INCOME TAXATION

Name:__________________________ Date:_________________________
Section:_________________________ Take Home Quiz2

True or False

1. All compensation payments made by an employer to an employee are deductible to the employer.
2. Co-ownership and partnership are the same as to taxability
3. To be allowed as a valid deduction, charitable and other contribution must not exceed 5% of taxable
income before charitable contributions, in case of individuals.
4. Excess MCIT and Net Operating Loss Carry Over may be carried over at the same time.
5. The allowable deduction for pension payments to employees will only apply to those pension plans that are
funded.
6. Interest incurred in the financing of petroleum operations may at the option of the taxpayer be capitalized
or expensed.
7. Either Itemized deduction or Optional Standard Deduction may be deducted to arrive at the net
compensation income
8. Losses must be reported to the BIR within 30 days from the occurrence of the casualty, robbery theft or
embezzlement giving rise to the loss.
9. Depreciation on revaluation surplus of properties can be deducted as part of depreciation expense.
10. With the exception of domestic corporations and resident citizens, expenses incurred abroad cannot be
deducted unless incurred in connection with the Philippine Business
11. Private educational institutions are allowed to deduct capital expenditures.
12. Director’s fees are taxable compensations if the director is also an employee of the corporation
13. Dividends are non-deductible except dividends declared by real estate investment trust.
14. An adopting private entity of a public school is entitled to a deduction incentive equivalent to double the
amount donated to a public school.
15. Persons with disability are mandatorily allowed a discount of 20% from all establishments.
16. Taxpayers opting to the OSD are not required to submit financial statements.
17. OSD is in lieu of all deductions against gross income including personal exemptions.
18. Documentary stamp tax maybe deducted from gross income.
19. In the year 2000, Interest expense in connection with the taxpayer’s business shall be reduced by an
amount equal to 39% of interest income subjected to final tax.
20. Cost of living allowance, fixed housing allowance, representation, transportation, and other allowances are
actually used in the employer’s business are taxable benefits subject to regular income tax of the
employee.

Problem 1
A non-profit domestic hospital has the following data during the year 2018:
Gross Income from hospital operation P2,000,000
Expenses, hospital operation 500,000
Rent income of commercial space, hospital ground
Floor, net of 5% withholding taxes 190,000
Interest on bank deposit, net of 20% withholding tax 40,000
Dividend from a domestic corporation 100,000

The income tax still due and payable in 2018 is?

Problem 2
The records of a taxpayer show following in 2018:
Gross Income P8,000,000
Cost of sale of goods 4,000,000
 Salaries of employees (net of payroll deductions) 2,000,000
*10% of salaries-given to senior citizen
*5% of salaries given to PWD
Fringe Benefits given to:
Rank and File employees 520,000
Managerial Employees 680,000
Representation and entertainment expenses (business connected) 100,000
Rent expenses 200,000
Depreciation expenses 40,000
Bad debts expenses 20,000
Payroll deductions:
Creditable withholding tax of employees 100,000
SSS premiums contributions 20,000
Philhealth premiums contribution 10,000
Pag-ibig premiums contribution 8,000
Union dues 2,000
Other income:
Cash dividend from domestic corporations:
70% of its income came from Philippine source 90,000
30% of its income came from Philippine source 90,000
Cash dividend from resident foreign corporations:
70% of its income came from Philippine source 400,000
30% of its income came from Philippine source 40,000
Cash dividend from a non-resident foreign corporation 20,000
Royalties 60,000
Interest income received from bank deposit-local currency 100,000
Interest income received from FCDU 200,000
Net Operating Loss Carry Over 50,000

If the taxpayer is a domestic corporation, determine the following

a. Regular itemized deduction

b. Special itemized deduction
c. Net taxable income
d. Regular Income tax due
e. Final Income Tax Due
If the taxpayer is a Resident Foreign Corporation, determine the following:

f. Net taxable income

g. Regular income tax due

Problem 3

ABC Airlines, a resident foreign air carrier had the following during the quarter:

Outgoing Flights:
To USA- 5,000 passengers @ Php 10,000 -Php 50,000,000
To Italy- 4,000 passengers @ Php 12,000 - 48,000,000
To Guam- 3,000 passengers @ P4,000 - 12,000,000

Inter-connecting flights:
The flights commenced from foreign countries but interconnected in the Philippines for continuance of the flight
to the countries of destinations:

Flights No. of Passengers Departure from the Philippines

Japan to USA 1,000 60 hours delayed due to typhoon
China to Guam 800 continued after 40 hours, as scheduled
Australia to Italy 600 50 hours delayed due to negligence
China to USA 400 continued after 30 hours, as scheduled

The interconnecting flights of passengers from Japan to USA and from China to Guam were continued by ABC
airlines while the Australia to Italy and the China to USA flights were endorsed to WXY Airways, another
resident international air carrier which transported the passengers to their destination.

How much is the gross Philippine billings of ABC Airlines subject to Philippine Income tax?
How much is the gross Philippine Billings of WXY Airways subject to Philippine income tax?

Problem 4
Z, a resident citizen earned the following in 2018:
Gross Income
Philippines 5,000,000
USA 3,000,000
Australia 2,000,000
Income tax paid
USA 280,000
Australia 220,000

Determine the income tax due after tax credit

Problem 5
The record of C, married with 2 qualified dependent children show the following for 2018.
Business income, P 800,000
Rental income, net of 5% W/T 95,000
Dividend received from a foreign corporation 20,000
Winnings from Phil. Charity sweepstakes office 400,000
Interest expense 10,000
Bad debts written off 5,000
Cost of facilities for PWD 10,000
Donations to non accredited charitable institution 40,000
Donations to accredited charitable institution 90,000
Other transactions:
1. Sale of assets used in business:
a.) Delivery equipment – selling price 200,000
Cost (2005) 300,000
Accumulated depreciation 60,000
b.) Land – selling price 200,000
Cost (2002) 180,000
c.) Warehouse – selling price 10,000,000
Cost 11,800,000
Accumulated depreciation 2,000,000
2. Sale of Capital assets:
a.) Jewelry – selling price 250,000
Cost (2002) 180,000
b.) Land – selling price 800,000
Cost (2000) 900,000
c.) Furniture & Appliances – selling price 10,000
 Cost (2010) 40,000
3. Shares of stocks:
a. Traded in the stock exchange: selling price 220,000
Cost (2004) 300,000
b. Not-traded in the stock exchange: selling price 300,000
Cost (2004) 180,000

Determine the taxable income and tax still due (RIT) of C.

Problem 6
As a means of promoting the health, goodwill, contentment and efficiency of his employees, employer pa-fall
gave rank and file employee na-fall the following fringe benefit in 2019:

a. Basic Pay 300,000

b. Holiday Pay 50,500
c. Hazard Pay 20,000
d. Tips accounted by the employer for the employees 35,000
e. Monetized unused vacation leave of 15 days 45,000
f. Rice subsidy 36,000
g. Uniform and clothing allowance 15,000
h. Achievement award for length of service in the form of tangible personal property
20,000
i. Gifts given during Christmas and anniversary celebrations 20,000
j. Medical benefits 20,000
k. 13th month pay 60,000
l. Laundry allowance 5,000
m. Mid year bonus 60,000
n. Productivity bonus 80,000
o. Honorarium as guest speaker 50,000
p. SSS,Pag-ibig,philhealth contributions 80,000
q. Withholding tax 50,000
r. Cost of living allowance 50,000
s. Fixed Housing Allowance 60,000
t. Car- Ownership transferred in the name of the employee 200,000
u. Grocery for the employee 90,000
v. Transportation allowance subject to liquidation 60,000

Determine the following:

1. Gross Compensation Income
2. Net taxable Compensation Income
3. Exempt De Minimis
4. Excess De Minimis
5. Excess 13th month pay and other benefits
6. Income tax due
7. Income Tax Still Due
8. Deductible expense of the employer

If the employee is a manager, determine the following

9. Net Compensation Income
 10. Excess 13th month pay and other benefits
11. Income tax due
12. Income tax still due
13. Monetary value of fringe benefits subject to FBT
14. Fringe benefit tax to be paid by the employer
15. Deductible expense of the employer

Problem 7
The following information relates to CENTAURUS Corporation
2018 2019
Gross Sales P3,300,000 P4,340,000
Cost of Sales 2,400,000 1,070,000
Dividend-foreign Corporation 140,000 ---
Dividends-Domestic Corporation 50,000 10,000
Interest income on promissory notes 28,000 16,400
Interest income from bank deposits 100,000 60,000
Capital gain --- 13,000
Capital loss 20,000 ---
Interest Expense 150,,000 180,000
Tax expense (see breakdown below) 63,000 106,079
Bad debts-written off 34,680 ---
Bad debts-recovery --- 22,000
Pension expense (see breakdown) 45,000 68,000
Discount given to Senior Citizen-25% 155,000 150,000
Other Special deductions under NIRC 17,500 23,500
Salary of PWD Workers 75,000 95,000
Productivity incentives 120,000 130,500
Other Deductions 675,000 925,000
Administrative expenses 100,000 50,000
Income Tax payments for 3 quarters 6,000 7,000

Taxes paid:
Other percentage tax 8,000 9640
Documentary stamp tax 7,650 8,567
Capital Gains Tax 12,344 11,780
Special Assessment 15,000 33,570
Municipal tax 20,006 42,522
License tax 500 500

Pension expense
Current Service Cost 30,000 50,000
Past Service Cost 15,000 18,000

1. Net operating income/loss for 2018?

2. Net operating loss carry over for 2018?
3. Income tax payable for 2018?
4. Interest expense deductible for 2018?
5. Pension expense deductible for 2018?
6. Special deductions for 2018?
7. Regular deductions for 2018?
8. Gross income (after other income) for 2019?
9. Deductible interest expense for 2019?
10. Deductible Pension expense for 2019?
11. Deductible Tax Expense for 2019?
12. Regular deductions for 2019?
13. Special deductions for 2019?
14. Tax liability for 2019?