Pag-IBIG is an acronym which stands for Pagtutulungan sa Kinabukasan: Ikaw, Bangko,

Industria at Gobyerno. In effect,Pag-IBIG harnesses these four sectors of our society to provide
its members with adequate housing through as effective savings scheme.

Sample computation of capital gains tax on

sale of real property
Example: Mr. Santos sells a residential lot in Pasig City with a floor area of
200sqm on cash with Selling Price of P3 Million. Mr. Santos is not engaged in
a real estate business. The proceeds from the sale will be used by Mr. Santos
for his trip to US and other personal expenses. The following are the fair
market value information of the real property:

1. Fair Market Value as determined by BIR Commissioner (Zonal

Value/BIR Rules):
1a. Land: P1,600,000 (let us say BIR Zonal value is P8,000/sqm [200 x
8,000=1,600,000])
1b. Improvement: P1,200,000

2. Fair Market Value as determined by Provincial/City Assessor’s (per

latest Tax Declaration):
2a. Land: P1,400,000
2b. Improvement: P1,300,000

How much is the Capital Gains Tax?

Answer/solution:

Step 1. Determine the highest fair value (FMV):

Total FMV1 (1a + 1b): P2,800,000
Total FMV2 (2a + 2b): P2,700,000
Total FMV3 (1a + 2b): P2,900,000
Total FMV4 (2a + 1b): P2,600,000

The Highest FMV is FMV3: P2,900,000. This is the FV we will use in the step
2.

Step 2. Determine the higher between FMV and Selling Price:

FMV = P2,900,000
Selling Price = P3,000,000

The higher value is the selling price P3,000,000. This is our tax base for
computing Capital Gains Tax.

Step 3. Calculate Capital Gains Tax.

DST = P3,000,000 x 6%
DST = P180,000

Key Things to Know

Transaction: An exchange of something for something else.

Common Transactions:

Revenues: You provide something (earn) and receive something in exchange

You provide goods or services now and receive an asset now

Earn – revenue Get - Cash

You provide goods or services now and receive an asset later

Earn – revenue Get – Receivable (accounts, interest, rent)
Expenses: You are provided something and give up something in order to get it

You receive the service now and give up an asset now to pay for it
Incur – Expense Give up - Cash

You receive the service now and give up an asset later to pay for it
Incur – Expense Give up – liability – owe for it (_____payable)

You use up an asset as part of operating the business

Incur – Expense Give up – asset (prepaid, inventory, supplies,
depreciation)

When recording transactions:

1) determine if a good or service was provided and the account name

used for it
- sales – provide goods to a customer
- revenues or fees – provide services to a customer
- revenues – provide the use of an asset to someone – rent, interest

2) determine if something was provided to the company

- expense – name it what you paid for – “_______ expense”

3) determine if an asset was used up in day to day business

- provide inventory to a customer: “cost of goods sold”
- use up prepaids or supplies: “_______ expense”, name it what was used
- use a long term asset: “depreciation expense”

Common account names used:

Revenues – What you earn from providing goods and services

Sales
Service Fees
Service Revenues
Interest Income
Rent Income
Dividend Income

Expenses - What is provided to the company that must be paid for

- Use up an asset to provide goods and services as part of
day to day business

Cost of Goods Sold

Insurance Expense
Rent Expense
Depreciation Expense
Wage Expense
Salary Expense
Supplies Expense
Interest Expense
Income Tax Expense

There are 5 general transactions that occur over and over that impact the income statement – what
you earn and what you have to pay for and use up in order to earn

Important: When you record revenues you must also increase an asset

When you record an expense you must also reduce an asset

or increase a liability

5 things that happen repeatedly:

1) Provide goods or services (revenue +) and receive cash now (cash +)

2) Provide goods or services (revenue +) and get paid later (receivable +)
3) Receive a service (expense -) and pay cash now (cash -)
4) Receive a service (expense -) and pay cash later (payable +)
5) Use an asset (expense -) and (asset - or accumulated depreciation -)

Once you have identified the kind of transaction that has occurred you must
name the account’s that are changed by the transaction – see list above

Owner’s Equity included retained earnings which includes profits, which come from revenues and
expenses. Revenues and expenses are part of owner’s equity.

Determine what happened in the transaction and write the account name
that is involved in the transaction at the top of a column and put a positive number if it
increased or a negative number if it decreased in the column below the account name:

Example: 3 transactions occurred. This is not the first year of business and the
company has beginning balances for assets, liabilities, and retained earnings.

1) The company sold inventory that cost $10,000 to a customer for $14,000.
The customer will pay in 30 days.
2) Employees worked and the company paid them $1,100
3) Received a utility bill for $220 for this month.

Assets: = Liabilities +
Accounts Accts
Cash Receivable Inventory Payable

Beg $10,000 $5,000 $22,000 $8,000

1) $14,000 (10,000) =
2) (1,100) =
3) = 220
Total $8,900 $19,000 $12,000 = $8,220

+ Owner's Equity: Includes Revenues less Expenses as part of Retained Earnings

(Cost of ( Salaries (Utilities
R. E. Sales Goods Sold) Expense) Expense)

Beg $29,000
1) 14,000 (10,000)
2) (1,100)
3) (220)

Total $14,000 ($10,000) ($1,100) ($220)

Total Assets = Total Liabilities + Owner’s Equity (includes Revenues & Expenses)
$39,900 = $8,220 + $29,000 + $2,680

Revenues and expenses do not have a beginning balance, amounts are for
this period only.
Revenues are always a positive balance
Expenses are always a negative balance
The Balance Sheet

A balance sheet lays out the ending balances in a company's asset, liability, and equity accounts as of
the date stated on the report. The most common use of the balance sheet is as the basis for ratio
analysis, to determine the liquidity of a business. Liquidity is essentially the ability to pay one's debts
in a timely manner. The information listed on the report must match the following formula:

Total assets = Total liabilities + Equity

The balance sheet is one of the key elements in the financial statements, of which the other
documents are the income statement and the statement of cash flows. A statement of retained
earnings may sometimes be attached.

The format of the balance sheet is not mandated by accounting standards, but rather by customary
usage. The two most common formats are the vertical balance sheet (where all line items are
presented down the left side of the page) and the horizontal balance sheet (where asset line items are
listed down the first column and liabilities and equity line items are listed in a later column). The
vertical format is easier to use when information is being presented for multiple periods.
 The line items to be included in the balance sheet are up to the issuing entity, though common
practice typically includes some or all of the following items:

Current Assets:

 Cash and cash equivalents

 Trade and other receivables
 Investments
 Inventories
 Assets held for sale

Non-Current Assets:

 Property, plant, and equipment

 Intangible assets
 Goodwill

Current Liabilities:

 Trade and other payables

 Accrued expenses
 Current tax liabilities
 Current portion of loans payable
 Other financial liabilities
 Liabilities held for sale

Non-Current Liabilities:

 Loans payable
 Deferred tax liabilities
 Other non-current liabilities

Equity:

 Capital stock
 Additional paid-in capital
 Retained earnings

Here is an example of a balance sheet:

 Domicilio Corporation
Balance Sheet

(000s) as of 12/31/x2 as of 12/31/x1

ASSETS
Current assets
Cash and cash equivalents $135,000 $110,000
Trade receivables 70,000 62,000
Inventories 65,000 58,000
Other current assets 8,000 31,000
Total current assets 278,000 261,000

Non-current assets
Property, plant, and equipment 275,000 260,000
Goodwill 40,000 40,000
Other intangible assets 72,000 70,000
Total non-current assets 387,000 370,000

Total assets $665,000 $631,000

LIABILITIES AND EQUITY

Current liabilities
Trade and other payables $105,000 $100,000
Short-term borrowings 50,000 90,000
Current portion of long-term borrowings 7,000 6,000
Current tax payable 21,000 14,000
Accrued expenses 5,000 3,000
Total current liabilities 188,000 213,000

Non-current liabilities
Long-term debt 40,000 35,000
Deferred taxes 29,000 21,000
Total non-current liabilities 69,000 56,000

Total liabilities 257,000 269,000

Shareholders’ Equity
Capital $150,000 $150,000
 Additional paid-in capital 30,000 30,000
Retained earnings 228,000 182,000
Total equity 408,000 362,000

Total liabilities and equity $665,000 $631,000

Within the balance sheet, the following should be classified as current assets:

 Cash. This includes all liquid, short-term investments that are easily convertible into cash. Do not
include in current assets cash that is restricted, or to be used to pay down a long-term liability.
 Marketable securities. This includes all securities that are held for trading.
 Accounts receivable. This includes all trade receivables, as well as all other types of receivables that
should be collected within one year.
 Prepaid expenses. This includes any prepayment that is expected to be used within one year.
 Inventory. This includes all raw materials, work in process, and finished goods items, less an
obsolescence reserve.

In general, any asset is classified as a current asset when there is a reasonable expectation that the
asset will be consumed within the next year, or within the operating cycle of the business. All other
assets are to be classified as non-current.

Within the balance sheet, the following should be classified as current liabilities:

 Payables. This is all trade payables related to the purchase of goods or services from suppliers.
 Accrued expenses. This is expenses incurred by the business, for which no supplier invoice has yet
been received.
 Short-term debt. This is loans for which payment is due within the next year.
 Unearned revenue. This is advance payments from customers that have not yet been earned by the
company.

In general, a liability is classified as current when there is a reasonable expectation that the liability
will come due within the next year, or within the operating cycle of the business. All other liabilities
are to be classified as non-current.

Similar Terms

The balance sheet is also known as the statement of financial position.