CHAPTER 3

P3.1 Determine the following incomes are subject to basic tax, fringe benefit tax or exempt tax by
putting a check mark in the column provided below. If the value of the benefits is provided, indicate the
correct amount.

AMOUNT SUBJECT TO FBT SUBJECT TO EXEMPT

BASIC TAX
1. Officer’s P120,000
expense
account not
subject to
liquidation
2. Officer’s 80,000
expense
account
subject to
liquidation
3. Personal
expenses of 50,000
the company
officers, paid
for or
reimbursed by
the company
employer
4. Annual 6,000
uniform
allowances
granted to an
executive
5. Housing 360,000
benefits of
official of
Philippine
Army
6. Housing 250,000
benefits of
officials of a
domestic
corporation
7. Housing unit 45,000
furnished to
an employee,
where said
unit was
situated inside
 or adjacent to
the premises
of the
business
8. Monetized 15,000
unused
vacation leave
credits not
exceeding 10
days
9. Household 60,000
personnel
benefit by an
officer od a
domestic
corporation
10. Annual 1,500
medical cash
allowance to
dependents

TRUE OR FALSE

Write TRUE if the statement is correct, otherwise, write FALSE

1. A fringe benefit is any goods, services or other benefits furnished or granted by an employer in
cash or in kind, including basic salaries too individual employees.
2. A fringe benefit which is subject to the fringe tax is taxable income of the employee.
3. A fringe benefit which is not subject to the fringe benefit tax is taxable income of the employee.
4. Fringe benefits subject to fringe benefit tax cover only those fringe benefits given or furnished
to a managerial or supervisory employee.
5. Fringe benefit tax shall be treated as a final income tax on the employee withheld and paid by
the employer on a quarterly basis.
6. The grossed-up monetary value of the fringe benefit shall be determined by dividing the
monetary value of the fringe benefit is the actual amount received by the employee.
7. The grossed-up monetary value of the fringe benefit shall be determined by dividing the
monetary value of fringe benefit by the grossed up monetary value factor.
8. The person liable for fringe benefit tax is the employer, whether he is an individual, professional
partnership or a corporation regardless of whether the corporation is taxable or not or the
government and its instrumentalities
9. A managerial employee is one who is vested with powers of prerogatives to lay down and
execute management policies and/or to hire, transfer, suspend, lay-off, recall discharge, assign
or discipline employees, or to effectively recommend such managerial actions
10. The grant of fringe benefits to the employee is exempt from tax if such grant is required by the
nature of, or necessary to the trade, business or profession of the employer
11. The amount on which the fringe benefit tax rate is applied is the monetary value of the fringe
benefit.
12. The amount on which the fringe benefit tax rate is applied is the amount deductible by the
employer from its gross income.
13. Grossed-up monetary value is reflected in the books of accounts as fringe benefit expense and
fringe benefit tax expense.
14. Failure to withhold the required tax on salary is collectible from the employer.
15. Failure to withhold the correct amount due to false information supplied by the employee shall
be the liability of the employee.

MODIFIED IDENTIFICATION

Determine whether or not the following is subject to fringe benefit tax. Write A if the benefit is
subject to fringe benefit tax, otherwise, write B. Assume further that the employee is holding
supervisory or managerial position unless stated otherwise.

1. Fringe benefit required by the nature of or necessary to trade or business of the employer.
2. Fringe benefit for the convenience or advantage of the employer.
3. Car plan for managerial employees.
4. Daily meal allowance for managerial employees.
5. Monetized unused vacation to leave credits of private employees not exceeding 10 days.
6. Monetized unused vacation leave credits of government employees excess of 10 days.
7. Monetized value of sick leave credits not exceeding 10 days.
8. Monetized value of sick leave credits of private employees excess of 10 days.
9. Compensation income of supervisory and managerial employees.
10. Housing units situated inside or adjacent to business or factory (located within 50 meters from
the perimeter of business).
11. House benefits to the Chief Finance Officer of the company.
12. Allowances received by supervisory and managerial employees not subject to liquidation.
13. Used by employee of aircraft (including helicopters) owned/maintained by the employer.
14. Cos of 1st class/business class airplane ticket for business travel or convention abroad in excess
of 70%.
15. De minimis benefits received by an executive of a company.
16. Educational assistance (Master of Science in Accountancy) granted to Fe, the Finance Manager
of ABC Company. No written contract was executed by Fe and ABC.
17. Premiums borne by the employer for the group insurance of its employees.
18. Contributions of the employer for the benefit of the employee to retirement, insurance and
hospitalization benefit plans.
19. Reimbursement of transportation expenses paid to a messenger of the company
 20. Contributions made by an employer to SSS, GSIS and similar contributions under existing laws in
excess of what the law requires as contributions.

CHAPTER 4

P4.1 (Estate)

Pedro died two (2) years ago leaving an undivided property deriving income from rentals. His heirs
were Louie and Floyd. The property is under administration through the decedent’s executor. The
following data were provided during the taxable year.

Rental income of the estate (gross of 5% tax) P800,000

Deductible operating expenses – estate 420,000

Personal income/Expenses of the heirs:

LOUIE FLOYD
Gross business income P325,000 P380,000
Deductible business expenses 117,000 105,000
Dividend from domestic 25,000 30,000
corporation
Dividend from foreign 12,000 8,250
corporation
Prize, supermarket raffle 15,000 7,500
Royalty, books 10,000 18,000

Additional information:

Louie is married with 2 dependent children while Floyd is single without dependent children.

Required: Determine the Following:

1. Income tax payable of the estate

2. Income tax of Louie
3. Income tax payable of Floyd

P4.2 (Estate)

Pedro died two (2) years ago leaving an undivided property deriving income from rentals. His heirs were
Louie and Floyd. The property is under administration through the decedent’s executor. The following
data were provided during the taxable year:
Rental income of the estate P1,000,000
Deductible operating expenses (estate) 500,000
Income distributed to Louie 50,000
Income distributed to Floyd 50,000
Dividend income from domestic corporation 100,000
Interest income from US deposits 200,000
Interest income from peso deposits 100,000

Personal income/Expenses of the heirs:

LOUIE FLOYD
Gross income P325,000 P380,000
Deductible expenses 117,000 105,000
Dividend from domestic 25,000 30,000
corporation
Dividend from domestic 12,000 8,250
corporation
Prize, supermarket raffle 15,000 7,500
Royalty, books 10,000 18,000

Additional information:

Louie is married with 2 dependent children while Floyd is single without dependent children.

Required: determine the following:

1. Income tax payable of the estate

2. Income tax payable of Louie
3. Income tax payable of Floyd

P4.3 (Trust)

Mr. Masigasig created a trust in favor of Pedro. A large sum of money was entrusted to BDO
(Trustee), the income of which is accumulated in favor of Pedro. The following data were provided:

Gross income of the trust P3,000,000

Deductible business expenses of the trust 1,800,000
Income distributed o Pedro during the year 200,000
Dividend income from domestic corporation 100,000
Dividend income from resident foreign 100,000
corporation
Interest income from US deposits 200,000
Interest income from peso deposits 100,000
 Personal income and expenses of Pedro

Compensation income 800,000

Rental income (net) 475,000
Rental expenses 80,000
Royalty income, books 300,000
Other royalty income 120,000
Dividend from domestic corporation 30,000
Dividend from foreign corporation 8,250
Prize, S&R raffle 15,000
Lotto winnings 10,000,000
Tax payments (Quarter 1-3) 120,000

Required: determine the following:

1. Income tax payable of the trust

2. Income tax payable of Pedro

MULTIPLE CHOICE. Choose the letter of the correct answer.

1. It arises when two or more heirs or beneficiaries inherit an undivided property from a decedent,
or when a donor makes a gift of an undivided property in favor of two or more persons.
a. Partnership
b. Trust
c. Joint account
d. Co-ownership
2. Which of the following shall qualify as co-ownership?
I. Succession by several heirs to an undivided estate, the estate is not under
administration;
II. Donation of property to two or more beneficiaries.
a. Both I and II
b. Neither I and II
c. I only
d. II only

Use the following data for the next three (3) questions:

Ana, Lorna, and Fe are the heirs of Pedro who died on Nov. 1, 2019. The properties of Pedro comprised
solely of real property valued at P50,000,000 at the time of his death. The property is primarily deriving
at rental income. In 2020, the property remained undivided and it derived a net rental income of
P15,000,000.
3. For income tax purposes, the heirs will be tax on net rental income from the inherited property
for the year 2020 as:
a. Partners in a commercial partnership
b. Partners in a general professional partnership
c. Partners in an unregistered co-partnership
d. Co-owners
4. What amount should be reported as taxable income of the co-ownership?
a. P50,000,000
b. P15,000,000
c. P14,980,000
d. Nil
5. What amount should each heir report in their individual returns as their share in the net rental
income of the property they inherited?
a. P50,000,000
b. P15,000,000
c. P10,000,000
d. P5,000,000
6. Question 1: Is a co-ownership taxable?
Question 2: Is the share of co-owner taxable?

Answer to Question 1: No, because the activities of the co-owners are limited to the
preservation of the property and the collection of income therefrom.
Answer to Question 2: Yes, because each co-owner is taxed individually on their distributive
share in the income of the co-ownership.

a. answers to both questions are correct

b. only the answer for Question 1 is wrong
c. only the answer for Question 2 is wrong
d. answers to both questions are wrong
7. Statement 1: co-owners are taxed individually on their distributive share in the income of the
co-ownership.
Statement 2: if co-owners invest the income in a co-ownership in business for profit, they would
constitute themselves into a partnership and as such shall be taxable as corporation.
a. Statements 1 & 2 are false
b. Statement 1 is true but statement 2 is false
c. Statement 1 is false but statement 2 is true
d. Statements 1 and 2 are true
8. When will an inherited property be considered as owned by an unregistered partnership?
I. When the property remained undivided for more than ten (10) years
II. When no attempt was ever made to divide the same among the co-heirs, nor was the
property under administration proceedings nor held in trust
 a. Only condition I is required
b. Only condition II is required
c. Conditions I and II are required
d. None of the above
9. It composed of all the property, rights, and obligations of a deceased person which are not
extinguished by his death, including those which have accrued thereto since the opening of
succession.
a. Estate
b. Devise
c. Legatee
d. Testator

CHAPTER 5.

TRUR OR FALSE.

1. Partnerships, no matte4 how created or organized, are taxable as corporation for income tax
purposes. TRUE
2. The term “domestic”, when applied to a corporation, means created or organized in the
Philippines or under the laws of a foreign country as long as it maintains a Philippine branch.
FALSE
3. A corporation which is not domestic may be a resident (engaged in business in the Philippines)
or nonresident corporation (not engaged in business in the Philippines). TRUE
4. Resident foreign corporations are subject to income tax based on net income from sources
within the Philippines. TRUE
5. Associations and mutual fund companies, for income tax purposes, are excluded in the
definition of corporation. TRUE
6. A minimum corporate income tax (MCIT) of 2% of gross income as of the end of the taxable year
is imposed upon any domestic corporation beginning the 4 th taxable year immediately following
the taxable year in which such corporation commenced its business operations. TRUE
7. MCIT shall be imposed whenever such corporation has zero or negative taxable income, or when
the amount of MCIT is greater than normal income tax due from such corporation.
8. The computation and the payment of MCIT, shall likewise apply at the time of filling the
quarterly corporate income tax.
9. Minimum corporate income tax is not applicable to special corporations. TRUE
10. Temporary labor dispute is a valid ground for the suspension of MCIT. FALSE
11. Corporations exempt from income tax are not subject to income tax on incomes received which
are incidental or necessarily connected with the purpose for which they were organized and
operating.
12. Corporations exempt from income tax are subject to income tax on income of whatever kind
and character from any of their properties (real or personal) or from any other activity
conducted for profit, regardless of the disposition of such income.
13. Joint ventures, regardless of the purpose by which they were created, are generally exempt
from corporate income tax. TRUE
14. The share of a co-venturer corporation in the net income of tax-exempt joint venture or
consortium in the net income tax.
15. The share of a co-venturer corporation in the net income of a taxable joint venture or
consortium is subject to corporate income tax.
16. “nonresident owners of vessels are treated as special corporations only from charters or leases
of the vessels to Filipino citizen or corporations approved by the Maritime Industry Authority.
17. Private educational corporations are subject to income tax based on the net income from
sources within the Philippines at the tax rate of 10%. TRUE
18. Regional Headquarters” are subject to 10% income tax on its net income derived from the
Philippines.
19. international air carrier may be exempt from income tax.
20. Incomes of nonresident individuals and nonresident corporations from transactions with OBUs
are tax exempt.
21. Optional corporate income tax is a tax imposed in the nature of a penalty to the corporation to
prevent the scheme of accumulating income rather than distribute the same to the stockholders
for the purpose of avoiding tax dividends. FALSE
22. For gross income tax purposes, a manufacturing concern’s cost of goods manufactured and sold
shall include all costs of production of finished goods, such as raw materials used, direct labor
and manufacturing overhead, freight cost, insurance premiums, and other costs incurred to
bring the new materials to the factory or warehouse.
23. Improperly accumulate earnings tax is applicable only to listed entities.
24. Interest expense, for 15% gross income tax purposes, shall form apart of “cost of services” if the
taxpayer is a seller of services.
25. The fact that any corporation is a mere holding company or investment company shall be prima
face evidence of a purpose to avoid tax upon its shareholders or members. TRUE
26. The fact that the earnings or profits of a corporation are permitted to accumulate beyond the
reasonable needs of the business shall be determinative of the purpose to avoid the tax upon its
shareholders or members unless the corporation, by the clear preponderance of evidence, shall
prove the contrary.
27. Improperly accumulated earnings tax shall not apply to banks and other non-bank financial
intermediaries.
28. Immediacy test is a test used in determining the reasonable needs of a business to justify the
accumulation of earnings which will exempt the corporation from paying improperly
accumulated earnings tax.
29. Any profit remitted by a branch office to its head office is subject to 15% tax rate. The
computation shall be based on profits applied or earmarked for remittance without deduction
for the tax component.
30. Remittance of a branch of a foreign corporation in the Philippines of passive income earned in
the Philippines to its head office, is exempt from branch remittance tax.

PROBLEMS

P5.1 (Domestic, Resident and Nonresident Corporations)

The following data were taken from the financial statement of Chen Corporation for the current
taxable year:

PHILIPPINES ABROAD
Gross sales P10,000,000 P5,000,000
Sales return 200,000
Cost of Goods Sold 3,500,000 2,250,000
Operating expense 2,800,000 1,100,000
Interest income from trade 100,000 50,000
receivable
Interest income from BPI 100,000 -
deposits-Phils.
Interest income from BPI - 80,000
deposits-USA
Interest income-FCDU 150,000 -
Income from money market 200,000 100,000
placement
Dividend income from 75,000 -
domestic corporation
Dividend income from resident 45,000 -
corporation
Dividend income from - 30,000
nonresident corporation
Royalty income 50,000 25,000
Gain on sale of shares of stock 120,000 -
of domestic corp. held as
capital asset thru local stock
exchange; selling price-
P500,000
Gain on sale of shares of stock 150,000 -
of domestic corp. held as
capital asset directly to a buyer
Selling Price-P650,000
Sale of real property in the 5,000,000
Philippines not used in
business. Cost-P4M; FMV-8M

Case A:
Assume the corporation is a domestic corporation, determine the following:

1. Tax due on its ordinary income

2. Total final tax due on passive income
3. Total capital gains tax due

Case B:

Assume the corporation is a resident foreign corporation, determine the following (Disregard Sale
Properties in the Philippines)

4. Tax due on its ordinary income

5. Total final tax due on passive income
6. Total capital gains tax due

Case C:

Assuming the corporation is a nonresident foreign corporation (Disregard Sale of Real Properties in
the Philippines), determine

7. Final withholding tax in the Philippines

P5.2. Kano corp., a corporation organized under US laws. For the taxable year, it earned/incurred
the following income and expenses in the US:

Gross sales USD 100,000

Business expenses 20,000
Dividend income from US corporation 5,000
Interest income from current account-New York 1,000
Exchange rate; P54= USD 1

Required: Determine the Philippine income tax due.

P5.3

Lenovo, Inc., a resident foreign corporation, has earned the following income during the taxable
year:

Dividend income from:

Microsoft, a non-resident corporation P500,000

Intel, a resident foreign corporation 400,000
IBM, a domestic corporation 300,000

Interest income from:

Current account, BDO 600,000
Savings deposit, BPI 500,000
Savings deposit, ABN-AMRO bank, UK 700,000
Interest income from government bonds 200,000
US dollars deposit, FCDU 800,000
Royalty income from various domestic 100,000
corporations
REQUIRED: Determine the total final tax on passive income for the year

P5.4 (Quarterly Tax Returns)

Selected cumulative balances were taken from the records od Du30 Corporation in 2020

Q1 Q2 Q3 Q4
Gross profit from P1,600,000 P3,200,000 P43,800,000 P6,200,000
sales
Capital gain- 100,000 100,000 100,000 200,000
direct sale to
buyer of shares of
domestic
corporation
Dividend from 50,000 50,000 100,000 100,000
domestic
corporation
Interest-Phil. 10,000 20,000 30,000 40,000
Bank deposit
Business 1,200,000 2,400,000 3,400,000 4,200,000
expenses
Income tax 30,000 70,000 130,000 230,000
withheld

Additional Data: Du30 started operations in 2014. It has an income tax refundable of P20,000 in
2019 for which there is a certificate of tax credit:

Required: Determine the following:

1. The income tax due at the end of the first quarter

2. The income tax due at the end of the second quarter
3. The income tax due at the end of the third quarter
4. The income tax due (refundable) at the end of the year

P5.5

ABC company (domestic corporation) had the following data on computations of regular corporate
income tax and minimum corporate income tax:
 YEAR 4 YEAR 5 YEAR 6 YEAR 7 YEAR 8
MCIT 100,000 60,000 50,000 40,000 20,000
RCIT 30,000 70,000 60,000 30,000 90,000
Required: How much is the income tax due for years 4,5,6,7, and 8?

P5.6

ABC corporations RCIT, MCIT, excess MCIT an Excess withholding taxes from prior year(s) were
provided as follows:

QUARTER NCIT MCIT TAXES EXCESS MCIT EXCESS

WITHHELD WITHHOLDING
1ST P300,000 240,000 60,000 90,000 30,000
ND
2 360,000 750,000 90,000 - -
3RD 750,000 300,000 120,000 - -
TH
4 600,000 300,000 105,000 - -
Determine the following:

1. The income tax payable for the first quarter

2. The income tax payable for the second quarter
3. The income tax payable for the third quarter
4. The income tax payable for the fourth quarter (annual)

P5.7 (Joint Ventures and Corporate Co-Ventures)

ABC Company and DEF Company formed a joint venture. They agreed to share profit or loss in the
ratio of 70% and 30%, respectively. The results of operations were provided below:

JOINT VENTURE ABC Co. DEF Co.

Gross income P50,000,000 30,000,000 20,000,000
Business expense 30,000,000 20,000,000 15,000,000

CASE A: Assume the above joint venture is a taxable joint venture, determine:

1. Taxable income of the joint venture

2. Income tax payable of the joint venture
3. Taxable income of ABC Company
4. Income tax payable of ABC Company
5. Taxable income DEF Company
6. Income tax payable of DEF Company

CASE B:

Assume the above joint venture is a tax-exempt joint venture, determine:

1. Taxable income of the joint venture
2. Income tax payable of the joint venture
3. Taxable income of ABC company
4. Income tax payable of ABC company
5. Taxable income of DEF company
6. Income tax payable of DEF Company

P5.8 (Joint ventures and Individual Co-Ventures)

Bryan and Rianne formed a joint venture. They agreed to share profit or loss in the ratio of 70% and
30% respectively. The results of operations were provided below:

JOINT VENTURE BRYAN RIANNE

Gross income P50,000,000 30,000,000 20,000,000
Business expense 30,000,000 20,000,000 15,000,000

CASE A: Assuming the above joint venture is a taxable year joint venture, determine the following:

1. Taxable income of the joint venture

2. Income tax payable of the joint venture
3. Taxable income of Bryan
4. Taxable income of Rianne
5. Final tax due of Bryan
6. Final tax due of Rianne

CASE B: Assuming the above joint venture is a tax-exempt joint venture, determine the following:

1. Taxable income of the joint venture

2. Income tax payable of the joint venture
3. Taxable income of Bryan
4. Taxable income of Rianne
5. Final tax due of Bryan
6. Final tax due of Rianne

P5.9

Hanniah corporation provided the following data for calendar year ending December 31,2020

PHILIPPINES ABROAD
Gross income P6,000,000 ₴50,000
deductions P4,000,000 ₴20,000
 Determine the following:

1. Income tax due assuming the company is a domestic corporation

2. Income tax due assuming the company is a resident corporation
3. Income tax due assuming the company is a nonresident corporation
4. Income tax due assuming the company is an international carrier
5. Income tax due assuming the company is an international carrier subject to a preferential
income tax rate of 1.5% based on tax treaty.
6. Income tax due assuming the company is a non-resident cinematographic film owner/lessor
7. Income tax due assuming the company is a non-resident lessor of vessel
8. Income tax due assuming the company is a non-resident lessor of aircrafts, machineries and
equipment
9. Income tax due assuming the company is a non-profit hospital
10. Income tax due assuming the company is a GOCC

CHAPTER 6

P6.1 (Partnership)

LJ, married, has two dependent minor brothers. He is a partner of a general professional
partnership. He is also engaged in trading business of his own. The following data were provided by
LJ in 2020 taxable year:

LJ’s gross income from his trading business P1,000,000

LJ’s expenses from his trading business 600,000
Interest income, BDO-manila 20,000
Share from the net income of a general 400,000
professional partnership
Royalty, books published in the USA 150,000
Salaries as part time accounting professor (gross) 450,000

Required: determine the correct amount for the following:

1. Income tax due of the partnership P 0 EXEMPT

2. Income tax dur of LJ P310,000

LJ's gross income from his trading business P 1,000,000

LJ's expenses from his trading business (600,000)
Share from the net income of a general 400,000
professional partnerships
Royalty, books published in the USA 150,000
Salaries as part time accounting professor (gross) 450,000
Basic Exemption n/a
TAXABLE INCOME P1,400,000
1ST 800,000 130,000
In excess 800,000 (600,000 X 30%) 180,000
INCOME TAX PAYABLE P310,000

P6.2. (Partnership)

Data for 2020 taxable year of Rivera & Reyes (RR) Partnership including the partners own income are as
follows:

PARTNERSHIP RIVERA REYES

Gross Income P2,000,000 800,000 1,000,000
Allowed Deductions 1,200,000 400,000 500,000
Drawing Accounts:
Rivera 150,000 30,000 0
Reyes 120,000 0 20,000
Civil status SINGLE MARRIED
Profit and loss ratio 40%; 60%

Case A

Assume the partnership is an ordinary partnership, compute the following:

1. Tax due of the partnership 240,000

2. Tax due of Rivera 30,000

3. Tax due of Reyes 55,000

RR PARTNERSHIPS RIVERA REYES

Gross Income P 2,000,000 800,000 1,000,000
Allowed Deductions (1,200,000) (400,000) (500,000)
Drawing Accounts: - - -
TAXABLE INCOME 800,000 400,000 500,000

RR PARTNERSHIP

(800,000 X 30%) 240,000

Income tax payable 240,000

RIVERA

1ST 250,000 0

In excess 250,000 (150,000 X 20%) 30,000

Income tax payable 30,000

REYES

1ST 400,000 30,000

In excess 400,000 (100,000 X 25%) 25,000

Income tax payable 55,000

Case B: Assume the partnership in Case A is a general professional partnership, Compute the following:

1. 1. Tax due of the partnership P 0 EXEMPT

2. Tax due of Rivera 110,000

3. Tax due of Reyes 184,000