CPA REVIEW SCHOOL OF THE PHILIPPINES

MANILA

Final Pre-Board Examination Solutions April 2023

Taxation
Instructions: Choose the BEST answer for each of the following items. Mark only one answer for each
item on the Special Answer Sheet provided. Strictly no erasure allowed.
1. B
2. D
3. C
4. D
5. B
Tax Proper 75,000
Surcharge for late filing 18,750
Surcharge for wrong venue 18,750
Interest 2,250
TOTAL 114, 750
6. B
7. B
8. A
9. C
10. D
11. B
12. D
13. A
14. A
Output VAT 24,000
Input VAT (5,000)
Input from zero-rated sales (3,000)
Input VAT allocation (15,0000
VAT PAYABLE 1,000
15. A
Output VAT 180,000
Input VAT (120,000)
Input export sales (108,000)
VAT PAYABLE (48,000) or zero

16. A
17. A
18. A

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19. B
Gross Revenue P 3,500,000
Less: Sales Returns 200,000
Net Sales P 3,300,000
VAT Rate 12%
Output VAT P 396,000
20. B
Purchases (P1,000,000 x 12%) P 120,000
Supplies (600,000 x 12% x 40%) 28,800
Services (500,000 x 12% x 60%) 36,000
Creditable input VAT P 184,800

21. B
Gross Revenue P 3,500,000
Less: Sales Returns 200,000
Net Sales P 3,300,000
Less: Cost of Sales (Purchases 1M-150,000 increase 850,000
inventory)
Gross Income P 2,450,000
Less: Supplies P 600,000
Services 500,000
Operating Expense 200,000
Input VAT (600,000x12%x60%) 43,200
(500,000x12%x40%) 24,000 1,367,200
Taxable Income P 1,082,800
22. D
23. D
24. D
Exclusive Common Total Gross Estate
Car 300,000 House and Lot 1,500,000
Personal 250,000 Income from Land 150,000
Total 550,000 1,650,000 2,200,000

25. A
Exclusive Common Gross Estate
Personal 250,000 Car 300,000
Car 450,000
House & Lot 1,500,000
Jewelries 100,00
Total 250,000 2,350,000 2,600,000

26. B
Gross Estate Exclusive Common TOTAL
560,000 420,000 980,000
Ordinary (180,000) (200,000*980/2,800)
Deduction
Net 380,000 350,000 730,000
Special Deduction
Standard (500,000)
Share of Surviving (175,000)
Spouse
Net Estate 55,000

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 27. A
Initial Basis 600,000
New initial basis (Initial basis minus mortgage paid) 600,000
Less: (600,000/1,800,000 x 300,000) (100,000)
Basis 500,000
Vanishing Deduction 40% 200,000
28. B
29. B
30. A
31. B
32. B
33. C
DST on Deed of Sale of land 1.5% 840,000
DST on shares of stock P2 per 200 560,000
TOTAL 1,400,000
34. D
Vios 10% 99,800
Hilux Exempt
Land Cruiser 50% 2,100,000
TOTAL 2,199,800

35. C
36. D
37. C

Solution:
Average of ₱4.00 and ₱4.90 ₱ 4.45
x Number of shares of J. Cruz × 100,000
Total value of J. Cruz's shares ₱ 445,000

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38. B

Solution:
VD on Land
Value of land (PPT) ₱ 50,000
Less: Mortgage on land paid by decedent (30,000)
Net value of PPT ₱ 20,000.00
Less: Prorated deductions
₱20,000 (Net value of PPT) x ₱90,000 = (1,475.41)
₱1,220,000 (Gross estate)
Final basis ₱ 18,524.59
x Rate (interval of over 3 years,
but less than 4 years) x 40% ₱7,409.84

VD on Jeep
Value of jeep (PPT)1 ₱20,000
Less: Mortgage on jeep paid by decedent -
Net value of PPT ₱20,000
Less: Prorated deductions
₱20,000 (Net value of PPT) x ₱90,000 = (1,475.41)
₱1,220,000 (Gross estate)
Final basis ₱18,524.59
x Rate (interval of over 3 years,
but less than 4 years) x 40% 7,409.84
Total vanishing deduction ₱14,819.68

39. C

40. A
41. C

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42. B

Exclusive Conjugal Total

Property Property

Conjugal properties:
Condominium unit (family home) ₱40,000,000 ₱40,000,000
Apartment in HongKong 300,000 300,000
Note receivable from insolvent debtor 60,000 60,000
Note receivable from insolvent debtor 40,000 40,000
Exclusive properties:
Bank deposit ₱250,000 250,000
Gross estate ₱250,000 ₱40,400,000 ₱40,650,000

Less: Ordinary deductions:

a) CLUTT:
Note payable, notarized (30,000) (30,000)
Mortgage on condominium unit (100,000) (100,000)
Mortgage on apartment in HongKong (50,000) (50,000)
Claim against insolvent debtor in Manila (60,000) (60,000)
Claim against insolvent debtor in HK (40,000) (40,000)
b) TPP:
Cash legacy to Orani, Bataan (100,000) (100,000)
Cash legacy to social welfare organization (30,000) (30,000)
Balance 120,000 40,120,000 40,240,000

Less: Special deductions:

Family home (10,000,000)
Standard deduction (5,000,000)
Less: Net share of surviving
spouse (1/2 of ₱4,120,000) (20,060,000)
Net estate subject to tax ₱ 5,180,000

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1. The receivables from insolvent debtors were included in the gross estate. Since the receivables are
uncollectible, they were taken up as deductions.

2. The unpaid mortgages were deducted since the mortgaged properties undiminished by the
mortgage were included in the gross estate.

3. The notes payable, contracted in 2016, notarized, paid on December 22, 2018 and January 4, 2019,
were not deducted from the gross estate because these were no longer outstanding as of the time
of death.

4. The note payable, contracted in 2017, was taken up as a deduction because the note was still
outstanding at the time of death.

5. The cash legacy to the municipality of Orani, Bataan is properly chargeable against the exclusive
properties of the decedent.

6. The cash legacy to a social welfare organization is properly chargeable against the exclusive
properties of the decedent.

Though bequests, devises, legacies, or transfers to social welfare, cultural, and charitable
institutions are classified as exemptions under Section 87(D) of the Tax Code, they may be properly
deducted in computing the taxable net estate when the same are included in the gross estate.

43. A
Solution:
Domestic shares ₱ 5,000,000
Foreign shares (U.S. Company has 90% of business in Phils.) 700,000
Investment in a foreign partnership 1,000,000
Cash in bank, Manila 1,200,000
Account receivable from a debtor residing in the U.S. 100,000
Car, 2017 model 700,000
Gross Estate ₱8,700,000
Less: Ordinary deductions:
(1) CCLUT
Claims against insolvent persons (100,000)
Losses (200,000)
Taxes (160,000)
(2) Transfer for Public Purpose
To PNRC (50,000)
To City of Makati (100,000)
(3) Vanishing Deduction -
Net Estate before Special Deductions ₱ 8,090,000
Less: Special deductions:
Family home -
Standard deduction (5,000,000)
Amounts received under RA 4917 -
Net Estate subject to tax ₱ 3,090,000
Estate tax (6%) ₱ 185,400

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 Notes:
a) All properties located within and without the Philippines are included in the gross estate,
the decedent being a resident of the Philippines at the time of his death. His estate is
taxed like the estate of a citizen of the Philippines.

b) The claim against the insolvent debtor was taken up as a deduction because the
corresponding account receivable from the same debtor was included in the gross estate.

c) Loss from business is not a deduction from the gross estate.

d) Actual funeral expenses and the judicial expenses incurred in the settlement of the estate
are not allowed as deductions for purposes of calculating the taxable net estate.

e) The legacy to PNRC, a charitable institution, is classified as an exemption under Section

87(D) of the Tax Code. However, if such item is included in the gross estate, it may then
be properly deducted as a transfer for a public purpose in computing the taxable net
estate. In this case, there is no indication that the legacy to PNRC was excluded from the
gross estate of the decedent.

f) The standard deduction of ₱5,000,000 is a special deduction from the gross estate of a
resident alien.

44. A

Solution:
Domestic shares ₱5,000,000
Foreign shares (90% business in the Philippines) 700,000
Cash in bank, Manila 1,200,000
Car, 2017 model 700,000
Gross Estate ₱7,600,000
Less: Ordinary deductions:
(1) CCLUT
Claims against insolvent persons
Losses (₱200,000)
Taxes (160,000)
Total (₱360,000)
Proration: (₱7.6M/₱8.7M) x ₱360,000 (314,483)
(2) Transfer for Public Purpose
To PNRC (₱50,000)
To City of Makati (100,000) (150,000)
(3) Vanishing Deduction -
Net Estate before Special Deductions ₱7,135,517
Less: Special deductions:
Family home -
Standard deduction (500,000)
Amounts received under RA 4917 -
Net Estate subject to tax ₱6,635,517
Estate tax (6%) ₱ 398,131

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 a) Only properties located in the Philippines were included in the gross estate, the
decedent being a non-resident alien. The investment in a foreign partnership and
account receivable from a debtor residing in the U.S. are properties located
outside the Philippines, and were not included in the gross estate.

b) The claim against the insolvent person cannot be deducted because the
corresponding account receivable was not included in the gross estate.

c) When the decedent is a non-resident alien, the CCLUT expenses are prorated.
The formula for prorating is:

Gross estate in the Philippines

x CCLUT
Entire gross estate

d) A standard deduction of ₱500,000 is deductible from the gross estate of a non-

resident alien decedent.

45. A

Car, 2017 model ₱700,000

Gross Estate ₱700,000
Less: Ordinary deductions:
(1) CCLUT
Claims against insolvent persons
Losses (₱200,000)
Taxes (160,000)
Total (₱360,000)
Proration: (₱0.7M/₱8.7M) x ₱360,000 (28,966)
(2) Transfer for Public Purpose
To PNRC (₱50,000)
To City of Makati (100,000) (150,000)
(3) Vanishing Deduction -
Net Estate before Special Deductions ₱521,034
Less: Special deductions:
Family home -
Standard deduction (500,000)
Amounts received under RA 4917 -
Net Estate subject to tax 21,034
Estate tax (6%) 1,262

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 a) The following intangible personal properties were not included in the gross estate:

1) domestic shares;
2) foreign shares (90% business in Philippines); and
3) cash in bank, Manila.

These intangible personal properties with situs within the Philippines were not included in
the gross estate because they are not taxable due to reciprocity.

b) The following properties were also not included in the gross estate:

1) investment in foreign partnership; and

2) account receivable, debtor residing in the U.S.

These intangible personal properties located without the Philippines are not taxable, the
decedent being a non-resident alien.

c) The claim against the insolvent person cannot be deducted because the corresponding
account receivable was not included in the gross estate.

d) When the decedent is a non-resident alien, the CCLUT expenses are prorated. The formula
for prorating is:

Gross estate in the Philippines

x CCLUT
Entire gross estate

d) A standard deduction of ₱500,000 is deductible from the gross estate of a non-resident alien
decedent.

46. C

47. A

48. B

49. B

50. D

51. A

52. B

53. B

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 Solution:
(1) April 12, 2021
Current gross gift ₱ 900,000
Less: Deductions
Mortgage assumed by donee (50,000)
Current net gift ₱ 850,000
Less: Exemption (250,000)
Total net gift subject to tax ₱ 600,000
Donor's tax (6%) ₱ 36,000

(2) June 6, 2021

Current gross gift ₱ 20,000
Less: Deductions -
Current net gift ₱ 20,000
Add: Total prior net gifts 850,000
Total net gifts ₱ 870,000
Less: Exemption (250,000)
Total net gifts subject to tax ₱ 620,000
Donor's tax (6%) ₱ 37,200
Less: Donor's tax paid on previous gifts (36,000)
Donor's tax payable ₱ 1,200

(3) July 30, 2021

Current gross gift ₱ 1,000
Less: Deductions -
Current net gift ₱ 1,000
Add: Total prior net gifts 870,000
Total net gifts ₱ 871,000
Less: Exemption (250,000)
Total net gifts subject to tax ₱ 621,000
Donor's tax (6%) ₱ 37,260
Less: Donor's tax paid on previous gifts (37,200)
Donor's tax payable ₱ 60

(4) November 24, 2021

Current gross gifts ₱ 410,000
Less: Deductions
Gift to government (PNP) (400,000)
Current net gift ₱ 10,000
Add: Total prior net gifts 871,000
Total net gifts ₱ 881,000
Less: Exemption (250,000)
Total net gifts subject to tax ₱ 631,000
Donor's tax (6%) ₱ 37,860
Less: Donor's tax paid on previous gifts (37,260)
Donor's tax payable ₱ 600

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54) B

Solution:
Donation - August 1, 2021
Land, Philippines ₱1,500,000
Land, USA 4,500,000
Total net gifts ₱6,000,000
Less: Exemption (250,000)
Total net gifts subject to tax ₱5,750,000
Donor's tax (6%) ₱ 345,000

Less: Tax credit

Donor's tax paid in U.S.A. ₱450,000
Limit (A)
₱4,500,000
x ₱345,000 = 258,750
₱6,000,000
Tax credit allowed, Limit (A) (258,750)
Gift tax payable after tax credit ₱ 86,250

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55) C

Donation - November 1, 2021

Land, Philippines ₱2,000,000
Condo unit, Taiwan 3,000,000
Add: Prior net gifts
Land, Philippines ₱1,500,000
Land, USA 4,500,000 6,000,000
Total net gifts ₱11,000,000
Less: Exemption (250,000)
Total net gifts subject to tax ₱10,750,000
Donor's tax (6%) ₱ 645,000
Less: Tax paid on prior net gifts (86,250)

Less: Foreign tax credit

Donor's tax paid in U.S.A. ₱450,000
Limit
₱4,500,000
x ₱645,000 = 263,864
₱11,000,000
Lower of Actual and Limit 263,864

Donor's tax paid in Taiwan ₱650,000

Limit
₱3,000,000
x ₱645,000 = 175,909
₱11,000,000
Lower of Actual and Limit 175,909

Limit A = 263,864 + 175,909 = 439,773

Total foreign taxes paid abroad ₱1,100,000

Limit
₱7,500,000
x ₱645,000 = 439,773
₱11,000,000
Lower of Actual and Limit = Limit B = 439,773

Lower of Limit A and Limit B = (439,773)

Donor’s Tax Payable 118,977

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56) A
57) A

(a) The service fees paid to E-Regalo by the merchants constitute gross income subject to income
tax, and consequently to the CWT. These are also subject to 12% VAT, and E-Regalo is required
to issue VAT official receipts therefor.

(b) On the other hand, amounts representing the value of the electronic gift cards do not constitute
income on the part of E-Regalo. These are received not as compensation for E-Regalo’s services,
but as a deposit, or fund held in trust for reimbursing its accredited merchants when such gift
cards are eventually redeemed. Such amounts do not redound to the benefit of E-Regalo, and do
not form part of its gross receipts subject to income tax and to CWT. The same is also not subject
to VAT, and E-Regalo shall have to issue separate Non-VAT official receipts therefor.

58) B
Output VAT:
Receipts: 280,000 x 12% = 33,600
20,000 x 12% = 2,400 36,000
ITCs:
Payment to VAT Suppliers:
20,000 x 12% = 2,400
60,000 x 12% = 7,200
Amortized ITC:
[(1.2 M x 12%)/60 mos.)
x 3 months] 7,200 (16,800)
VAT payable 19,200

59) C

Transactions that are made incidental to the pursuit of a commercial or economic activity are
considered as entered into in the course of trade or business. Hence, an isolated transaction
is not necessarily disqualified from being made incidentally in the course of trade or
business. In this case, the sale of the warehouse is an incidental transaction because the said
warehouse was purchased/constructed and used in furtherance of the corporation’s
business.

60. D

61. A

62. B

63. A

64. A

65. C

66. A

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67. C

68) C

69) C

70) C

THE END

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