join contest) 30,000

Gain from sale of bonds (maturity is 6 years) 15,000

Separation pay from his former job due to retrenchment 750,000

Professional income 900,000

Proceeds of his wife’s life insurance (irrevocable beneficiary) 3,000,000

Amount received as return of premium 600,000

Revenues recovered by BIR due to Mr. X’s information 1,500,000

Question 1: How much was the total amount of excluded or exempted income?

Question 2: How much was the total final tax from certain income?

Final answer: P105,000

Interest income P30,000

Tax on informer’s reward 15,000

Prize 60,000

Total P105,000

According to Sec. 282 of the Tax Code, an informer shall be rewarded in a sum equivalent to
10% of the revenues, surcharges or fees recovered and/or fine or penalty imposed and
collected or P1,000,000 per case, whichever is lower. The cash reward of informer is subject to
10% FWT. The amount to be rewarded to Mr. X is P150,000 (P1.5M x 10%) because it is lower
than P1,000,000. The FWT is P15,000 (P150,000 x 10%).

Question 3: How much was the taxable income subject to Section 24 (A) of the tax code?

DEDUCTION

1. A store building was constructed on January 1, 2016 with a cost of P570,000. Its estimated
useful life is 16 years with scrap value of P70,000 after 16 years. In January 2021 replacement
of some worn-out parts of the building costing P50,000 was spent. After the repairs, the
building was appraised with a fair market value of P770,000. The allowable deduction for
depreciation for the year 2021 is.

2. On July 1, 2019, Mr. X leased his vacant lot for a period of 12 years to Mr. Y at an annual rate
of P2,400,000. It was also agreed that Mr. Y will pay the following:

• P4,800,000 representing rental payment for the year 2019 and 2020

• Security deposit of P2,400,000

• Annual real property tax of P30,000

The lease contract provides, among others that the lessee will construct a 5-storey building for
parking purposes at a cost of P10,000,000. Ownership of the building shall belong to the lessor
upon the expiration or termination of the lease contract. The building was completed on July
1,2021 with an estimated useful life of 15 years.

Question 1: How much can Mr. Y claim as deduction in relation to the lease in 2021?

Question 2: How much can Mr. Y claim as deduction in relation to the lease in 2022?

3. A taxpayer engaged in business incurred a partial loss of property as follows:

 Asset 1 Asset 2

Book value at the time of loss P200,000 P200,000

Cost to restore the property 120,000 300,000

Insurance recovery 50,000 0

Proceeds from salvage value 0 40,000

Question 1: Compute for the deductible loss for Asset 1

Question 2: Compute for the deductible loss for Asset 2

Note: Just like insurance recovery, the salvage value is also deducted to get the deductible loss,

since it is the amount that we get from selling what was left in the asset which was partially

damaged.

4. X Corporation shows the following data during taxable year:

Sales P500,000

Interest income, net of 20% final tax 24,000

Cost of sales 300,000

Salary expense 120,000

Interest expense 60,000

Rent expense 24,000

Advertising expense 6,000

Depreciation expense 5,000

NOLCO 50,000

What is the correct amount of itemized deduction?

5. ABC Corporation paid the following expenses during the year:

Interest for late payment (delinquent) income tax P5,000

Surcharges and penalties for late payment of income tax P30,000

Interest on bonds issued P40,000

Interest on money borrowed from a stockholder P20,000

owning 90% of the outstanding stock of ABC
How much is the deductible expense for the year?

6. X Corporation is engaged in the sale of goods and services with net sales/net revenue of
P3,000,000 and P2,000,000 respectively. The actual entertainment amusement and
recreational (EAR) expense for the taxable year totaled P30,000. How much is the deductible
EAR expense?

7. ABC is a retailer of goods and reported the following during the taxable year.

Gross sales P2,600,000

Cost of sales 1,100,000

Operating expenses 220,000

Non-operating income 100,000

Question 1: If ABC is an individual, and he avails the OSD, his taxable income is:

Question 2: If ABC is an individual, and he opts for Itemized Deductions, his taxable income is:

Question 3: If ABC is a corporation, and it avails the OSD, the taxable income is:

8. A domestic corporation has the following data on income and expenses

Gross business income P6,200,000

Deductions including SSS and Philhealth contribution of P150,000 2,500,000

Contributions to the Government for priority project in education 100,000

Contribution to foreign private foundation 100,000

Contribution to domestic charitable organization 190,000

How much is the deductible charitable and other contributions?

9. An employer maintains pension trust for its employees. The following contributions are
made:
 2019 2020 2021

Current service costs P1,000,000 P1,000,000 P1,000,000

Past service costs 800,000 600,000

How much is the deductible pension contributions?

2019 2020 2021

a. P1,800,000 P1,600,000 P1,000,000

b. P1,080,000 P1,060,000 P1,000,000

c. P1,080,000 P1,140,000 P1,060,000

d. P1,080,000 P1,140,000 P1,140,000

10. For the calendar year 2021, the net income per books after tax of ABC Corporation is
P850,000 after considering among others:

Interest income from bank deposit P5,500

Intercorporate dividends 5,000

Gain from sale of unlisted shares of a domestic corporation 7,000

Loss from wash sale 2,500

Bad debts written off 6,500

Write-off of inventories lost due to spoilage or expiry 12,000

Depreciation on appraised value of property 15,000

Surcharge and compromise paid in relation to the late filing of ITR 80,000

Contribution to government exclusively for public purpose 50,000

Contribution to government’s priority program in education 10,500

Quarterly income tax payments 65,000

Provision for bad debts 8,000

The net income per books should be reconciled with the provisions of the Tax Code, meaning,
items which are not taxable must be excluded, and items which are not deductible are to be
added back.
Question 1: How much is the net income before charitable and other contributions?

Question 2: How much is the income tax still due?

11. Company X, a domestic manufacturing corporation, had gross sales of P150,000,000 for
fiscal year ending June 30, 2021 and incurred cost of sales of P80,000,000 and operating
expenses of P17,500,000, with the following details:

Cost of Sales

Direct materials 30,000,000

Direct labor 20,000,000

Manufacturing overhead 30,000,000

Total 80,000,000

Operating Expenses

Salaries and Wages 7,000,000

Taxes 300,000

Depreciation 3,500,000

Professional fees 200,000

Advertising expenses 3,000,000

Training expenses 3,000,000

Office supplies 500,000

Total 17,500,000

Assuming Company X has complied with the withholding tax requirement on all cost and
expense incurred subject to withholding tax, the amount for the corporation’s net taxable
income would be:

12. Company X, a domestic manufacturing corporation, had gross sales of P100,000,000 for
fiscal year ending June 30, 2021 and incurred cost of sales of P60,000,000 and operating
expenses of P17,500,000, with the following details:

Cost of Sales:

Direct materials 30,000,000

Direct labor 20,000,000

Manufacturing overhead 10,000,000

Total 60,000,000

Operating Expenses:

Salaries and Wages 7,000,000

Taxes 300,000

Depreciation 3,500,000

Professional fees 200,000

Advertising expenses 3,000,000

Training expenses 3,000,000

Office supplies 500,000

Total 17,500,000

For fiscal year ending June 30, 2021, if Company X, aside from the operating expenses of
P17,500,000, incurred interest expense of P400,000 which satisfied the prescribed
requirement for deductibility, but it also earned interest income of P100,000 net of final tax of
twenty percent (20%), how shall the taxable income be computed?

13. For taxable year 2021, Company X, incurred interest expense of P500,000 on its bank loan.
Its gross assets amounted to P50,000,000, exclusive of the cost of the land of P7,100,000. It
registered a gross income of P10,000,000 and incurred operating expenses of P6,000,000,
inclusive of the interest expense. It also had interest income earned for the same year
amounting to P150,000. Compute for the allowable interest expense.

14. Company X, a domestic manufacturing corporation, had gross sales of P100,000,000 for
calendar year ending December 31, 2020 and incurred cost of sales of P60,000,000 and
operating expenses of P17,500,000, with the following details:

Cost of Sales:

Direct materials 30,000,000

Direct labor 20,000,000

Manufacturing overhead 10,000,000

Total 60,000,000

Operating Expenses
Salaries and Wages 7,000,000

Taxes 300,000

Depreciation 3,500,000

Professional fees 200,000

Advertising expenses 3,000,000

Training expenses 3,000,000

Office supplies 500,000

Total 17,500,000

If Company X, aside from the operating expenses of P17,500,000, incurred interest expense of
P400,000 which satisfied the prescribed requirement for deductibility, but it also earned
interest income of P100,000, net of final tax of twenty percent (20%), what would be the
taxable income for the current taxable year.

FRINGE BENEFITS

ABC Corporation provided the following fringe benefits, in cash and in kind, to its employees
for the taxable year 2021:

To supervisory level employees P1,250,000

To management level employees P1,300,000

To rank-and-file employees 4,000,000

Question 1: The fringe benefit tax is

Question 2: The deduction from gross income of the employer for Fringe Benefit Expense is

Question 3: The total deduction from gross income of the employer is

2. Mr. X is a newly promoted executive of ABC Corporation. One of his perks as an executive is
the free use of the company’s residential condominium unit in Makati. The data on the
condominium unit are as follows:

Fair market value in the Real Property Declaration P3,500,000

Zonal value 5,000,000

Question 1: The monthly gross monetary value of the fringe benefit is

Question 2: How much is the fringe benefit tax for the year?
3. In 2021, ABC Corporation purchased a condominium unit on an installment basis for its CFO.
The following information are available:

Acquisition cost inclusive of 10% interest P10,080,000

Fair market value of the property per Tax Declaration P10,200,000

Zonal value P9,750,000

Compute the fringe benefit tax under the following scenarios.

Scenario 1: The condominium unit will be used by the CFO without transfer of ownership.

Scenario 2: The condominium unit will be transferred to the name of the CFO.

Scenario 3: The condominium unit will be transferred to the name of the CFO for a payment of

P5,000,000.

Scenario 4: The condo unit is owned by ABC Corporation and was assigned to the CFO for his
personal

use.

4. In 2021, ABC Corporation provided a luxury car, Audi R8, to its CEO, Mr. X as part of his car
plan. The said car is to be used exclusively by Mr. X.

Compute the amount of fringe benefit tax for taxable year 2021 under the following scenarios:

Scenario 1: ABC Corporation owns and maintains the car with acquisition cost of P6,000,000.

Scenario 2: ABC Corporation leases the car from a dealer for P100,000 per month. Ownership
is retained by ABC Corporation.

Scenario 3: ABC Corporation shoulders 50% of the purchase price and the ownership is
transferred to the name of Mr. X. The total price of the car is P6,000,000.

Scenario 4: ABC Corporation bought the car on installment and the ownership is transferred to

the name of Mr. X. The total acquisition cost of the car is P6,600,000, inclusive of 10% interest.

5. A house and lot were owned by ABC Corporation. The ownership of the said house and lot
was transferred to its President in 2021. The following data were made available:
Cost P4,000,000

Zonal value per BIR 4,500,000

Fair market value per Assessor’s Office 3,500,000

Question 1: The fringe benefits tax was

Question 2: Using the same information in the preceding number except that there was no
transfer of ownership and the house and lot was acquired in installment for P4,400,000,
inclusive of 10% interest. The President was only allowed to use it as his residence. The
quarterly fringe benefits tax is

6. ABC Corporation purchased a residential house and lot in the name of its CEO for the latter’s
residence in the amount of P6,000,000. The property has a BIR’s zonal value of P7,000,000 and
the City Assessor’s market valuation of P8,000,000.

Question 1: The fringe benefit tax is

Question 2: Using the same facts, except that ABC Corporation retained ownership over the
property purchased and only allowed its CEO to occupy the same as his residence, the fringe
benefit tax for one quarter is

Question 3: Using the same facts, except that ABC Corporation did not buy the property and
instead rented it as the residence of its CEO. The monthly rental is P90,000. The fringe benefit
tax each month is

7. The following fringe benefits were given by an employer to its employees for the quarter
ending

June 30, 2021:

Housing benefits to supervisors and managers (representing total rents) P340,000

De minimis benefits (not exceeding the maximum) 100,000

Reimbursed expenses of rank-and-file employees 200,000

How much was the fringe benefit tax payable for the quarter?
8. As a means of promoting the health, goodwill, and efficiency of his employees, ABC Inc., a
private corporation, provided its rank-and-file employee, Mr. X, the following de minimis
benefits for the taxable year 2021:

Monetized unused sick leaves for 10 days P20,000

Monetized unused vacation leave of 15 days 30,000

Rice subsidy 34,000

Uniform and clothing allowance 10,000

Christmas gifts 4,000

Medical benefits 12,000

Medical cash allowance to dependents 15,000

Laundry allowance 5,000

Achievement award for length of service in the form of

tangible personal property 16,000

The amount of “excess” fringe benefits subject to basic income tax is.

CAPITAL ASSET

1. Compute for the Capital Gain Tax (CGT) on sale of real property classified as capital asset.

Case 1 Case 2 Case 3 Case 4 (2 properties)

Taxpayer Individual Individual Corporation Corporation

Selling price P3,000,000 P2,900,000 P6,000,000 P3,200,000 P2,800,000

FMV 3,200,000 2,200,000 7,500,000 2,800,000 2,700,000

Cost 1,900,000 3,250,000 4,000,000 2,700,000 3,100,000

Gain/(loss) 1,100,000 (350,000) 2,000,000 500,000 (300,000)

TOTAL CGT.

PER CASE.
2. Compute for the Capital Gain Tax (CGT) on sale of shares of stock not listed and traded in
stock exchange.

Case 1 Case 2

Taxpayer Individual Corporation

Sale No. 1 P200,000 gain P1,000,000 gain

Sale No. 2 150,000 gain 300,000 gain

Sale No. 3 160,000 loss 120,000 loss

3. ABC Corporation realized an ordinary gain of P1,000,000 from an asset held for 5 years. Its
capital asset transactions during the year are as follows:

Amount Holding period

Capital gain P125,000 6 months

Capital gain 112,500 2 years

Capital loss 57,500 12 months

Capital loss 70,000 10 years

What is ABC Corporation’s taxable income?

4. ABC Corporation, a domestic corporation, had the following data for taxable years 2020 and
2021

2020 2021

Taxable income before capital asset transactions P1,100,000 P1,375,000

Gain from sale of capital assets:

Held for 12 months 55,000 63,250

Held for 9 months 13,750 27,500

Loss from sale of capital assets:

Held for 15 months 19,250 41,250

Held for 22 months 68,750 33,000

Compute for the taxable income of the corporation for years 2020 and 2021.
5. Mr. X, a resident citizen, reported the following summary of financial results for years 2018
to 2021:

2018 2019 2020 2021

Ordinary taxable income P480,000 P600,000 P720,000 P840,000

Capital asset transactions:

Gain from sale of capital assets

Held for 10 months 70,000 7,000 350,000 199,500

Held for 20 months 28,000 35,000 70,000 98,000

Loss from sale of capital assets

Held for 5 months 10,500 105,000 175,000 17,500

Held for 15 months 77,000 70,000 210,000 35,000

Question 1: Determine the net taxable income for 2019

Question 2: Determine the net taxable income for 2020

Question 3: Determine the net taxable income for 2021

6. Mr. X had the following financial information for taxable years 2020 and 2021.

2020 2021

Ordinary business income P170,100 P182,400

Interest on time deposit with local bank 6,000 9,000

Short -term capital gain 15,000 25,500

Long-term capital gain 10,800 15,600

Short-term capital loss 24,000 8,700

Long-term capital loss 13,200 0

Question 1: In 2020, the taxable income of Mr. X is

Question 2: In 2021, the taxable income of Mr. X is

7. Mr. X sold his principal residence at a selling price of P5,000,000 but with a fair market value
of P6,000,000. The property sold was acquired for P3,000,000. He purchased his new principal
residence at a cost of P7,000,000.

Question 1: How much is the basis (cost) of the new principal residence?
Question 2: If only P4,000,000 out of P5,000,000 was utilized in acquiring his new principal
residence, the capital gain tax is

Question 3: Using the preceding number, the basis (cost) of the new principal residence?

8. Mr. X, citizen and resident of the Philippines, sold his principal residence in the Philippines
for P6,000,000 which had a cost to him of P4,000,000. Its fair market value at the time of sale
was P6,500,000. The proceeds of the sale were not invested in the new principal residence, but
instead new funds from bank loan of P7,000,000 were used.

Question 1: The capital gain tax on the sale and the basis of the new principal residence are

Question 2: If only P4,500,000 of the proceeds of the sale were invested in the new principal
residence, the capital gain tax on the sale and the basis of the new principal residence are

9. Mr. X sold his residential land in Cagayan de Oro for P5,000,000 (FMV was P6,000,000). The
proceeds were used to build a principal residence in Cebu. He informed the BIR within 30 days
from the date of sale that he intended to use the proceeds to build a new principal residence.
What was the tax consequence of the sale?

a. Mr. X should pay a capital gains tax of P300,000

b. Mr. X should pay a capital gains tax of P360,000

c. Mr. X should deposit in escrow the amount of P300,000

d. Mr. X would be exempt from capital gains tax

10. Mr. X, a Filipino citizen, reported the following information for taxable year 2021:

Net sales P1,000,000

Business expense 600,000

Rental income, net of withholding tax 237,500

Dividend income received from a resident foreign corporation 50,000

Dividend income received from domestic corporation 100,000

Royalties from books 125,000

Interest on local currency bank deposit 175,000

Other transactions related to sale of properties are as follows (the dates of purchase are shown
in

parentheses):
Assets used in business:

Machinery (2016) Land (2021) Warehouse (2018)

Selling Price 500,000 500,000 25,000,000

Cost 750,000 450,000 29,500,000

Accumulated Dep’n 150,000 - 5,000,000

Capital assets:

Jewelry (2018) Land (2019) Furniture and Fixtures (2017)

Selling Price 625,000 2,000,000 25,000

Cost 450,000 2,250,000 100,000

Shares of stocks:

Traded (2019) Not traded (2021)

Selling Price 550,000 750,000

Cost 750,000 450,000

Determine the taxable income of Mr. X.

11. Compute for the Gain under the following scenarios:

Scenario 1: A sold his land to B for P 17,000. The land, costing P20,000, was inherited by A
from his father where by the time it was inherited, the FMV of such land amounted to P 15,000.

Scenario 2: Assume A acquired the land through gift from C (costing to C P20,000), his
grandfather. At the time of gift, the FMV of such land is P21,000.

Scenario 3: Assume A acquired the land through gift from C, his grandfather. C also acquired
such land by donation from D. D acquired the land through purchase at P16,000. At the time it
was received by C from D, the land was valued at P20,000. At the time of donation from C to A,
the FMV of such land is P21,000.

Scenario 4: Assume A acquired the land through gift from C, his grandfather. C also acquired
such land by donation from D. D acquired the land through purchase at P21,000. At the time it
was received by C from D, the land was valued at P17,000. At the time of donation from C to A,
the FMV of such land is P19,000. A sold such land for P17,000 to B.
Scenario 5: Assume A acquired the land through gift from C, his grandfather. C also acquired
such land by donation from D. D acquired the land through purchase at P19,000. At the time it
was received by C from D, the land was valued at P17,000. At the time of donation from C to A,
the FMV of such land is P23,000. A sold such land for P17,000 to B.

Scenario 6: A sold his car for P25,000 to B. The car was acquired 2 years ago from S, his friend.
The car was valued at P21,500 on the date of acquisition. However, A was able to convince S to
buy the car for only P16,000

INSTALLMENT REPORTING

1. Mr. X owns a personal car which he sold in installment on October 1, 2021 as follows:

Date of acquisition April 20, 2019

Acquisition cost P750,000

Terms of Payment:

Downpayment October 1, 2021 P125,000

1st installment November 1, 2021 125,000

2nd installment March 1, 2022 375,000

3rd installment April 1, 2022 375,000

Question 1: The initial payment in 2021 is

Question 2: The amount of gain to be reported in 2021 is

Question 3: The amount of gain to be reported in 2022 is

2. Ms. X sold a vacant lot to her sister, Ms. Y. The details of which are as follows:

Acquisition cost of land, March 5, 2019 P1,687,500

Cash payments:

Downpayment, December 15, 2021 P375,000

Payment, January 15, 2022 375,000

Mortgage assumed by Ms. Y 1,875,000

Question 1: The initial payment is

Question 2: The selling price of the property is

Question 3: The contract price is

3. Mr. X, a citizen and resident of the Philippines, sold to Mr. Y on July 1, 2021 a piece of land
held as capital asset in the Philippines at a selling price of P5,000,000. The land had a cost of
P2,500,000 and at the time of the sale had a fair market value of P6,000,000 and a mortgage of
P2,000,000, which mortgage was assumed by Mr. Y.

The sale called for a payment of P300,000 on the date of sale and P200,000 on December 1,
2021. The balance shall be paid in installments of P500,000 each on December 1, 2022,
December 1, 2023, December 1, 2024, December 1, 2025 and December 1, 2026. Mr. X will pay
the tax on the transaction in installments, if qualified.

Question 1: Compute for the initial payments

Question 2: Compute for the contract price

Question 3: Compute for the tax paid on the payment received on July 1, 2021

4. On December 1, 2021, Mr. X, a real estate dealer, sold a residential land for P4,800,000. The
cost of the said lot is P2,880,000. Mr. X received P1,600,000 as downpayment and a promissory
note for the balance payable at P320,000 per month beginning January 1, 2022. The
promissory note has fair market value equal to 75% of its face value. If the income is to be
reported under the deferred payment method, the income in 2021 is

5. In 2021, Mr. X sold a parcel of land for P2,000,000. His acquisition cost of the land is only
P500,000.

The terms of the sale are the following:

Assumption of mortgage by the buyer P750,000

Cash downpayment 250,000

Installment payments every year thereafter starting 2022 250,000

If the land is classified as an ordinary asset and using installment method of reporting, how
much income can Mr. X report in 2021?
6. Mr. X reported the following sale of capital assets for taxable year 2021:

Land 1 Land 2 Land 3 Land 4

Selling Price P540,000 P810,000 P1,080,000 P1,620,000

Cost 270,000 337,500 540,000 540,000

Commission paid 40,500 94,500 0 0

Selling expenses 27,000 40,500 54,000 67,500

Terms of sale

Downpay March. 15, 2021 67,500 94,500 67,500 202,500

Installment payments:

Aug. 15, 2021 67,500 94,500 67,500 202,500

Aug. 15, 2022 202,500 135,000 270,000 270,000

Aug. 15, 2023 202,500 351,000 0 270,000

Mortgage by the buyer 0 135,000 675,000 675,000

Requirement: Compute for the Capital Gain Tax per land

Requirements: compute total cgt.