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SUGGESTED ANSWERS
Chapter 1: General Principles
and Concepts of Taxation

P360,000 P225,000 P135,000 – P720,000

P300,000

Schedule 1:
Old Partners
C
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
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
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and Concepts of Taxation

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

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

 Cash Distribution

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


INCOME TAXATION 5th Edition (BY: VALENCIA & ROXAS) 46
SUGGESTED ANSWERS
Chapter 1: General Principles
and Concepts of Taxation

 3-16: a

ANG BENG CHING DONG TOTAL

Capital balances before
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
Capital balances before
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) –
Capital balances after
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
Capital balances before
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
Capital balances before
admission of Lorna P178,000 P 62,000 P 80,000 – P 320,000
Admission of Lorna:
Goodwill Written off, 5:3:2 (P 20,000) (P 12,000) ( P8,000) – ( P40,000)
Investment – – – 75,000 75,000
Goodwill to old partners,
5:3:2 (sch. 2) 10,000 6,000 4,000 – 20,000
Capital balances after
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:
INCOME TAXATION 5th Edition (BY: VALENCIA & ROXAS) 47
SUGGESTED ANSWERS
Chapter 1: General Principles
and Concepts of Taxation

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

Total contributed capital (280,000+75,000) ( 355,000)
Goodwill to old partners, 5:3:2 P 20,000

 Equalize *3-19
Capital balances before
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)
Capital balances before
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
 Goodwill 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

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
INCOME TAXATION 5th Edition (BY: VALENCIA & ROXAS) 48
SUGGESTED ANSWERS
Chapter 1: General Principles
and Concepts of Taxation

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

Capital balances before
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

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

 Cash Distribution

AQUINO LOCSIN DAVID TOTAL

Capital transferred P 50,400 P P 8,400 P 84,000
INCOME TAXATION 5th Edition (BY: VALENCIA & ROXAS) 49
SUGGESTED ANSWERS
Chapter 1: General Principles
and Concepts of Taxation

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

 Comprehensive bonus and goodwill

 3-16: a

ANG BENG CHING DONG TOTAL

Capital balances before
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
Capital balances before
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) –
Capital balances after
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
Capital balances before
admission of Alma P150,000 P 50,000 – – P 200,000
INCOME TAXATION 5th Edition (BY: VALENCIA & ROXAS) 50
SUGGESTED ANSWERS
Chapter 1: General Principles
and Concepts of Taxation

Admission of Alma:
Investment – – 80,000 – 80,000
Goodwill to old partner,
70:30 (sch. 1) 28,000 12,000 – – 40,000
Capital balances before
admission of Lorna P178,000 P 62,000 P 80,000 – P 320,000
Admission of Lorna:
Goodwill Written off, 5:3:2 (P 20,000) (P 12,000) ( P8,000) – ( P40,000)
Investment – – – 75,000 75,000
Goodwill to old partners,
5:3:2 (sch. 2) 10,000 6,000 4,000 – 20,000
Capital balances after
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:
Total agreed capital (75,000/20%) P 375,000
Total contributed capital (280,000+75,000) ( 355,000)
Goodwill to old partners, 5:3:2 P 20,000

 Equalize *3-19
Capital balances before
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)
Capital balances before
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
 Goodwill to new partner
*3-15
INCOME TAXATION 5th Edition (BY: VALENCIA & ROXAS) 51
SUGGESTED ANSWERS
Chapter 1: General Principles
and Concepts of Taxation

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

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

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

Capital balances before
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
INCOME TAXATION 5th Edition (BY: VALENCIA & ROXAS) 52
SUGGESTED ANSWERS
Chapter 1: General Principles
and Concepts of Taxation

 Bonus Method

AQUINO LOCSIN DAVID HIZON

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

 Cash Distribution

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

 Comprehensive bonus and goodwill

 3-16: a

ANG BENG CHING DONG TOTAL

Capital balances before
admission P600,000 P 400,000 P 300,000 – P1,300,000
Admission by Dong:
INCOME TAXATION 5th Edition (BY: VALENCIA & ROXAS) 53
SUGGESTED ANSWERS
Chapter 1: General Principles
and Concepts of Taxation

By Purchase (1/2) ( 300,000) – – 300,000 –

By Investment – – – _300,000 300,000
Capital balances before
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) –
Capital balances after
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
Capital balances before
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
Capital balances before
admission of Lorna P178,000 P 62,000 P 80,000 – P 320,000
Admission of Lorna:
Goodwill Written off, 5:3:2 (P 20,000) (P 12,000) ( P8,000) – ( P40,000)
Investment – – – 75,000 75,000
Goodwill to old partners,
5:3:2 (sch. 2) 10,000 6,000 4,000 – 20,000
Capital balances after
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:
Total agreed capital (75,000/20%) P 375,000
Total contributed capital (280,000+75,000) ( 355,000)
Goodwill to old partners, 5:3:2 P 20,000

 Equalize *3-19
INCOME TAXATION 5th Edition (BY: VALENCIA & ROXAS) 54
SUGGESTED ANSWERS
Chapter 1: General Principles
and Concepts of Taxation

Capital balances before

admission P360,000 P225,000 P135,000 – P720,000
INCOME TAXATION 5th Edition (BY: VALENCIA & ROXAS) 55
SUGGESTED ANSWERS
Chapter 1: General Principles
and Concepts of Taxation

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)
Capital balances before
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
 Goodwill 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

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

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

Capital balances before
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

INCOME TAXATION 5th Edition (BY: VALENCIA & ROXAS) 56
SUGGESTED ANSWERS
Chapter 1: General Principles
and Concepts of Taxation

1/3
WW's interest
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

9. C 9. B 9. A 9. C 9. B 9. C
10. C 10. C 10. C 10. B 10. A 10. C
11. C 11. D 11. B 11. B 11. C
12. C 12. D 12. B 12. C 12. B
13. A 13. A 13. A 13. D
14. A 14. D 14. D
15. D 15. C
16. C
17. C