PROBLEM SOLVING GUIDE By: CES Academy, Inc.

2013 Appraisers’ Examination

Problem Solving :

1. Selling price inclusive of VAT is P5,040,000.00, how much is the value added tax?
a) P504,000.00 b) P604,800.00 c) P540,000.00 d) P458,181.00

 Answer: P5,040,000.00 x 12/ 112 = P540,000.00

2. Selling price inclusive of VAT is P5,040,000.00, how much is the selling price before VAT
a) P4,536,000 b) P4,581,818 c) P4,500,000 d) P4,435,200

 Answer: P5,040,000.00 / 1.12 = P4,500,000.00

3. Gross selling price inclusive of VAT is P5,040,000.00, how much is the 5% commission of the broker net
of 10% withholding tax if the seller gave a 10% discount to the buyer
a) P183,708.00 b) P179,625.60 c) P182,250.00 d) P204,120.00

 Answer: P5,040,000 x .90 / 1.12 x 5% x .90 = P182,250.00

4. Value-added tax is P360,000.00, how much is selling price before VAT?

a) P4,000,000.00 b) P409,090.00 c) P3,000,000.00 d) P3,600,000

 Answer: P360,000.00 / .12 = P3,000,000.00

5. Value-added tax is P360,000.00, how much is selling price inclusive of VAT?

a) P3,960,000.00 b) P3,960,000.00 c) P3,360,000.00 d) P3,600,000

 Answer: P360,000.00 / .12 x 1.12 = P3,360,000.00

6. Selling price is P2,340,000.00. The seller sold the property and realized 30% gross profit over his cost. The
cost of the property is –
a) P1,638,000.00 b) P1,700,000.00 c) P1,800,000.00 d) P1,900,000

 Answer: P2,340,000 / 1.30 = P1,800,000.00

7. What is the total interest of P500,000.00 loan in 5 years at 12% interest per annum if computation is
simple?
a) P60,000.00 b) P120,000.00 c) P200,000.00 d) P300,000.00

 Answer: P500K x 12% x 5 years = P300,000.00

8. What is the difference in the monthly amortization of a P1,000,000.00 loan if interest is simple and the
other one is based on diminishing balance? Based on diminishing balance the monthly amortization
factor is .02705. Interest for both is 21%. The loan is to be paid in 60 months.
a) P7,116.67 b) P6,771.67 c) P7,161.67 d) P7,661.67

 Answer:
P1M x .02705 = P27,050.00 (Mo. Amortization diminishing balance)

P1M x 21% x 5 years + P1M = P34,166.67

60 months

Difference : P34,166.67 - P27,050.00 = P 7,116.67

16. In a scale of 1: 1,000,000, one centimeter paper road map is equivalent to:

a) 1 km b) 10 kms c) 1,000 meters d) 100,000 cms.

 Answer: 1,000,000 / 100 = 10,000 meters / 1,000meters = 10kms.

Meaning: 1 cm in paper is to 10kms in earth surface

17. The appraiser’s pace factor is 1.5 to 1 meter. What is the estimated lot frontage if the number
of steps is 45.
a) 20 meters b) 35 meters c) 30 meters d) 45 meters

 Answer : Pace factor = No. of steps / actual distance

Therefore : Lot frontage = 45 steps / 1.5 pacefactor = 30 meters

18. The ground and 2nd floor of the building has the same floor area. Ground floor area is 200 sqm and the
height of the building is 10 meters. The volume of the building is

a) 2,000 sqm. b) 4,000 sqm c) 2,000 cubic meters d) 4,000 cubic meters

 Answer: 200sqm. x 10meters = 2,000 cubic meters

19. while reproduction cost-new, if cost per sqm is P15,000.00, is -

a) P2,000,000.00 b) P4,000,000.00 c) P6,000,000.00 d) P3,000,000.00

 Answer: FA200sqm. x 2 floors x P15,000.00 = P6M

20. The base of the triangle is 10 meters while its height is 15 meters. What is the area?

a) 125 sqm b) 300 sqm c) 150 sqm d) 75 sqm

 Answer: 10m. x 15m. / 2 = 75 sqm.

 21. Total payments made by the buyer in 84 months is P900,000.00 inclusive of P50,000.00 penalty
interest. How much is the maximum refund under Maceda Law?
a) P450,000.00 b) P212,500.00 c) P630,000.00 d) P510,000.00

 Answer: (P900K - P50K) x 60% = P510,000.00

st
Rate of refund : 50% 1 5 years + 10% (5% per year after 5 years)

22. Total payments for 2 years made by the buyer is P900,000.00 inclusive of P50,000.00 penalty interest.
How much is the maximum refund under PD 957 if the developer agreed to an additional interest of 10%
as cost of money?

a) P450,000.00 b) P212,500.00 c) P630,000.00 d) P935,000.00

 Answer: (P900K - P50K) x 100% x 1.10 = P935,000.00

28. Under the 4-3-2-1 rule, the owners of the lot abutting the road got P5,000,000.00 as their share in the
sale. How much is the selling price of the whole property based on that rule?
a) P10,000,000.00 b) P11,500,000.00 c) P12,500,000.00 d) P13,500,000

 Answer: P5M / 40% = P12.5M

29. Still, based on the above 4-3-2-1 rule, what is the share of the owners of the farthest portion of the
property?
a) P1,000,000.00 b) P1,250,000.00c) P1,500,000.00 d) P2,000,000

 Answer: P12.5M x 10% = P1,250,000.00

30. A two storey house was built on a 300 sqm regular lot with 15 meter frontage. What’s the total floor area
of the house if it has a 5-meter setback from the road, 3 meter setback at its rear and 2-meter easement
on both sides?
a) 242 sqm b) 286sqm c) 264sqm d) 330 sqm

 Answer: 300sqm / 15m. = 20 depth of the lot

House frontage = 15m. - 4m. = 11meters
House depth = 20m. – (5m + 3m ) = 12meters
House area = 11m. x 12m. x 2sty = 264 square meters

31. What’s the cost of building a fence around 200 sqm rectangular lot with 10 meter frontage net of 4-meter
wide gate? The height of the fence is 8 feet. There are 3.28 feet in a meter. The cost per sqm of the fence
is P1,500.00.
a) P179,640.00 b) P197,640.00 c) P179,046.00 d) P204,960.00

 Answer: 200sqm. / 10m = 20m. depth

Fence perimeter = (20m. + 20m. + 10m. + 10m.) - 4m gate = 56LM

Height of the fence = 8feet / 3.28feet = 2.44meters

Cost of the fence = 56linear meters x 2.44m. x P1,500.00 = P204,960.00

 34. What is the market value of a vacant lot subject to 5% idle land tax if total tax paid by the
owner for one year net of 20% prompt payment discount is P12,800.00. Basic tax is 2% while
SEF tax is 1%?
a) P800,000.00 b) P1,000,000.00 c) P1.2M d) P1.4M

 Answer : P12,800.00 / 80% = P16K / 8% total tax rate = P200K (AV)

= P200K AV / 20% Assessment Level = P1,000,000.00

35. Base of the triangle is 30m. while height is 40m. What is the distance of the 3rd side?

 Answer:
Hypotenuse = Square root of the sum of the squares of 30 and 40

Or square root of 900 + 1600 = 50meters

36. ABC Realty Corporation, sold a vacant lot for cash. If it will pay value added tax of P600,000.00,

compute the following:

1) Selling price before VAT : P600K / 12% = P5.0M

2) DST : P5M x 1.5% = P 75,000.00

3) CWT : P5M x 5% = P250,000.00

4) Transfer tax, if it is 50% of 1% of tax base : P5M x 1% 50% = P25,000.00

5) Basic registration fee : (P5M / 20K x 90) + P1,146.00 = P23,646.00

37. In estate tax computation, if the husband died after January 1, 1998, what are the maximum

allowable deductions allowed by the BIR?

 Medical expenses - P500,000.00

 Funeral expenses - P200,000.00
 Standard deduction - P1,000,000.00
 Family home - P1,000,000.00
 Maximum rate of estate tax - 20%
 Minimum rate of estate tax - 0% ( no tax for the first P200K net estate)
 Notice of death should be filed with the BIR within : 2months
 Filing and payment of estate tax should be within : 6months
 Extension of payment without penalty and interest : one month
 Under extrajudicial settlement, for meritorious cases, extension of payment maybe made up to
th
2 years without penalty but subject to interest starting on the 7 month
 Under judicial settlement, for meritorious cases, extension of payment maybe made up to 5
years without penalty but subject to interest starting on the 7th month
 If the net amount subject to estate tax is P200,000.00, the rate of tax is 0%

38. What is the maximum donors tax if the donee is

  Is a grandson: 15%; daughter in-law : 30%
 What is the rate of donors tax for the first P100,000.00 donation? 0%

39. Sale with mortgage of vacant lot is P1,500,000.00. Mortgage is P800,000.00. How much is the :

 DST on sale : P1.5M x 1.5% = P22,500.00

 DST on mortgage : ( P800K x .002) + P10.00 = P1,610.00

40. The appraised value of the lot is P4,500,000.00 higher than the comparable by 20%. What is the

value of comparable lot?

 Answer: P3,750,000.00 ( P4.5M / 1.2)

41. What is the appraised value of the building by cost approach if it has a floor area of 200sqm.,

Replacement cost per sqm. is P18,000.00. Effective age of the building is 15years while its

estimated useful life if new is 60 years.

 Answer: P2.7M ( FA200sqm. x P18K x 45/60)

42. What is the appraised value of land and building by income approach if its net operating income for

the year is P6M? Interest rate in the market is 8% while recapture rate is 4%.

 Answer: P50M (P6M / 12%)

43. What is the appraised value of land and building by gross income multiplier method if the

comparable building with a gross income of P5M was sold at P60M? Gross income of the subject

property is P8M.

 Answer: P96M ( P60M / P5M = GIM of 12 x P8M)

a. Realty Tax :
 Basic realty tax
o MV x AL = AV x From 1% to 2% Rate = Tax for one year
 SEF tax
o MV x AL = AV x 1% fixed = Tax for one year
 Idle land tax
o MV x AL = AV x From 0% to 5% Rate = Tax for one year
 Socialized housing tax ( under RA 7279)
o MV x AL = (AV less P50K x 0.5% fixed) = Tax for one year

b. Basic registration fee :

  Selling Price (always) / 20,000 x 90 + P1,146 = Basic Fee

c. Transfer tax :

 BIR Tax Base x 1% x from 50% to 75% = Tax

d. Documentary Stamp Tax

 On sale = BIR Tax Base x 1.5% = DST on Sale

 On mortgage = Amount of Mortgage x 0.002 + P10.00

e. Capital Gains Tax : 6% x BIR Tax Base

f. Creditable Withholding Tax

 developer : form 1.5% to 5% x BIR Tax Base

 other corporation : 6% fixed x BIR Tax Base

g. VAT payable :

 Output tax less Input tax

o Output tax = Amount received with VAT x 12/112
o Input tax = Amount paid with VAT x 12/112

6. 1:200 means

a. 1 cm is equal to 200 centimeters c. 1 meter is equal to 200 meters

b. 1 cm is equal to 2 meters d. 1 meter is equal to 20 meters

32. The area of a triangular plot is computed by the formula:

a. length x width c. 2 x length x width

b. ½ x length x width d. length x width x height

1. What is the gross rent multiplier for a property if the annual gross income from a building is P66,000, net
operating income is P29,500 and the building sells for P561,000?
a. 6.5 c. 8.1
b. 7.2 d. 8.5 561K / 66K
APPRAISAL: MARKET VALUE COMPUTATION

1. BY MARKET DATA APPROACH or Sales Comparison Approach

 Case 1 ( Terms of Sale or Discount Factor)

o Comparable lot was sold at current instalment price of P5,000.00 per square meter
o If bought in cash the discount is at 10%
o The subject property is very similar in location and physical character
o The only adjustment is terms of sale
o Compute estimated value of subject property
o Solution:
 Value of comparable/sqm. - P5,000.00
 Less: 10% discount factor - 500.00
 Market value/sqm. of subject property - P4,500.00

 Case 2 ( Time Element)

o Comparable lot was sold 2 years ago at P5,000.00 per square meter
o Estimated increase per year is at 5%
o Compute estimated value of subject property
o Solution:
 Value of comparable/sqm. - P5,000.00
 Add: 10% due to time ( 2yrs x 5%) - 500.00
 Market value/sqm. of subject property - P5,500.00

 Case 3 ( Location)
o Comparable lot was recently sold at P5,000.00 per square meter
o The subject is superior in terms of location by 20%
o Compute estimated value of subject property
o Solution:
 Value of comparable/sqm. - P5,000.00
 Add: 20% due to location - 1,000.00
 Market value/sqm. of subject property - P6,000.00

 Case 4 ( Physical) – size, shape, elevation, corner influence

o Comparable lot was recently sold at P5,000.00 per square meter (higher elevation)
o The subject is inferior in terms of elevation by 10% (lower than the road)
o Compute estimated value of subject property
o Solution:
 Value of comparable/sqm. - P5,000.00
 Less: 10% due to low elevation - 500.00
 Market value/sqm. of subject property - P4,500.00

 Other factors that may affect values

o Government police power : Example is height limitation
 o Environmental : Prone to flooding and typhoon

MARKET VALUE COMPUTATION

2. BY COST APPROACH)

 Formula and example:

o Reproduction (or Replacement) Cost New
 FA100 x P15K/sqm - P1,500,000.00
Less : Depreciation ( accrued based on effective age)

 20 years old / 50years useful life (40%) - 600,000.00

Market Value of building - 900,000.00

Add :

Land value say 300sqm. @ P5,000.00 - 1,500,000.00

Market value ( land and building) - P2,400,000.00

LAND RESIDUAL METHOD

( For market data and cost approach)

 No vacant lots available for sale in the area

 Comparable : House and lot for sale - P2,700,000.00
o Lot area is 300sqm.; floor area is 100sqm
o Observed depreciation is 40%
o Allowance for market resistance is 10% of asking price

 Compute : Estimated land residual value per sqm.

 Solution:
o Asking price of house and lot - P2,700,000.00
Less : 10% market resistance - 270,000.00
Estimated cash price - 2,430,000.00
Less:
Estimated building value
Reproduction (or Replacement) Cost New
 FA100 x P15K/sqm - P1,500,000.00
Less : Depreciation (accrued )
 say 20 years old / 50years useful life (40%) - 600,000.00
Market Value of comparable building - 900,000.00
Land residual value - 1,530,000.00
Land value per sqm. ( P1,530,000/ 300sqm) - P 5,100.00

Therefore, the value of comparable lot is P5,100.00 per square meter

BUILDING RESIDUAL METHOD

 Land value can be computed easily; lots of comparables

 Comparable : House and lot for sale - P2,700,000.00

o Lot area is 300sqm.; floor area is 100sqm
o Observed depreciation is 40%
o Allowance for market resistance is 10% of asking price
 Compute : Estimated building residual value
 Solution:
o Asking price of house and lot - P2,700,000.00
Less : 10% market resistance - 270,000.00
Estimated cash price of house and lot - 2,430,000.00
Less: Estimated land value
 300sqm. x P5,000.00 - 1,500,000.00
Estimated building value - P 930,000.00

DEPRECIATION PER YEAR ( straight line method)

 100% / estimated useful life say: 100% / 50 yrs = 2% per year

ACCRUED DEPRECIATION RATE based on EFFECTIVE AGE

 Estimated replacement cost of the building

o FA 100 x RCN of P20K/sqm. - P2,000,000.00
 Estimated useful life of the building - 50 years
 Chronological age or actual age of building - 30 years old
 Effective age per ocular inspection - 20 years old
 Accrued Depreciation, therefore
= 20 / 50 = 40%
 Estimated building value = 60% ( 100% – 40%) x P2M = P1,200,000.00

RECAPTURE RATE (building)

 100% / remaining useful life (estimated) say: 100% / 25years = 4% per year

RECAPTURE RATE (leasehold)

 100% / remaining life of the lease say: 100% / 20years = 5% per year

OVER-ALL RATE or Capitalization Rate

 Interest rate + Recapture rate

OVER-ALL RATE (from market comparable)

 Selling price of comparable building - P5,000.000.00

 Annual net income of the comparable - P 400,000.00
 Over-all rate = P400K / P5M - 8%
 What is the interest rate if recapture rate is 2%
 Interest rate = Over-all rate - Recapture rate
= 8% - 2% = 6%

GROSS INCOME MULTIPLIER

 Selling price of comparable building - P6M

 Annual gross income of comparable building - P1M
 Gross Income Multiplier = P6M / P1M - 6
 What is the estimated land and building value of the subject property using the above GIM if
the annual gross income of the subject property is P2M?

 Value of subject property = Gross income of subject property x 6

= P 2M x GIM of 6 = P12M

Comparable : SP P6M / Gross Income P1M = GIM of 6

Subject Property : _________ / P2M = 6

BAND OF INVESTMENT METHOD

 Investor can avail 75% of capital requirement at 15% interest rate

 Investor can put 25% equity and satisfied with 10% return
 Compute the over-all rate
Participation Interest Composite Rate

Mortgage loan 75% x 15% 11.25%

Investors equity 25% x 10% 2.5%
Over-all rate 13.75%

OPERATING STATEMENT

Annual potential gross income (PGI) say P5,000,000.00

Less: allowance for vacancy say 10% 500,000.00
Effective gross income (EGI) 4,500,000.00
Less : Operating expenses before recapture 1,000,000.00
Net Operating Income (NOI) 3,500,000.00

What is the estimated value of the land and building if over-all rate is 10%?

Land and Building Value = NOI / 10% or P3.5M / 10% = P35M

COMPUTATION OF SELLING PRICE / SQM. ( PD 957 )

Assumption :

 Rawland acquisition cost - P 400.00/sqm

 Development cost - P1,000.00/sqm
 Marketing Expenses - 15% of SP
 Developer’s profit - 30% of SP
 Saleable area - 70%

Compute :

 Selling Price /sqm

Solution :

 Formula : SP/sqm = Unit Cost + Mktg Exp. + Dev. Profit

100% = 55% + 15% + 30%

Unit Cost = Acquisition Cost/sqm + Dev. Cost /sqm

70%
Unit Cost = P400.00 + P1,000.00 = P2,000.00
70%
SP/sqm = P2,000.00 / 55% = P3,636.36

CONVERSION

 1 hectare = 10,000 sqm

 1 meter = 100 centimeters
 1 ares = 100 sqm
 1 centares = 1 sqm
 1 meter = 3.28 feet

Per tax declaration :

 Lot area = 60 ares and 50 centares ( 60-50)

 Lot area = 60 x 100 = 6,000sqm. + 50 x 1 = 50sqm. = 6,050 sqm.

FENCE AND GATE COMPUTATION

Assumption:

 Lot area : 240 sqm. ( 12m. x 20m.)

 Height of the fence : 2.5 m. above the ground and .25 m. below the ground
 Cost of fence /sqm. : P1,500.00
 Gate : 4 meters wide and 6 feet high
 Cost of gate : P500.00/sqm.
 Question: Compute cost of fence and gate

Solution:

o Length of fence ( 12m. + 20m. + 12m. 20m. less 4m. gate) = 60.00 meters
o Height of fence ( 2.5 m. + .25 m. ) = 2.75 meters
o Area of fence ( 60 x 2.75 ) = 165 sqm.
o Cost of fence ( 165sqm. x P1,500.00 ) = P 247,500.00
o Cost of gate
 4 m. wide x 6feet / 3.28feet x P500.00 = 3,658.54
o Cost fence and gate = P 251,158.54

AREA COMPUTATION

 Square = Length x Width

 Rectangle = Length x Width
 Triangle = Base x Height
2

 Trapezoid = Sum of parallel lines ( A + B ) / 2 x Height

 Diagonal line (hypotenuse) in a square or rectangle
= A2 + B2 = Square Root of the Sum

REFUND ( Maceda Law )

Assumption :
Downpayment - P100,000.00
Total amortizations inclusive of penalty - 400,000.00
Penalty - 50,000.00
Years paid - 7 years
Questions and Answers:
a) Grace period earned - 7 months
b) Rate of refund - 60%
c) Amount of refund
(P100K + P400K) less P50K = P450,000.00
x 60%
Refund = P270,000.00
REFUND ( PD 957 )

Assumption :
Downpayment - P100,000.00
Total amortizations inclusive of penalty - 400,000.00
Penalty - 50,000.00
Years paid - 2 years
Legal rate of interest - 12%
Number of months interest is to be earned say - 6 months
 Refund :
Total payments made - P500,000.00
Less : Penalty interest - 50,000.00
Basis of refund - 450,000.00
Multiply by rate of refund - x 100%
Refund before interest (cost of money) - 450,000.00
Add: Interest for 6 months at 12% I.P.A. - 27,000.00
Total refund - P477,000.00

LOCAL TAXATION

 Remember this formula :

MV X AL = AV x RATE = REALTY TAX Where :

= AV x from 1% – 2% = Basic Realty Tax MV is market value
= AV x 1% (fixed) = SEF Tax AV is assessed value
= AV x up to 5% = Idle Land Tax SEF is special educ. fund tax

Socialized housing tax per RA 7279 (UDHA)

 ( AV less P50,000.00 ) x .5% = Socialized housing tax

(maybe implemented by LGU)

Quezon City Socialized Housing Tax Formula:

 ( AV less P100K ) x .005 = Socialized Housing Tax

OTHER LGU TAXES

 TRANSFER TAXES ( per Local Government Codof 1991 - RA 7160)

o Not to exceed 75% of 1% of tax base (also the basis of CGT, CWT & DST) any city in the Phils or
Metro Manila municipalities. Payable to Treasurer’s Office

o Example: Selling price of lot - P1,000,000.00

BIR zonal value for the lot - 1,200,000.00
Market value per tax dec. - 500,000.00

Note : The property is located in Quezon City, owned by corporation not habitually engaged in
real estate business
Compute :
1. DST on sale = P1.2M x 1.5% = P18,000.00
2. CGT = P1.2M x 6.0% = P72,000.00
3. Maximum transfer tax that maybe imposed by QC
= P1.2M x 1% x 75% = P9,000.00
4. Business tax
= P1M x say 2% maximum = P20,000.00
5. Basic Registration Fee (RD)
= ( P1M / 20,000 x 90) + P1,146.00 = P5,646.00
 Note : Registration fee and Business tax are always based on selling price.

 Transfer tax in the province : Not to exceed 50% of 1% of tax base (basis of BIR taxes)

 BUSINESS TAX ( Payable to Treasurer’s Office)

Applicability :
 Applicable to corporations not habitually engaged in real estate business with properties sold
within Quezon City, Pasig City, Taguig City, Caloocan City and Las Pinas City
 Basis is always selling price
 Payable within 60 days from execution date

NATIONAL TAXATION

 DST on Sale - 1.5% of Tax Base

 DST on Mortgage - P20.00 first P5,000 plus P10.00 for every

succeeding P5,000.00 or fraction thereof or

( Amount of Mortgage x .002 ) + P10.00

 Capital Gains Tax - 6% of Tax Base

 Creditable Withholding Tax For real estate developer/dealer

o 1.5% - SP is P500K and below
o 3.0% - SP is over P500K to P2M
o 5.0% - SP is over P2M

o 6.0% - Not habitually engaged regardless of amount

 Percentage tax - 3% of gross receipts

 Value-added tax - 12% of selling price before VAT

 Donor’s tax - from 2% to 15% ( up to 4th degree relative by consanguinity)

- 30% if donee is a stranger ( outside 4th degree)
- The first P100K donation is tax free

 Estate tax - from 5% to 20% of net estate subject to tax

- the first P200K net estate subject to tax is free of tax
TAX BASE ( The basis of BIR taxes)

 Sale of vacant lot : Tax Base is the highest of the three (3)
(1) Selling Price, (2) BIR Zonal Value (3) Market Value per Tax Declaration

 Sale of lot with improvement or building Tax Base

o MV of lot per tax declaration say P500K
o Zonal value of lot say P800K P800K (higher value)

o MV of building per tax dec. say P1M P1M

o Tax Base P1.8M

 Exchange of two lots (both are subject to tax)

Tax base for both lots : Zonal value or MV per tax dec. whichever is higher

a) DST on Sale and on Mortgage ( to register the transaction)

Assumption :
- Selling price inclusive of mortgage - P 2,000,000.00
- Mortgage assumed by the buyer - 1,500,000.00

Compute : DST on Sale, DST on Mortgage and CGT

Answer:
a) DST on Sale = 1.5% x P2,000,000.00 - P30,000.00

b) DST on Mortgage = First P5,000.00 - 20.00

Add: Succeeding P5,000 at P10/P5K
P1,500,000 - P5,000 x P10 - 2,990.00
P5,000
Total DST to register the transaction - P 3,010.00

Or

DST on Mortgage = (P1.5M x .002 ) + P10 - P 3,010.00

c) CGT = 6% x P2,000,000.00 - P 120,000.00

CGT ( Installment and Deferred Payment Sale )

 Initial Payment - total payments made by the buyer in the year of sale
 Installment Sale - when IP is 25% or less of selling price in the year of sale
 Deferred Payment Sale - when IP exceeds 25% of selling price in the year of sale
 Assumption :
- Selling price - P2,000,000.00
- Initial payment, first case - 400,000.00
- Initial payment, second case - 600,000.00

Questions and Answers:

a) CGT on first case : 400K / 2M = 20%, therefore, installment

CGT, therefore, is : 6% x P400K = P24,000.00

b) CGT on second case : 600K / 2M = 30%, therefore, deferred

CGT, therefore, is : 6% x P2M = P120,000.00

c) DST - no DST on installment or deferred payment sale; it accrues

only upon full payment and notarization of sale.

CAPITAL GAINS TAX – Sale of personal residence

Assumption :
- - SP of personal residence - P 4,000,000.00
- - BIR value (ZV) of P4M residence - 5,000,000.00
- - Cost of new residence - 3,000,000.00

Questions and Answers:

1. Capital gains tax to be escrowed

= 6% x P5,000,000.00 = P300,000.00

2. Capital gains tax on unutilized portion (exclusive of interest if subject)

P5M / P4M = 1.25, it means that BIR FMV at the time of sale is 25% higher,
therefore, CGT on the unutilized portion is :
P4M - P3M = P1M x 1.25 x 6% = P75,000.00

3. What if the BIR value is equal or less than P4 million at the time of sale?
CGT = P 1M x 6% = P60,000.00 plus interest after 30 days (from sale)

CREDITABLE WITHHOLDING TAX ( Sale by VAT registered realty developer)

Assumption:
a) Residential lot valued at P1,900,000.00 - selling price before VAT
b) Residential lot valued at P2,000,000.00 – selling price before VAT
c) Residential house and lot valued at P3,000,000.00 – selling price before VAT
d) Residential house and lot valued at P3,200,000.00 – selling price before VAT

Questions and Answers

a) CWT, DST and VAT on P1,900,000.00 sale (lot only)
 CWT = P1,900,000.00 x 3% = P57,000.00
 DST = P1,900,000.00 x 1.5% = P28,500.00
 VAT - not subject to VAT
 b) CWT, DST and VAT on P2,000,000.00 sale (lot only)
 CWT = P2,000,000.00 x 3% = P 60,000.00
 DST = P2,000,000.00 x 1.5% = P 30,000.00
 VAT = P2,000,000.00 x 12% = P240,000.00

c) CWT, DST and VAT on P3,000,000.00 sale (house and lot)

 CWT = P3,000,000.00 x 5% = P150,000.00
 DST = P3,000,000.00 x 1.5% = P 45,000.00
 VAT - not subject to VAT

d) CWT, DST and VAT on P3,200,000.00 sale (house and lot)

 CWT = P3,200,000.00 x 5% = P160,000.00
 DST = ( P3,200,000.00 x 1.5% = P 48,000.00
 VAT = P3,200,000.00 x 12% = P384,000.00

VALUE-ADDED TAX
Output tax : Amount received with VAT x 12/112
Say : P3,360,000 x 12/112 = P360,000.00
Input tax : Amount paid with VAT x 12/112
Say : P1,680,000 x 12/112 = P180,000.00
VAT Payable = P180,000.00

Selling price before VAT - P3,000,000.00 - 100%

Add : VAT - 360,000.00 - 12%
Selling price inclusive of VAT - P3,360,000.00 - 112%

Selling Price before VAT Formula:

 P3,360,000 / 112% = P3,000,000.00 or
 P3,360,000 x 100/112 = P3,000,000.00 or
 P 360,000 / 12% = P3,000,000.00

4-3-2-1 RULE ( Stripping Method)

Assumption : 10-hectare lot of different owners was bought at P5million (lump sum)

4 is 40% share on P5M = P2,000,000.00 ( 1st quarter abutting the road)

3 is 30% share on P5M = P1,500,000.00 ( back of 1st lot )
2 is 20% share on P5M = P1,000,000.00 ( back of 2nd lot )
1 is 10% share on P5M = P 500,000.00 ( back of 3rd lot – farthest lot)

BUILDING COST COMPUTATION ( Reproduction Cost-New )

 By floor area method ( in square meter )

( say 2-storey house )

o Length x Width x Cost per sqm

12m. x 8m. x 2 floors x P15K = P2,880,000.00
  By volume method ( in cubic meter )

o Length x Width x Height x Cost per cubic meter

12m x 8m x 9m x P3,500.00 = P3,024,000.00

FRACTIONAL SHARE

Assumption No. 1
Heirs are the wife, 3 legitimate children and 1 illegitimate son
The decedent died without leaving a will
Property relationship of husband and wife : Absolute community under Family Code

Question :
1. What would be the fractional share of the surviving heirs that would appear in the new title?

From Husband From Wife Fractional Share

Wife’s share 1 share + 4.5 shares = 5.5/ 9 shares
First child 1 share none = 1.0/9
Second child 1share none = 1.0/9
Third child 1 share none = 1.0/9
Illegitimate share 0.5 share none = 0.5/9
4.5 shares + 4.5 shares = 9/9 or 1 unit

Assumption No. 2
Heirs are the wife, 4 legitimate children
The decedent died leaving a will
Property relationship of husband and wife : Absolute community

Question :
1. Of the 50% share of the deceased in the community property, what is his free portion or
portion of the community property that he is allowed by to donate by will?

Answer :
Let us assume that the 50% share of the decedent is 100%
Sharing : TOTAL
1. The four children is entitled immediately to the 50% of 100% or 12.5% each 50%
2. The wife gets an equivalent to 1 child’s share or 12.5% 12.5%
3. The free portion which can be donated by the deceased 37.5%
Total share of the deceased (100% of 50% share in community property) 100%

Note : 1. There is no free portion if there is no will.

2. The 50% of the 100% portion of the deceased automatically belongs to the legitimate
children. FIRST HALF
3. The wife’s share is equivalent to the share of one legitimate child. SECOND HALF
4. The illegitimate child, in general, gets 50% of one legitimate child’s share. 2ND HALF
5. FREE PORTION is at the second half.
5. Parents are not legitimate heirs unless there are no children or child
6. Brothers and sisters of the deceased are qualified heirs only if there are no surviving
children nor parents
PROFIT AND LOSS STATEMENT
( say subdivision developer )
Sales say P 25,000,000.00
Less: Cost of Sales
Land Acquisition Cost - P3,000,000.00
Land Development Cost - 5,000,000.00
Other related costs - 2,000,000.00 10,000,000.00
Gross Profit 15,000,000.00
Less : Operating / Sales Expenses 5,000,000.00
Net Profit before income tax 10,000,000.00
Less: Income tax ( say 30% of P10M ) 3,000,000.00
Net Profit after tax P7,000,000.00

Computation of Net Income Tax due :

Total Income Tax for the taxable year P 3,000,000.00
Less : Creditable Withholding tax paid
during the taxable year say 2,000,000.00
Net Income tax due upon filing P 1,000,000.00

INSTALLMENT SALE (Interest based of Diminishing Balance )

Selling price ( 200 sqm x P5,000) - P1,000,000.00

Less: say 10% discount - 100,000.00
Net selling price - 900,000.00
Less : Downpayment say 30% of NSP - 270,000.00
Balance payable in 60 months at 21% IPA - 630,000.00
Multiply by: Mo. Amortization Factor (MAF) - 0.02705
Mo. Amortization for 60 months at 21% IPA - P 17,041.50

a) Interest expense on the first month ( I = P x Rate x Time )

= P630,000 x 1.75% x 1 month = P11,025.00

b) Amount applied to principal (first month)

= P 17,041.50 less P11,025.00 = P 6,016.50
Accounted for : = P17,041.50

c) Amortization Schedule for 4 months

No. of Monthly Application of M.A Principal

Payment Amortization To Interest - To Principal Balance

Beginning balance of principal P630,000.00

1st mo. P17,041.50 P11,025.00 P6,016.50 623,983.50

2nd mo. P17,041.50 P10,919.71 P6,121.79 617,861.71
3rd mo. P17,041.50 P10,812.58 P6,228.92 611,632.79
th
4 mo. P17,041.50 P10,703.57 P6,337.93 P605,294.86
P43,460.86
 d) Total Interest in 60 months
Total amortization in 60 months
( P17,041.50 x 60 months ) - P1,022,490.00
Less : Beginning balance - 630,000.00
Interest in 60 months - P 392,490.00

e) Effective cost / sqm in 60 months

P1,022,490.00 + P270,000.00 = P 6,462.45
200 sqm.

Preparation of statement of account. Reference is problem # 1

 Assumption :
 The buyer just paid the downpayment
 The buyer has to pay 4-month penalty, interest and principal to be updated plus the fifth month
amortization

 Compute :
 Penalty for 4 months if penalty is 3% per month based on monthly amortization
 Interest to be paid in 4 months
 Principal to be paid in 4 months
 Total amount to be paid including the fifth month amortization

 Solution :
 Penalty for 4 months if penalty is 3% per month based on monthly amortization
o For January amortization = P17,041.50 x 3% x 4mos. = P 2,044.98
o For February amortization = P17,041.50 x 3% x 3mos. = 1,573.73
o For March amortization = P17,041.50 x 3% x 2mos. = 1,022.49
o For April amortization = P17,041.50 x 3% x 1mo. = 511.24
Total = 5,152.44
 Interest to be paid in 4 months
o P630,000.00 x 1.75% x 4 months = 44,100.00
 Principal to be paid in 4 months
o P630,000.00 less P605,294.86 (should be balance) = 24,705.14
o Total amount for 4 months = 73,957.58
 Plus : Fifth month amortization = 17,041.50
 ONE LUMP-SUM PAYMENT TO BE MADE = P90,999.08
( to update up to the fifth month)

AMORTIZATION FACTOR ( diminishing balance )

 Compute monthly amortization factor of 21% interest per annum at 60 months to pay:

 Formula :
 MAF = S x i divided by S - 1 or Si / S -1
o Where :
n
 S = ( 1 + i)
 i = interest per period ( here it is one month interest)
( 21% / 12months = 1.75% or 0.0175
 n = number of paying period = 60 months
 o Solution :
60 60
 ( 1 + .0175) x .0175 divided by (1 + .0175) - 1
60 60
 (1.0175) x .0175 / (1.0175) – 1
 2.8318 x .0175 divided by 2.8318 - 1
 0.049556784 / 1.8318
 0.0270536 or 0.02705

Simple Interest vs. Interest based on Diminishing Balance

Assumption :
 Loan value - P1,000,000.00
 Interest rate per annum - 21%
 Paying period - 60 months
 MAF 60months @ 21% IPA - 0.02705 (diminishing balance)

Compute :
 Monthly amortization
 Based on diminishing balance
 Based on simple or add-on interest
 Difference
 Total interest in 60 months
 Based on diminishing balance
 Based on simple or add-on interest

Solution :
 Monthly amortization
 Based on diminishing balance
 MA = P1M x 0.02705 = P 27,050.00 (a)
 Based on simple or add-on interest
 Interest per year = P1M x 21% = P 210,000.00

 Interest in 5 years = P210K x 5yrs. = P1,050,000.00

 Add : Original loan = = 1,000,000.00
 Total amount to be paid in 5 years = 2,050,000.00
 Monthly amortization
 P2,050,000.00 / 60 months = P 34,166.00 (b)

 Difference ( P34,166.00 - P27,050.00 ) = P 7,116.00 (c)

 Total interest in 60 months

 Based on diminishing balance
 P27,050.00 x 60 months = P1,623,000.00
 Less : Original loan = 1,000,000.00
 Total interest in 60 months = P 623,000.00

 Based on simple or add-on interest

 Amount paid in 60 months = P2,050,000.00
 Less : Original loan = 1,000,000.00
 Total interest = P1,050,000.00
  Difference ( P1,050,00.00 - P623,000.00) = P 427,000.00
 Percentage increase in 5 years ( P427K / P623K ) = 68%

Compare amortization and discounting : (ANNUITY)

 Amortization Formula :

Si / S – 1 : 60 months @ 21% = 0.02705

Solution : 0.049556784 / 1.8318

 Present Worth Factor

S–1 / Si : 60 months @ 21% = 36.9637

Solution: 1.8318 / 0.049556784

 Monthly Amortization = Loan x MAF

P27,050.00 = P1,000,000.00 x 0.02705

 Loan Value (Present Value) = Monthly Amortization x Present Worth Factor

P 999,868.00 = P 27,050.00 x 36.9637
P1,000,000.00 (rounded)

Note :
 In amortization, loan value is given, you are computing for the periodic payment (PMT)

In discounting, periodic payment is given, you are computing for the present value of the series of
payment (PMT)
PROBLEM SOLVING – PAST EXAMINATIONS
Reference : Problem Solving 2003 to 2008

2008 EXAMINATION

5. GIM = P3,412,500.00 / P390,000.00 = 8.75%

19. Selling price of comparable with desirable floor plan - P 1,560,000.00

Less : SP of comparable with same floor plan - 1,420,000.00
Loss in value - P 140,000.00

25. Formula to be used : Si / S – 1 (amortization formula)

(1.11/ 12)360 x 0.11/12 divide by (1.11/ 12)360 - 1

26.798 / 25.708 = .009523 or .0096

49. GIM = SP = 9 = 9 EGI - OE = NOI

EGI 1 100% - 25% = 75%

Therefore : OAR = NOI ( 0.75) / SP (9) = 8.33%

58. P80,000.000.00 x 90% = P72 Million 5yrs / 50yrs = 10%

81. EGI ( 100% ) less OE ( 15% ) = NOI of 85%

99. Interest = Principal x Rate x Time

= P 1M x .055/12 x 1 month = P 4,583.00 say P5K (B)

2007 EXAMINATION

61. P720K / 1.60 = P450,000.00 (original value)

65. 60 months x P5,000.00 = P 300,000.00

6 months x P5,000.00 = 30,000.00 (free rent)
Actual 5-year payment = 270,000.00

Effective monthly rental = P 4,500.00 ( P270K / 60months)

67. Gross area = 12.5 m. (frontage) x 25.6 m. (depth) = 320.00 sqm. (A)
Deduction = 12.5 m. x 2.6 m. = 32.50 sqm.
Net area = 287.50 sqm. (B)

69. Band of investment method formula:

Bldg. = 11% x 65% = 7.15%
Land = 9% x 35% = 3.15%
Overall rate 100% = 10.30%
70. Gross potential income
Less : Vacancy @ 8% of GPI
Effective gross income (EGI)
Less : Operating expenses
Net operating income (NOI)
= P10,000,000.00
= 800,000.00
= 9,200,000.00
(45% of EGI) = 4,140,000.00
= P 5,060,000.00

Overall rate (OAR) = PP5,060,000.00 / P50M = 10.12%

71. Accrued depreciation rate = 10 yrs. / 10yrs. + 25 yrs. = 28.57% say 30%

73. Equity is P12,500,000.00

Gross potential income = P10,000,000.00

Less : Vacancy @ 8% of GPI = 800,000.00
Effective gross income (EGI) = 9,200,000.00
Less : Operating expenses (45% of EGI) = 4,140,000.00
Net operating income (NOI) = P 5,060,000.00
Less : Annual mortgage (Debt Service) = 4,125,000.00
Balance (Net Cash Flow) = 935,000.00
Equity dividend rate :
 P935 K / P12.5M = 7.48%

75. P 1,000,000.00 x 110% = P1,100,000.00

76. Actual sale - P850,000.00

12 months @ P50K - 600,000.00
Excess - 250,000.00
Excess rent ( P250K x 3%) - 7,500.00
Plus : 12-month rent @ P5K - 60,000.00
Total rent - P 67,500.00

85. 75% / 9 = 8.33% ( same as No. 49 2008 exam.)

87. Basis - P 1,250,000.00 and sequence of deduction:

Basis x 93% - 1,162,500.00 ( less: 7% because of age)
P1,162,500.00 x 1.06 - 1,232,250.00 ( add : 6% because of time)
Market value
 P1,232,250.00 x 1.05 - P1,293,862.50 ( add: 5% because of location)

90. RCN - East - P 19,000.00 ( 13 years old)

Facing West - 15 years
Facing East - 25 years
P19,000.00 x 13/25 = P9,880.00 (depreciation)
Therefore :
Depreciated value = P19,000.00 less P9,880.00 = P 9,120.00
 93. P 2,525,000.000 / 252.50 sqm. = P10,000.00

2006 EXAMINATION
1/3
7. 100% / 30 yrs = 3.33% or 3 %

56. P7,500.00 x 110 = P825,000.00

57. P720K / 1.60 = P450,000.00

68. P382,500.00 / P4,250,000.00 = 9% (overall rate)

69. P4,250,000.00 less P900,000.00 = P3,350,000.00 (building value)

70. 100% / 25 years = 4% (recapture rate)

71. P3,350,000.00 / P4,250,000.00 = 78.82% (building:total value)

72. P4,250,000 – P900,000 = P3,350,000 (building value)

P3,350,000 / 25 years = P134,000 (recapture value of building/year)
P382,500 – P134,000 = P248,000 (pure interest value)
P248,500 / P4,250,000 = 5.84% (interest rate/ indicated return of rate)
P134,000 / P4,250,000 = 3.14% (recapture rate)
5.84% + 3.14% = 9% (OAR) To check:P382,500/P4,250,000 = 9%

76. P4,968,750.00 / P7.5M = 661/4%

77. ( P75K x 12 months ) divide by 9% = P10M

78. 10 ft / 3.28 feet = 3.048 meter ; 4 ft / 3.28 feet = 1.22 meter

3.048 meters x 1.22 meters = 3.718sqm./ 2 = 1.85 sqm.

80. 250 + ( 75 x 3 rooms) + (50 x 100% ) + (25 x 50meters)

250 + 225 + 50 + 1,250 = 1,775

81. P100K x .95 x 1.15 x 0.85 x 1.10 x 0.95 = P97,041.31

Sequence of Adjustment: Balance

Comparable property P100,000.00
1. Less: Financing 5% ( 5,000.00 ) 95,000.00
2. Add: Terms of Sale 15% 14,250.00 109,250.00
3. Less: Market Condition 15% (16,387.50) 92,682.50
4. Add: Location 10% 9,286.25 102,148.75
5. Less: Physical Deterioration 5% 5,107.43 P97,041.31

82. P630k – P560k = P70k / 20 = P3,500.00

 83. P630k – P600k = P30k

84. P20k / 2 years = P10k

85. P630k – P35k – P30k + P40k = P605,000

86. P5M + P500K = P5.5M

93. P50M x 14% = P7M (income to building)

P8,350,000.00 - P7M = P1,350,000.00 (residual income to land)

94. P1,350,000.00 / 9% = P15M

95. P15M + P50M = P65M

96. P10K x 8.233 = P82,330.00

NUMBERS 97-100

SALE A B (INCOME) C (FA) D (SP) E (D/C) F (D/A) GIM

NO. SP/sqm SP/unit
1 20 units 3.6M 1,900 sqm. P17,640,000 P9284 P882,000 4.9
2 38 units 6.270M 3,800 sqm. P31,350,000 P8250 P825,000 5
3 45 units 8.5M 4,612.50 P44,226,000 P9588 P982,800 5.2
sqm.
4 28 units 4.872M 2,420 sqm. P25,821,600 P10,246 P922,200 5.3
131 units P23,242,000 P119,037,600 P3,612,000 20.4

97. P25, 821, 600 (sale #4) / FA 2,420 = P10,246 – P8,250 = P1,996 (A)

98. P3,612,000 / 4 = P903,000 (C)

99. P119,037,600 / P23,242,000 = 5.1 (C) or 20.4 / 4

100. P25,821,600 / P4,872,000 = 5.3 x P4,250,000 = P22,525,000 (D)

2005 EXAMINATION

1. Cost Appraisal
P500K P1,000,000 Depreciation : 10yrs
200K 500,000 ( depreciation) 200K / 500K = 40%
P300K P 500,000 10yrs x 40% = 4 years (A)

2. P500K - P300K = P200K (appreciation) - E

8. P80K / 10% = P800K

22. P48K - P40K = P8K + P5K = P13K

 23. none

24. P34K - P5K cash = P29K

25. P34K (NBV) - P25K ( P20K + P5K) = P9K

28. NOI - P100,000.00

Less: Income to land - 16,000.00 ( P200K x 8%)
Income to building - 84,000.00
Building value
 P84K / 12% - P700,000.00

35. Interest rate = 10% ; Recapture rate : 100% / 10 yrs. = 10% ; Land value = P2.5M

P2.5M x 10% = P250K

36. P400K - P250K = P150K

37. Overall rate = 10% interest + 10% recapture rate = 20%

38. P150,000.00 / 20% = P750,000.00

39. P750K + P2.5M = P3,250,000.00

2004 EXAMINATION

1. 15 x 5K = 75K
10 x 2K = 20K P90K x 12 months = P1,140,000.00

11. 57K / 435K = 13.10%

18. 95K x 1.08 = P102,600.00

24. 5 x 6 = 30 sqm.

x 3.28 3.28

16.40 x 19.68 = 322.75 tiles

27. P50K + P1,000.00 = P51,000.00

28. P200K / P5M = 4%

30. Sequence of adjustment : 1) Terms of sale 2) Time 3) Location 4) Others

Comparable sale sold a month ago - P 25,000.00
Plus : 1) Time adjustment @ 1% - 250.00
 Adjusted value - 25,250.00
Minus : 2) Location factor @ 15 - 3,787.50
Add: 3) Physical adjustment @ 10% - 2,146.25
Value of subject property - P 23,987.50

Straight computation :
Value = P25 K x 1.01 x .95 = P23,987.50

31. P20M x 3/5 = P 12 M

32. 537.8 / 158.2 x P 39,000.00 = P132,580.00

33. P24K x 12 months = P3,600,000.00

8%
35. 500 sqm. x P12K = P6M x 10% = P600,000.00

38. Band of investment

75% x 8.5% = .06375
25% x 12.0% = .03____
0.09375 or 9.375%

40. 65 x 1,335 x 4,500 = P39,487,500.00

41. P1,650,000.00 / P8.8M = P18.75%

49. P341,250.00 / P39K = 8.75% GIM

2003 EXAMINATION

3. 65 x 35 x 4500 = P39,487,500.00

4. P700K / 5 = P 140K

6. solved already 322.752 tiles

8. 1 / 15 = 6.67%

9. 125 x P350 = P43,750.00

36. none of the above : P50K x 9% = P4,500.00

37. 65 x 135 x 4500 = P39,487,500.00 (similar to no. 3)

38. 880K / 800K = 1.10 or 10% increase

 P1M x 10% x 50% (6months) = P50K + P1M = P1,050,000.00

39. P1,650,000.00 / 8,800,000 = 18.75%

40. 2.5has x P50K = P125,000.00;

P550 x 2.5has x 10,000 = P13,750,000.00 x 6% = P825,000.00

GOOD LUCK TO ALL