‘(Mindariady Cagayan TAXATION TAX.2112-Accounting Methods | Be Oro City {088y 3093073 * Davao City (082) 2250049 CPA REVIEW Py 7 since 1977 SIA/TABAG OCTOBER 2016 LECTURE NOTES ‘A. ACCOUNTING PERIODS KINDS: 4) Calendar Year 2) Fiscal Year INSTANCES WHEN USE OF CALENDAR YEAR IS REQUIRED ‘Taxable income shall be computed on the basis of calendar year in the following cases: 1, Ifthe taxpayer's annual accounting period is other than a fiscal year; 2. Ifthe taxpayer has no annual accounting period; 3, IF the taxpayer does not keep books of accounts; 4. It the taxpayer is an individual. (Section 43, RA 6424) TI ‘Accounting period may be less then twelve (12) months. (Short Accounting Period) may arise when: 1. A corporation is newly organized 2. When a corporation is dissolved 3, When the taxpayer dies 4. When @ corporation changes accounting period 8, ACCOUNTING METHODS 4) Cash method 2) Accrual method 3). Crop basis 44) Percentage of completion 5)_ Installment method PERCENTAGE OF COMPLETION Percentage of completion method is only allowed in case fof “iong-term contracts’ “Long-term contracts” means building, installation or construction contracts covering a period in excess of one () year. INSTALLMENT METHOD The following sales may be reported on installment basis: 1). Sales of Dealers In Personal Property ~ These include sales by persons who regularly sell_ or otherwise dispose of personal property on the installment plan, 2) Casual Sales of Personal Property - These include casual sales or other casual disposition of personal property (other than property of a kind which are ordinarily included in the inventory of the taxpayer) provided: ‘2. The selling price exceeds P1,000; and The initial payments do not exceed 25% of setting price 3) Sales of Real Property - These include sales of real property on the installment plan, provided: The initial payments do not exceed 25% of the selling pric 4). Sales of Real Property Considered as Capital Assets by individuals - An individual taxpayer who sells reat property considered as capital assets and the 1.P. do ot exceed 25% of the selling price may pay the ccepital gains tax In installments, FORMATS OF COMPUTATION 1, Selling Price (SP) ‘Page 1 of 2 1 2 (Cash received PHA FMV of the property received XXX, Receivables = XXX, inpald mortgage assumed by the buyer xox Selling Price Ex] Contract Price (CP) PKK 3H = Pio xceae unpald mortgage oy XxX. “Contract Price Bx Initia! Payments (IP) PK | Expected installment collections in the year | XXX of sale [Excess of unpaid mortgage over c ex 4. Realized Gross Profit (RGP) (it sale is subject to basic tox) RGP = Collections x Gross Profit Rate Gross Profit Rate = Gross Profit/Contract Price 5. Instatlment Capital Gains Tax Installment CGT = Total CGT x Collection/CP MULTIPLE CHOICE EXERCISES ‘an accounting period of twelve (12) months ending on the fast day of December. a. Calendar year bi. Fiscal year ¢. Leap year 4. Sum-of-the-year ‘An eecounting period of twelve (12) months ending on the last day of any month other than December. a. Calendar year c. Leap year b. Fiscal year 4d, Sum-of-the-year \Which one of the following cases may the taxable income be computed not on the basis of the calendar year? 1, Taxpayer has no accounting period 11. Taxpayer does not keep books of accounts BIL, Taxpayer is an individual taxpayer IV. Taxpayer is @ corporation V.__ Taxpayer is @ general partnership a. 1 only UIT, Vand V only b. Wend V only 4. None of the above Which of the following instances may give rise to short accounting period? 3. When the corporation Is newly organized using calendar year ‘When a corporation Is dissolved ‘When a corporation changes accounting period Al of the above ‘A inethod of accounting which applies to a farmer who Is engaged In producing crops which take more than a year From the time of planting to the time of gathering and disposing. The entre cast of producing crop must be TAX, 2112EXCEL PROFESSIONAL SERVICES, INC. taken as a deduction In the year in which the gross Income from the crop is realized a. Cash basis c. Crop basis bb, Accrual basis 4. Installment method 6. _Amethod of accounting where income is reported in the ‘ear it is collected, actually or constructively. 2. Cash basis , Crop basis . Accrual basis 4. Installment method 7. Which of the following statements is correct? aoa change in the method of accounting requires 2 prior ‘Spproval of the Commissioner of Internal Revenue. b, A’change in accounting period does not require prior approval of the Commissioner of Internat Revenue as Tong as the necessary Income tax raturns for the different accounting periods are filed. Both “a” and"b” d._ Neither "a" nor ">" 8, A farmer under accrual basis has the following data for the year: ‘Beginning inventory: ivestock and farm products raised in the P 60,000 farm Livestock and farm products purchased 30,000 the previous year Ending Inventory: Kuvestock and farm products raised in the 100,000 farm Livestock and farm products purchased 80,000 sales of livestock and farm products raised 120,000 and purchased Cost of livestock and farm products 100,000, purchased during the yeer Miscellaneous income: ‘Gain on sale of work, breeding or dairy 30,000 animals Gain on sale of farm equipment and 10,000 machinery Hire of tractor 20,000 Hire of carebaos and horses 6,000 Others 4,000 How much is his gross income? ‘a. P370,000 . 180,000 b. 270,000 d. 90,000) 9. Based on the preceding data, hon much 1s the gross income assuming cash basis 's used? a. P370,000 . P180,000 b. 270,000 d, 90,000 Next five (5) questions are based on the following: Joseph provided the following data an sale of hls personal ‘property old in 2013 held by him for 15 months: Cost 225,000 Mortgage assumed by the buyer 270,000 Installment Collection Schedule: - 2013 67,500 * 2014 67,500 = 2015 45,000 10. How much is the selting price? a, 450,000 ¢, #180,000 'b. P270,000 3, 225,000 11, How much is the contract price? a. P450,000 , °180,000 b. 270,000 d, 225,000 12. How much is the intiat payments? a, 67,500 45,000 b. 112,500 d. 225,000 413. How much is the income subject to income tax in 2013, 2014, and 2015? 5. 856,250, P33,750 and P22,500, respectively 5. P112,500, P67,500 and P45,000, respectively ©, B225,000, PO and PO, respectively J. None of the choices 14, Maripet sold the following capital assets as follows: (RP - Philippines) Lot 1 Lot2_Lot 3 Seling Price B225,000 *750,000_P1,200,000 Cost 98,000 900,000 "300,000 Terms of Sale: Downpayment - 2/13 P 15,000 P 75,000 150,000 1 Installment payment sana 15,000 75,000 75,00C 2° Installment Payment - 9/13 15,000 = 120,00¢ Stil due 180,000 600,000 P 855,000 How much is the capital gains tax for the year 2013? a. P83,700 , 130,500 b. 32,400 d. PL1,700 415. Based on the above problem, assuming that the balance ‘was collected in 2014, how much is the capital gains tax fon that year? a. P130,500 . 9,100 c. 46,800 al 16, 1n 2614, Leomar sold shares of stocks of a domestic Co. directiv to a buyer for P400,000. The shares were fequirad in 2009 for P150,000, ‘The term of sale sre as follows: Downpayment 50,000, Instaiment payments: 2011, 0,000 2012 100,000 2013, 400,000, 2014 100,000 How «uch is the capital gains tax for the year 20117 a. 20,000 ‘c, P15,000 », 10,000 d. 5,000 17. Karen, a real estate dealer sold a house and lot for 600,000 on November 20, 2013, The cost of the property is P375,000, Terms are: Downpayment: 100,000 Balance: Payable in monthly installments of 'P25,000 beginning Dec. 20, 2013, How much is the income subject to income tax in 2013? a. 125,000 c, PA6,875 , 225,000 a, 23,437.50 418. How much is the Income subject to income tax in 20147 a. P112,500 ‘, P56,250 ’. P300,000 dn 19, Assuming the asset above is a capital asset, the capita! ‘gains tax payable Is 2013 and in 2014 is — 22. P36,000 end PO, respectively bb, 7,500 and P18,000, respectively ¢. PO'and P36,000, respectively 5. PLE,000 and P7,500, respectively