3

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) 3
SUGGESTED ANSWERS
Chapter 2: Tax Administration
Dra P 24,000 P 48,000 P 72,000

C P178,000 P 62,000 P
Gross receipts from profession
Rent income
Total gross income
Multiplied by percent of OSD
Optional standard deduction
Problem 8 – 16
Operating expense before representation expense
(P2,000,000 – P300,000)
Representation expense – Actual
- Limit (P20,000,000 x 0.005)
- Lower
Allowable itemized deductions
Problem 8 – 17 B
Salary expense
Rent expense
Advertising expense
3. Nondeductible
4. Deductible, in lieu of tax credit (Sec. 34C3, NIRC)
5. Deductible
6. Nondeductible
7. Nondeductible
8. Deductible
9. Deductible
10. Nondeductible
Problem 8 – 2 TRUE OR FALSE

1. True
2. True
3. False – Business expenses related to business income outside the Philippines is deductible also.
4. False – Business expense is deductible from gross income.
5. True
6. True
7. True – Once OSD is opted, no capital loss could be deducted from capital gain.
8. False – Some business expenses are nondeductible or subject to limit.
9. False – Income outside the Philippines by a NRC is not taxable in the Philippines, hence, no allowable
deduction is allowed.
10. True
11. False – Compensation income is not subject to OSD.
12. False – NOLCO is not an itemized deduction.
13. True – Amortized over the term of the lease
14. False – ½ of 1%
15. False – 33%
16. False – Double –declining method
SUGGESTED ANSWERS
17. True
18. True
Problem 8 – 3 Problem 8 – 4
1. B 1. C
2. No choice, OSD=40% 2. A
3. D 3. D
4. D 4. A
1. True
5. False – ½ of 1%
6. False – 33%
8. True
9. True
1. B 1. C
3. D 3. D
4. D 4. A
5. D 5. B
6. C 6. B
7. B 7. A
8. D 8. A
9. B 9. D
10. C 10. A
11. C
12. D
13. C
Problem 8 – 7 C
Change of motor of air condition
Repainting of building
Expansion of store
Cleaning of computers
Repair of furniture
Problem 8 – 8 A
Problem 8 – 13 C
SUGGESTED ANSWERS
Gross income (P300,000 + P20,000 + P180,000)
Multiplied by OSD rate
Problem 8 – 14
1. B
Gross income (P870,000 – P10,000 – P380,000))
Add: Gains from sale of capital asset
Total
2. B
OSD
Less: Operating expense
Amount of income enjoying tax savings
Problem 8 – 15 D
Rent income
Total gross income
Problem 8 – 16
(P2,000,000 – P300,000)
- Limit (P20,000,000 x 0.005)
- Lower
Problem 8 – 17 B
Salary expense
Rent expense
Advertising expense
3. Nondeductible

SUGGESTED ANSWERS
SUGGESTED ANSWERS
SUGGESTED ANSWERS
Problem 8 – 16
(P2,000,000 – P300,000)
- Limit (P20,000,000 x 0.005)
- Lower
Problem 8 – 17 B
Salary expense
Rent expense
Advertising expense
3. Nondeductible
5. Deductible
6. Nondeductible
7. Nondeductible
8. Deductible
9. Deductible
10. Nondeductible

37. True
38. True
39. False – Business expenses related to business income outside the Philippines is deductible also.
40. False – Business expense is deductible from gross income.
41. True
42. True
43. True – Once OSD is opted, no capital loss could be deducted from capital gain.
44. False – Some business expenses are nondeductible or subject to limit.
45. False – Income outside the Philippines by a NRC is not taxable in the Philippines, hence, no allowable
deduction is allowed.
46. True
50. False – ½ of 1%
51. False – 33%
53. True
54. True
1. B 1. C
SUGGESTED ANSWERS
3. D 3. D
4. D 4. A
19. True
23. False – ½ of 1%
24. False – 33%
26. True
27. True
1. B 1. C
3. D 3. D
4. D 4. A
5. D 5. B
6. C 6. B
7. B 7. A
8. D 8. A
9. B 9. D
10. C 10. A
11. C
12. D
13. C
Problem 8 – 7 C
Change of motor of air condition
Repainting of building
Expansion of store
Cleaning of computers
Repair of furniture
Problem 8 – 8 A
Problem 8 – 13 C
Gross income (P300,000 + P20,000 + P180,000)

SUGGESTED ANSWERS
Problem 8 – 14
1. B
Gross income (P870,000 – P10,000 – P380,000))
Add: Gains from sale of capital asset
Total
2. B
OSD
Less: Operating expense
Amount of income enjoying tax savings
Problem 8 – 15 D
Rent income
Total gross income
Problem 8 – 16
(P2,000,000 – P300,000)
- Limit (P20,000,000 x 0.005)
- Lower
Problem 8 – 17 B
Salary expense
Rent expense
Advertising expense
3. Nondeductible
5. Deductible
6. Nondeductible
7. Nondeductible
8. Deductible
SUGGESTED ANSWERS
SUGGESTED ANSWERS
SUGGESTED ANSWERS
Capital balances before admission

Investment by Ang
Goodwill to August
Capital balances after admission
 Bonus Method

Purchase by Hizon (20%)
 Cash Distribution
Capital transferred
25,200 Excess divided using profit
Cash distribution
*3-7Capital balances beginning

Net profit, 1:2
Drawings
Capital transfer (squeeze)
Capital transfer
Excess, 1:2
Cash
Comprehensive bonus and

goodwill
Net profit, 1:2
Drawings
Capital transfer
to WW (1/6)
Balances
Equalization of capital
Balances
Net profit, equally
Drawings (2 months)
SUGGESTED ANSWERS
Capital balances before

WWs Investment
Total agreed capital (201,650+201,150+201,650)/2/3
WW's interest
Agreed capital of WW
Contributed capital (see
 Goodwill to new partner
*3-15
Total agreed capital (P41,600/2/3)

Total contributed capital (P23,000+18,600+16,000)
Goodwill to new partner, Ang

Investment by Ang
Goodwill to August
Drawings (2 months)
WWs Investment

WW's interest
 will to new partner
*3-15


Investment by Ang
Goodwill to August
 Bonus Method

Purchase by Hizon (20%)
SUGGESTED ANSWERS
Capital transferred
25,200 Excess divided using profit
Cash distribution

Net profit, 1:2
Drawings
Capital transfer (squeeze)
Capital transfer
Excess, 1:2
Cash
Comprehensive bonus and

goodwill
Net profit, 1:2
Drawings
Capital transfer
to WW (1/6)
Balances
Equalization of capital
Balances
Net profit, equally
Drawings (2 months)
WWs Investment

WW's interest
*3-15


Investment by Ang
Goodwill to August
SUGGESTED ANSWERS
admission of Lorna
Admission of Lorna:
Goodwill Written off, 5:3:2 (P 20,000) (P 12,000) (
Investment – –
Goodwill to old partners,
5:3:2 (sch. 2) 10,000 6,000
Capital balances after
admission P168,000 P 56,000 P
Schedule 1 5,430 10,860 16,290
Total agreed capital (80,000/25%) ( 5,050) ( 8,000) ( 13,050)
P 320,000
Total capital contributed P 24,380 P 50,860 P 75,240
(200,000+80,000) ( 5,570) ( 13,240) (18,810) (1/4)
( 280,000)
Goodwill to old partners, 70:30 P 18,810 P 37,620 P 56,430
P40,000
P 5,570 P 13,240 P18,810
3,730 7,460 _11,190
Schedule 2: P 9,300 P 20,700 P30,000
 Comprehensive bonus and goodwill

 3-16: a
ANG BENG CHING DONG TOTAL

admission P600,000 P 400,000 P 300,000 – P1,300,000
Admission by Dong:
By Purchase (1/2) ( 300,000) – – 300,000 –
By Investment – – – _300,000 300,000
Goodwill and Bonus P300,000 P 400,000 P 300,000 P600,000 P1,600,000
Goodwill to Old Partners (sch. 1) 150,000 150,000 100,000 – 400,000
Bonus to Old Partners (sch. 1) 37,500 37,500 25,000 ( 100,000) –
admission P487,500 P 587,500 P 425,000 P500,000 P2,000,000
Schedule 1: CC AC Inc. (Dec.)

Old Partners P 1,000,000 P1,500,000 P500,000
New Partner 600,000 (25%) 500,000 ( 100,000) Bonus
Total P 1,600,000 P2,000,000 P400,000 GW
 Double Goodwill double admission

*3-17
admission of Alma P150,000 P 50,000 – – P 200,000
Admission of Alma:
Investment – – 80,000 – 80,000
Goodwill to old partner,
70:30 (sch. 1) 28,000 12,000 – – 40,000
admission of Lorna P178,000 P 62,000 P 80,000 – P 320,000
Admission of Lorna:
SUGGESTED ANSWERS
Goodwill Written off, 5:3:2 (P 20,000) (P 12,000) ( P8,000) – ( P40,000)

Investment – – – 75,000 75,000
5:3:2 (sch. 2) 10,000 6,000 4,000 – 20,000
admission P168,000 P 56,000 P 76,000 P 75,000 P 375,000
Schedule 1
Total agreed capital (80,000/25%) P 320,000
Total capital contributed (200,000+80,000) ( 280,000)
Goodwill to old partners, 70:30 P40,000
Schedule 2:
Drawings (2 months) _( 1,500) _( 2,000) _( 1,500) _( 2,000) _( 7,000)

WWs Investment P201,650 P201,150 P201,650 P121,150 P725,600
Total agreed capital (201,650+201,150+201,650)/2/3 P906,675

WW's interest 1/3
Agreed capital of WW P302,225
Contributed capital (see above) _121,150
 will to new partner
*3-15
Total agreed capital (P41,600/2/3) P 62,400

Total contributed capital (P23,000+18,600+16,000) ( 57,600)
Goodwill to new partner, Ang P 4,800
LIM ONG ANG

Capital balances before admission P23,000 P 18,600 –
Investment by Ang – – 16,000
Goodwill to August – – 4,800
Capital balances after admission P23,000 P 18,600 P20,800
 Bonus Method
AQUINO LOCSIN DAVID HIZON

70:30 (sch. 1) 28,000 12,000 – – 40,000
Admission of Lorna:
Investment – – – 75,000 75,000
5:3:2 (sch. 2) 10,000 6,000 4,000 – 20,000
admission P168,000 P 56,000 P 76,000 P 75,000 P 375,000
Schedule 1
Schedule 2:
SUGGESTED ANSWERS

Total contributed capital (280,000+75,000) ( 355,000)
Goodwill to old partners, 5:3:2 P 20,000
 Equalize *3-19
admission P360,000 P225,000 P135,000 – P720,000
Capital transfer
to WW (1/6) ( 60,000) ( 37,500) ( 22,500) _120,000 –
Balances P300,000 P187,500 P112,500 P120,000 P720,000
Equalization of capital ( 100,000) 12,500 87,500 – –
Balances P200,000 P200,000 P200,000 P120,000 P720,000
Net profit, equally 3,150 3,150 3,150 3,150 12,600
Drawings (2 months) _( 1,500) _( 2,000) _( 1,500) _( 2,000) _( 7,000)

WW's interest 1/3
*3-15

LIM ONG ANG

 Bonus Method

Capital balances before admission P252,000 P126,000 P42,000 –
Purchase by Hizon (20%) ( 50,400) ( 25,200) ( 8,400) _84,000
Capital balances after admission P201,600 P100,800 P33,600 P 84,000
lem 1 – 1 TRUE OR FALSE

1. False – Without money provided by tax power, the other inherent powers cannot
function well.
2. True
3. True
4. True
5. True
6. True
7. False – Taxation power is subject to inherent and Constitutional limitations.
8. False – Taxation power is not absolute because it is subject to limitations.
9. True
SUGGESTED ANSWERS
10. False – penalty is an example of imposition of amount for police power.

11. True
12. False – governmental function unless stated otherwise.
13. False – government agencies engaged in proprietory functions are subject tax unless
stated otherwise.
14. True

1. False – Concurrence of the majority of congress.
2. False – Churches are required to pay income taxes in cases of sale of real property and
business engagement.
3. False – No public funds shall be appropriated for religious purpose.
4. False - All bills even if approved by the 2/3 of the congress should still be signed by the
President to become law.
5. False – No person shall be imprisoned for nonpayment of poll tax.
6. False – Taxation power is essentially legislative function; hence not every government
unit exercises this power.
7. True
8. False - Benefits from taxation may be or may not be experienced.
9. True
10. False – Judicial review
11. False – “Ex post facto” law is not applicable for tax purposes.
12. True
13. False – A tax evader breaks the law while the tax avoider sidesteps it.
14. False – Neither transferable/assignable
15. True

1. True
2. True
3. True
4. True
5. False – prospective effect
6. True
7. True
8. False – national taxes
9. True
10. True
11. True
12. False – Doubts must be resolved liberally in favor of the taxpayer.
13. True
14. True
15. False – null and void
Prob. 1 – 4 Prob. 1 – 5 Prob. 1 – 6 Prob. 1 – 7 Prob. 1 – 8 Prob. 1 – 9

1. A 1. C 1. D 1. B 1. A 1. A
2. C 2. A 2. D 2. C 2. D 2. B
3. C 3. D 3. D 3. D 3. D 3. C
4. A 4. B 4. D 4. D 4. A 4. D
5. B 5. B 5. D 5. D 5. A 5. C
6. B 6. A 6. D 6. B 6. C 6. C
7. A 7. C 7. D 7. B 7. B 7. D
8. C 8. B 8. C 8. C 8. C 8. C
SUGGESTED ANSWERS
AQUINO LOCSIN DAVID TOTAL

Capital transferred P 50,400 P P 8,400 P 84,000
25,200 Excess divided using profit and loss ratio 3,600 600 6,000
1,800
Cash distribution P 54,000 P 27,000 P 9,000 P 90,000
*3-7Capital balances beginning P 24,000 P 48,000 P 72,000

Net profit, 1:2 5,430 10,860 16,290
Drawings ( 5,050) ( 8,000) ( 13,050)
Capital balances before admission P 24,380 P 50,860 P 75,240
Capital transfer (squeeze) ( 5,570) ( 13,240) (18,810) (1/4)
Capital balances after admission 1:2 P 18,810 P 37,620 P 56,430
Capital transfer P 5,570 P 13,240 P18,810

Excess, 1:2 3,730 7,460 _11,190
Cash P 9,300 P 20,700 P30,000

 3-16: a

admission P600,000 P 400,000 P 300,000 – P1,300,000
Admission by Dong:
By Purchase (1/2) ( 300,000) – – 300,000 –
By Investment – – – _300,000 300,000
admission P487,500 P 587,500 P 425,000 P500,000 P2,000,000

Old Partners P 1,000,000 P1,500,000 P500,000
Total P 1,600,000 P2,000,000 P400,000 GW

*3-17
Admission of Alma:
Investment – – 80,000 – 80,000
70:30 (sch. 1) 28,000 12,000 – – 40,000
Admission of Lorna:
Investment – – – 75,000 75,000
SUGGESTED ANSWERS

5:3:2 (sch. 2) 10,000 6,000 4,000 – 20,000
admission P168,000 P 56,000 P 76,000 P 75,000 P 375,000
Schedule 1
Schedule 2:
 Equalize *3-19
admission P360,000 P225,000 P135,000 – P720,000
Capital transfer
to WW (1/6) ( 60,000) ( 37,500) ( 22,500) _120,000 –
Balances P300,000 P187,500 P112,500 P120,000 P720,000
Balances P200,000 P200,000 P200,000 P120,000 P720,000
Drawings (2 months) _( 1,500) _( 2,000) _( 1,500) _( 2,000) _( 7,000)

WW's interest 1/3
*3-15

LIM ONG ANG

 Bonus Method

SUGGESTED ANSWERS

function well.
16. True
17. True
18. True
19. True
20. True
23. True
25. True
stated otherwise.
28. True

22. True
24. True
27. True
30. True

16. True
17. True
18. True
19. True
21. True
22. True
24. True
25. True
26. True
28. True
29. True

1. A 1. C 1. D 1. B 1. A 1. A
2. C 2. A 2. D 2. C 2. D 2. B
3. C 3. D 3. D 3. D 3. D 3. C
4. A 4. B 4. D 4. D 4. A 4. D
5. B 5. B 5. D 5. D 5. A 5. C
6. B 6. A 6. D 6. B 6. C 6. C
7. A 7. C 7. D 7. B 7. B 7. D
8. C 8. B 8. C 8. C 8. C 8. C
SUGGESTED ANSWERS

AQUINO LOCSIN DAVID TOTAL

Capital transferred P 50,400 P P 8,400 P 84,000
25,200 Excess divided using profit and loss ratio 3,600 600 6,000
1,800
Cash distribution P 54,000 P 27,000 P 9,000 P 90,000
*3-7Capital balances beginning P 24,000 P 48,000 P 72,000

Net profit, 1:2 5,430 10,860 16,290
Drawings ( 5,050) ( 8,000) ( 13,050)
Capital balances before admission P 24,380 P 50,860 P 75,240
Capital transfer (squeeze) ( 5,570) ( 13,240) (18,810) (1/4)
Capital balances after admission 1:2 P 18,810 P 37,620 P 56,430
Capital transfer P 5,570 P 13,240 P18,810

Excess, 1:2 3,730 7,460 _11,190
Cash P 9,300 P 20,700 P30,000

 3-16: a

admission P600,000 P 400,000 P 300,000 – P1,300,000
Admission by Dong:
By Purchase (1/2) ( 300,000) – – 300,000 –
By Investment – – – _300,000 300,000
admission P487,500 P 587,500 P 425,000 P500,000 P2,000,000

Old Partners P 1,000,000 P1,500,000 P500,000
Total P 1,600,000 P2,000,000 P400,000 GW

*3-17
SUGGESTED ANSWERS

Admission of Alma:
Investment – – 80,000 – 80,000
70:30 (sch. 1) 28,000 12,000 – – 40,000
Admission of Lorna:
Investment – – – 75,000 75,000
5:3:2 (sch. 2) 10,000 6,000 4,000 – 20,000
admission P168,000 P 56,000 P 76,000 P 75,000 P 375,000
Schedule 1
Schedule 2:
 Equalize *3-19
admission P360,000 P225,000 P135,000 – P720,000
Capital transfer
to WW (1/6) ( 60,000) ( 37,500) ( 22,500) _120,000 –
Balances P300,000 P187,500 P112,500 P120,000 P720,000
Balances P200,000 P200,000 P200,000 P120,000 P720,000
Drawings (2 months) _( 1,500) _( 2,000) _( 1,500) _( 2,000) _( 7,000)

WW's interest 1/3
*3-15

LIM ONG ANG

SUGGESTED ANSWERS
 Bonus Method


function well.
30. True
31. True
32. True
33. True
34. True
37. True
39. True
stated otherwise.
42. True

37. True
39. True
42. True
45. True

31. True
32. True
33. True
34. True
36. True
37. True
39. True
40. True
41. True
43. True
SUGGESTED ANSWERS
44. True

1. A 1. C 1. D 1. B 1. A 1. A
2. C 2. A 2. D 2. C 2. D 2. B
3. C 3. D 3. D 3. D 3. D 3. C
4. A 4. B 4. D 4. D 4. A 4. D
5. B 5. B 5. D 5. D 5. A 5. C
6. B 6. A 6. D 6. B 6. C 6. C
7. A 7. C 7. D 7. B 7. B 7. D
8. C 8. B 8. C 8. C 8. C 8. C
1. e
2. False - Department of Finance
3. False - Exclusive and original power to interpret tax laws. Final power to interpret tax
laws belongs to the Supreme Court.
4. False - Review by the Court of Justice/Court of Appeals
5. False - Cooperatives are exempted from income tax and annual registration fee.
6. False - In all cases, the authority to print is required.
7. False - Not required to register again, just file an information update.
8. False - Tax assessment is needed to enforce payment of unpaid tax liability.
9. True
10. True
11. False - Levy or imposition of tax
12. True
13. False – executive branch of the government
14. False – the description refers to administrative feasibility.

1. True
2. False – submit to the BIR.
3. False - Distraint is for personal property, while levy is for real property.
4. True
5. False - Exceptions are those already filed in court of those involving fraud.
6. True
7. True
8. True
9. True
10. False - value of property.
11. False – Redemption of property should be made within one year from the date of sale.
12. True
13. True

1. True
2. True
3. False – P100,000
4. False – 10% final withholding tax
5. True – If authorized by the BIR Commissioner
15 days from date of unfavorable decision from CA was received (June 25 plus 15 days).
Situation 10 – March 1, 2010. Within 1 year from the date of sale.
Problem 2 – 8 B
Tax due per return P100,000
Late filing and payment – simple neglect (P100,000 x 25%) 25,000
Interest (P100,000 x 20% x 2.5/ 12) 4,167
Total amount due and payable P129,167
Problem 2 – 9 A
Amount due – surcharge (P100,000 x 25%) P25,000
Problem 2 – 10 D
Tax due per return P100,000
Late filing and payment – willful neglect (P100,000 x 50%) 50,000
Interest (P100,000 x 20% x 14.5/12) 24,167
Total amount due and payable P174,167
SUGGESTED ANSWERS
Problem 2 – 11 D
Deficiency income tax (P120,000 – P100,000) P20,000
Interest (P20,000 x 20% 435/ 360 days) 4,833
Amount still due P24,833
Problem 2 – 12 A
Statutory fine (P250,000 x 2) P500,000
Problem 2 – 13 B
Minimum statutory fine P 5,000
Problem 2 – 14
Yes, because the prescriptive period of filing the written protest is within 30 days from receipt of
assessment.
Mr. Lang is obligated to pay the P500,000 assessed against him.
Problem 2 – 15
Basic delinquency tax P 1,000,000
Surcharges – willful (P1,000,000 x 50%)* 500,000
Interest (P1,000,000 x 20% x 2) 400,000
Amount collected from the highest bidder P 1,900,000
Add: Interest for real property redemption (P1,900,000 x 15%) 285,000
Total redemption amount P 2,185,000
*The nonpayment of taxes is already 2 years it becomes habitual; hence, willful neglect.
Problem 2 – 16
Proceeds from the highest bidder (P30,000/6%)* P 500,000
Less: Basic tax assessed P 300,000
Advertisement 10,000
Transfer of title 15,000
Capital gain tax 30,000 355,000
Remittance to Mr. Santiago P 145,000
*The capital gains tax is based on the selling price of the real property sold. The rate of capital
gains tax is 6%; hence, the proceeds from the highest bidder is P500,000 or (P30,000/6%).
Problem 2 – 17
Corrected sales (P7,000,000/70%) P10,000,000
Less: Operating expenses 6,500,000
Corrected net taxable income P 3,500,000
Multiplied by corporate tax rate 30%
Corrected total income tax due P 1,050,000
Less: Income tax paid 150,000
Tax deficit P 900,000
Surcharge (P900,000 x 25%) 225,000
Interest (P900,000 x 20%) 180,000
Total amount due P 1,305,000
Problem 2 – 18
Amount of tax liability P190,000
Surcharges and interest 20,000
Bidding expenses 10,000
Price for the government P220,000
Problem 2 – 19
Sales proceeds (P400,000 + P50,000 + P20,000)/94% P500,000
Multiplied by capital gains tax rate 6%
Capital gains tax P 30,000
Sales proceeds P500,000

Add: Interest (P500,000 x 15% x 8/12) 50,000
Redemption price P550,000
SUGGESTED ANSWERS
Problem 2 – 20
a. The cash reward of Miss Wan as tax informer would be P1,000,000, the maximum amount
of reward.
b. The informer’s reward remains payable, hence, Miss Wan will received the maximum reward
of P1,000,000.
c. The final income tax to be withheld from the reward of Miss Wan would be 10% of
P1,000,000 or P100,000.
Problem 2 – 21
a. The tax violations of Miss San Tago are the following:
1. Unregistered business (Sec. 236 [A], NIRC.)
2. Non-issuance of commercial invoice (Sec. 237, NIRC.)
3. Ignoring the summon (Sec. 5, NIRC.)
b. Miss San Tag o’s minimum financial penalties if convicted:

1. For operating an unregistered business P 5,000
2. For not issuing commercial invoices 1,000
3. Failure to obey summon 5,000
Total minimum P11,000
Problem 2 – 22
None. There is no surcharge to be imposed to Orville Corporation because the error was
corrected before payment and the payment was made on time.
The income tax due is computed as follows:
Corrected gross receipts (P2,000,000/75%) P 2,666,667

Corrected allowable deductions (P1,500,000/1.35) 1,111,111
Taxable income per audit P 1,555,556
Multiply by percent of tax for 2009 30%
Income tax due 466,667
Problem 2 – 23
1. Principal factory P 500
Warehouses (P500 x 9) 4,500
Branches (P500 x 30) 15,000
Total annual registration fee – January 31, 2010 P20,000
2. Total annual registration fee – January 31, 2010 P20,000

Surcharges (20,000 x 25%) 5,000
Interest (P20,000 x 20% x 6/12) 2,000
Total amount due – July 30, 2005 P27,000
Problem 2 – 24
Amount of tax liability P100,000
Surcharges 25,000
Interest 20,000
Advertising cost 5,000
Price if purchase by the Government P150,000
Problem 2 – 25
None. Forfeited property belongs to the government, hence, excess amount over tax liability is
not refundable to the taxpayer.
Problem 2 – 26
Tax violation involving fraud is not allowed with tax comprise. (Sec. 204A, NIRC)
Problem 2 – 27
1. Compromise (P10,000,000 x 10%) P 1,000,000
2. Compromise (P10,000,000 x 40%) P 4,000,000
Problem 2 – 28
Case 1 – Financial incapability due to corporate insolvency.
Delinquent accounts P 500,000
SUGGESTED ANSWERS
Pending cases under administrative protest 900,000

Criminal violation not filed in courts 1,000,000
Total basic tax P2,400,000
Multiplied by applicable compromise rate 20%
Amount of compromise P 480,000
Case 2 – Financial incapability due to surplus deficit resulting to impairment in original capital by at
least 50%.
Case 3 – Doubtful validity of assessment.

Problem 2 -29
a. Yes, because the offered compromise amount of P100,000 exceeds the required minimum
amount of P25,000, (P250,000 x 10%).
b. Since distraint is imposed only on personal property, the personal property with a value of
P100,000 shall be subjected to distraint.
c. Yes, levy of real property and distraint of personal property can be done simultaneously
(Sec. 207B of the Tax Code). See also Section 205 of NIRC.
d. No, the unpaid portion will remain as tax liability of Lugui because Miss Lugui did not avail
of the compromise tax settlement. The remedy by distraint of personal property and levy on
realty may be repeated if necessary until the full amount due, including all expenses, is
collected (Sec. 217, NIRC).

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INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) 3

Dra P 24,000 P 48,000 P 72,000

4. Deductible, in lieu of tax credit (Sec. 34C3, NIRC)

Problem 8 – 2 TRUE OR FALSE

Change of motor of air condition

Gross income (P300,000 + P20,000 + P180,000)

Multiplied by OSD rate

Optional standard deduction

Gross income (P870,000 – P10,000 – P380,000))

Add: Gains from sale of capital asset

Multiplied by OSD rate

Optional standard deduction

Less: Operating expense

Amount of income enjoying tax savings

4. Deductible, in lieu of tax credit (Sec. 34C3, NIRC)

4. Deductible, in lieu of tax credit (Sec. 34C3, NIRC)

Problem 8 – 2 TRUE OR FALSE

Change of motor of air condition

Multiplied by OSD rate

Optional standard deduction

Gross income (P870,000 – P10,000 – P380,000))

Add: Gains from sale of capital asset

Multiplied by OSD rate

Optional standard deduction

Less: Operating expense

Amount of income enjoying tax savings

4. Deductible, in lieu of tax credit (Sec. 34C3, NIRC)

Capital balances before admission

Capital balances before admission

*3-7Capital balances beginning

Comprehensive bonus and

Capital balances before

Total agreed capital (P41,600/2/3)

Capital balances before admission

Total agreed capital (201,650+201,150+201,650)/2/3

Total agreed capital (P41,600/2/3)

Capital balances before admission

Capital balances before admission

*3-7Capital balances beginning

Comprehensive bonus and

Total agreed capital (201,650+201,150+201,650)/2/3

Total agreed capital (P41,600/2/3)

Capital balances before admission

Capital balances after admission

 Comprehensive bonus and goodwill

ANG BENG CHING DONG TOTAL

Schedule 1: CC AC Inc. (Dec.)

 Double Goodwill double admission

Goodwill Written off, 5:3:2 (P 20,000) (P 12,000) ( P8,000) – ( P40,000)

Drawings (2 months) _( 1,500) _( 2,000) _( 1,500) _( 2,000) _( 7,000)

Total agreed capital (201,650+201,150+201,650)/2/3 P906,675

Total agreed capital (P41,600/2/3) P 62,400

LIM ONG ANG

AQUINO LOCSIN DAVID HIZON

Total agreed capital (75,000/20%) P 375,000

Total agreed capital (201,650+201,150+201,650)/2/3 P906,675

Total agreed capital (P41,600/2/3) P 62,400

LIM ONG ANG

AQUINO LOCSIN DAVID HIZON

lem 1 – 1 TRUE OR FALSE

10. False – penalty is an example of imposition of amount for police power.

Problem 1 – 2 TRUE OR FALSE

Problem 1 – 3 TRUE OR FALSE