BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)
97SUGGESTED ANSWERS
Chapter 13: MIXED BUSINESS TRANSACTIONS
CHAPTER 13
MIXED BUSINESS TRANSACTIONS
Problem 13–1
True or False
1. True 2. True
3. False – only those supported with VAT invoice or VAT receipts are allowed to claim input VAT credit.
4. True
5. False – zero-rated transaction refers to output VAT and not input VAT. Zero-rated VAT transactions have input VAT.
6. False – for the input VAT of zero-rated transaction, the treatment is either VAT credit, refund or TCC issuance.
7. True
8. False – the basis of allocation is sales volume. 9. True
10. True
11. False – costs of sales or operating expense. 12. False – zero-rated VAT transaction.
13. True
14. False – transport of passengers by land is subject to 3% OPT regardless of amount.
Problem 13–2
1. False – zero-rated transactions. 2. True
3. False – 12% VAT. 4. True
5. False – subject to OPT regardless of amount.
6. False – life insurance premium is subject to 5% VAT.
7. False – not anymore subject to OPT tax because such amount is deducted from the gross receipts.
8. True 9. True
10. False – if the monthly rent income is P12,800 and below, not subject to business tax regardless of amount.
11. True
12. False – subject to income tax but not subject to VAT.
13. False – some are subject to OPT. Only those specified by law such as sale of food agricultural products in their original state are exempt both from VAT and OPT.
14. False – only the allocated amount of input VAT related to VAT transactions and zero-rated VAT transactions is allowed as deduction from output VAT.
Problem 13–3
1. B 2. C 3. A 4. C & D 5. C 6. D 7. B 8. C 9. ABUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)
98SUGGESTED ANSWERS
Chapter 13: MIXED BUSINESS TRANSACTIONS
Problem 13 – 4 A
Output VAT on taxable transaction P14,400
Less: Creditable input VAT (P8,640 + P2,880 ) 11,520
Net VAT payable P 2,880
Subject Zero-
VAT-to 12% Rated Exempt
Output VAT (P120,000 x 12%) P14,400 P 0 P 0
Input VAT – Credited 8,640 2,880 None
Amount to be remitted (refunded or credited) P 5,760 (P 2,880) None Allocation of Input VAT
Regular sales (P14,400 x 60%) P 8,640
Zero-VAT rate (P14,400 x 20%) 2,880
VAT-exempt (P14,400 x 20) 2,880
Input VAT (P134,400/9.333) P14,400
Notes:
1. The amount of Input VAT allocated to regular sales and zero-VAT sales are creditable VAT, while the Input VAT allocated to the VAT-exempt sales are not creditable VAT which should become part of the cost of sales.
2. Computation of percent of sales:
Percent Amount
Regular VAT sales 60% P120,000
Zero-rated sales ($800 x P50) 20% 40,000
VAT-exempt 20% 40,000
Total sales 100% P200,000
Problem 13 – 5 B
Standard input VAT (P15,000 x 7%) P1,050
Add: Final withholding VAT (P15,000 x 5%) 750
Amount of VAT deductible from sales to government P1,800
Problem 13 – 6 C
Total domestic cash sales (P110,000 + P55,000) P165,000
Sales to government 15,000
Total sales subject to VAT P180,000
Multiplied by VAT rate 12%
Total Output VAT P 21,600
Problem 13 – 7 D
Input VAT – export sales (zero-rated) P 60,000
Add: Allocated input VAT – export sales (P250,000 x 8/20) 100,000 Tax refund or tax credit certificate – applicable to zero-rated VAT only P160,000
Problem 13 – 8 A
Zero, the business is nonVAT; hence, no input VAT is allowed.
Problem 13 – 9 C
Output VAT (P2,000,000 x 12%) P240,000
Less: Input VAT 60,000
Problem 13 – 10 B
Increase in cost of service is the input VAT (P1,120,000/9.333) P120,000
Problem 13 – 11 C
Percentage tax - passengers (P2,000,000 x 3%) P 60,000
VAT taxable transactions - cargoes (P2,000,000 x 12%) 240,000
Total business tax P300,0000
Notes:
Additional amount charged in ordinary bus fare tickets issued by common carrier for passengers’ excess baggage is subject to VAT. (BIR Ruling 094-99)
Although there is actual Input VAT paid, this could not be claimed as tax credit because the business is non-VAT registered.
Problem 13 – 12 B
Common carrier’s tax (P1,400,000 x 3%) P 42,000
Output VAT (P1,792,000/9.333) 192,000
Total business tax P234,000
Less: Creditable Input VAT (P560,000/9.333) x P1,600,000/P3,000,000 32,000
Net business tax payable P202,000
Notes:
Additional amount charged in ordinary bus fare tickets issued by common carrier for passengers’ excess baggage is subject to VAT. (BIR Ruling 094-99)
The creditable Input VAT is prorated between the Vatable and VAT-exempt gross receipts.
Problem 13 – 13 D
Output VAT [(P30,000/3%) + P3,000,000] x 12% P480,000
Less: OPT paid 30,000
Output VAT balance P450,000
Less: Input VAT
Transitional input VAT (P500,000 x 2%) P 10,000
Actual input VAT (P2,240,000/9.333) 240,000 250,000
Net VAT payable P200,000
Problem 13–14
1. Letter A
Input tax on regular VAT taxable sales P10,000
Input tax on zero-rated sales 4,000
Input tax allocated to regular and zero-rated VAT sales (P60,000 x 3/5) 36,000 Creditable input tax against regular sales output VAT P50,000 2. Letter D
Input tax on sales to government P 3,000
Input tax allocated to sales to government (P60,000 x 1/5) 12,000
Actual input VAT of sales to government P15,000
3. Letter C
Input VAT on VAT-exempt sales P 4,000
Excess of actual input VAT over standard input VAT of sales to gov’t.
Actual input VAT P15,000
Less: Std. input VAT (P100,000 x 7%) 7,000 8,000
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)
100SUGGESTED ANSWERS
Chapter 13: MIXED BUSINESS TRANSACTIONS 4. Letter B
Gross income (P500,000 x 40%) P200,000
Less: OSD (P200,000 x 40%) 80,000
Net taxable income P120,000
Multiplied by corporate tax rate 30%
Income tax due – operating expense approached P 36,000
Total sales P500,000
Less: Cost of sales (P500,000 x 60%) P300,000
Input VAT of VAT-exempt sales 12,000 312,000
Gross income P188,000
Less: OSD (P188,000 x 40%) 75,200
Net taxable income P112,800
Multiplied by corporate tax rate 30%
Income tax due – cost of sale approach 33,840
Tax advantage P 2,160
Problem 13–15
1. Letter B
Output VAT from:
Regular VAT sales (P1,120,000/9.333) P120,000
Sale of defective products (P168,000/9.333) 18,000 P138,000 Less: Allocation of input VAT from:
Packaging materials (P60,000 x 85%) P 51,000
Presumptive input VAT [(P800,000 – P100,000) x 4%] x 85% 23,800 74,800
Net VAT payable P 63,200
Note: The presumptive input VAT is based on the primary raw materials used in the production.
2. Letter A
Total sales, net of VAT (P1,000,000 + P1,400,000 + P450,000 + P150,000) P3,000,000
Less: Cost of sales P1,786,800
Input VAT traced to VAT–exempt sales (P60,000 x 15%) 9,000
Presumptive input VAT to VAT-exempt (P700k x 4%) x 15% 4,200 1,800,000
Gross income P1,200,000
Less: Itemized deductions 700,000
Net taxable income P 500,000
Multiplied by corporate tax rate 30%
Income tax due P 150,000
Problem 13–16
1. Letter D
Other percentage tax – land passengers, within
(P20,000,000 x 3%) P 600,000
Add: Net VAT payable
Output VAT - transport within from:
Air (P40,000,000 x 12%) P4,800,000
Sea (P20,000,000 x 12%) 2,400,000
Land – cargoes (P10,000,000 x 12%) 1,200,000
Total output VAT P8,400,000
Less: Actual input VAT air and sea - within P775,000
Input VAT [(P6,000,000 x 75%)/60 months] x 3 225,000 1,000,000 7,400,000
Computation of percent of allocation:
Allowed with input VAT P 90M 75%
VAT-exempt – land passengers 30M 25%
Total gross receipts P120M 100%
Input VAT on Jet purchased (P50,000,000 x 12%) P6,000,000
2. Letter A
Total gross receipts P120,000,000
Less: Cost of service (P120,000,000 x 40%) P47,925,000 Applicable input VAT for VAT-exempt
[(P6M x 25%)/60 months] x 3 75,000 48,000,000
Gross income P 72,000,000
Less: OSD (P72,000,000 x 40%) 28,800,000
Net taxable income – OSD P43,200,000
Less: Net taxable income – itemized
Gross income P72,000,000
Less: Itemized deductions (P5M + P3.8M) 8,800,000 63,200,000
Difference P20,000,000
Multiplied by corporate income tax rate 30%
Tax advantage using OSD P 6,000,000
Problem 13–17
1. NOT IN THE CHOICES
Other percentage tax – life insurance premium (P76,000,000 x 5%) P3,800,000 Add: Net VAT payable
Output VAT – nonlife insurance premium
(P24,000,000 x 12%) P2,880,000
Less: Input VAT (P300,000 x 24%) 72,000 2,808,000
Total business taxes due P6,608,000
Percent of gross receipts:
Nonlife (P26,000,000 – P2,000,000) 24% P 24,000,000
Life (P82,000,000 – P6,000,000) 76% 76,000,000
100% P100,000,000 2. Letter B
Total gross receipts (P24M + P76M) P100,000,000
Less: Cost of service
Life (P76,000,000 x 40%) 30,400,000
Nonlife (P24,000,000 x 30%) 7,200,000
Amount of input VAT – life (P300,000 x 76%) 228,000 37,828,000
Gross income P 62,172,000
Add: Rent income 828,000
Total gross income P 63,000,000
Less: OSD (P63,000,000 x 40%) 25,200,000
Net taxable income P 37,800,000
Multiplied by corporate tax rate 30%
Income tax due P 11,340,000
Problem 13–18
1. Letter B
Output VAT (P2,000,000 + P1,500,000) x 12% P420,000
Less: Amortization of input VAT
[(P33,600,000/9.333)/60] x 10 months x 3.5/6 350,000
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)
102SUGGESTED ANSWERS
Chapter 13: MIXED BUSINESS TRANSACTIONS 2. NOT IN THE CHOICES
Total gross receipts P6,000,000
Less: Costs of service:
Depreciation – direct cost [(P33,600,000/1.12)/30] P1,000,000 Input VAT traced to VAT-exempt transactions
Class C (P3,600,000/60) x 10 mos. x 2.5/6 250,000 1,250,000
Gross income P4,750,000
Less: OSD (P4,750,000 x 40%) 1,900,000
Net taxable income P2,850,000
Multiplied by corporate tax rate 30%
Income tax due P 855,000
Problem 13–19
1. Output VAT – vacation house (P9M x 12%) P1,080,000
Less: Input VAT (P360,000) + (P240,000 x 75%) 540,000
Net VAT payable P 540,000
The installment sale of real property is subject to 25% rule of initial payment. If the initial payment exceeds 25% of the selling price, the sale is considered as cash sales.
The sale of house and lot with a selling price of P3,199,200 and below is exempt from VAT.
2. Cash sales – vacation house P9,000,000
Installment sales 600,000
Total sales P9,600,000
Less: Cost of sales of:
Cash sales – vacation house P6,000,000
Installment sales – bungalow (P2,100,000 x 6/30) 420,000 Input VAT traced to VAT-exempt sales related to:
Cost of sale (P120,000 x 6/30%) 24,000
Operating expense (P240,000 x 3/12) 60,000 6,504,000
Gross income P3,096,000
Less: Operating expenses 2,000,000
Net income P1,096,000
Multiplied by corporate normal income tax rate 30%
Income tax due P 328,800
Problem 13 – 20
Output VAT from:
Cash sales to VAT persons (P300,000 x 12%) P 36,000 Cash sales to Non-VAT persons (P100,000 x 12%) 12,000 Cash sales to government units (P200,000 x 12%) 24,000 Credit sales to VAT persons (P400,000 x 12%) 48,000
Sales return (P10,000 x 12%) ( 1,200) P118,800
Less: Input VAT from:
Purchases from VAT person per invoice (P324,800/9.333) P 34,800 Payment of services for business purposes, gross of VAT
(P72,800/9.333) 7,800
Standard input VAT – government (P200,000 x 7%) 14,000 56,600
VAT payable P 62,200
Less: Final withholding VAT – government (P200,000 x 5%) 10,000
Notes:
1. The sales discount is generally a cash discount that depends on the happening of future events which is the prompt payment of customers. This sales discount is not allowed to be deducted for VAT purposes. (Sec. 4.106-9, R.R. 14-2005)
2. The 5% final withholding VAT is deductible from output VAT on sales to the government.
Problem 13 – 21
1. Input tax on taxable goods P 5,000
Input tax on zero-rated sales 3,000
Standard input tax – government sales (P100,000 x 7%) 7,000 Input tax on depreciable capital goods
not attributable to any specific activity
(monthly amortization for 60 months) = (P20,000 x P200,000/P400,000) 10,000
Creditable input tax for the month P25,000
2. Input tax on sale to the government P4,000
Input tax on depreciable goods allocated to sales to the government
(P20,000 x 100,000/400,000) 5,000
Input tax attributable to sales to government for the month P9,000 Note: This actual input tax is deductible only to the extent of standard input
VAT amounting to P7,000. The excess of actual input VAT over standard input VAT is to be treated as additional cost of sales or operating expense.
3. Input tax on sale of exempt goods P2,000
Input tax attributable to VAT-exempt goods (P20,000 x 1/4) 5,000
Input tax attributable to VAT-exempt goods P7,000
Note: This input VAT is not deductible from output VAT. Its entire amount is to be treated as additional cost of sales or operating expense.
Problem 13 – 22
Gross sales/receipts for the month (VAT taxable) P750,000
Multiplied by VAT rate 12%
Output VAT P 90,000
Less: Input taxes:
Goods (P392,000/9.333) x 675/750 P37,800
Service (P84,000/9.333) x 675/750 8,100
Std input VAT on sales to government (P75,000 x 7%) 5,250 51,150
VAT Payable before final VAT P 38,850
Less: Final withholding VAT (P75,000 x 5%) 3,750
Net VAT payable P 35,100
Notes:
1. Composition of sales:
Cash sales to VAT persons P450,000
Cash sales to Non-VAT persons 50,000
Credit sales to VAT persons 200,000
Gross sales P700,000
Less: Sales returns P20,000
Sales discounts 5,000 25,000
VAT taxable sales – subject to VAT P675,000
Add: Sales to the government-subject to final VAT 75,000
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)
104SUGGESTED ANSWERS
Chapter 13: MIXED BUSINESS TRANSACTIONS 2. All sales, whether sold to VAT or non-VAT person, cash and on credit are included.
3. Sales return and discounts were deducted to arrive at the amount of net sales. In this particular case, the sales discounts is deductible to determine the taxable based because the it does not depend on the happening of future event and its related total sales are recorded. 4. VAT on expenses that are not related in the conduct of business is not allowed as creditable
Input VAT.
5. Sale to government unit is subject to final VAT withholding tax. (Sec. 4.114-2, R.R. 14-2005)
Problem 13 – 23
Output VAT from:
Regular sales (P216,000 + P576,000) x 12% P95,040
Deemed sales (P90,000 + P180,000) x 12% 32,400
Government sales (P160,000 x 12%) 19,200 P146,640
Less: Input VAT allocation to:
Regular VAT transactions P88,888
Zero-VAT transactions 27,123
Standard VAT from sales to government
(P160,000 x 7%) 11,200 127,211
VAT payable before final VAT P 19,429
Less: Creditable withholding final VAT from sales
to government (P160,000 x 5%) 8,000
Net VAT payable 11,429
Supporting computations:
Regular VAT
Sales: Taxable Zero-VAT With Gov’t. Total
To VAT P576,000 P576,000
To non-VAT 216,000 216,000
To government (P169,600/106%) P160,000 160,000
Export P324,000 324,000
Personal use, at cost 90,000 90,000
Consignment (P241,920/9.333) x 83.33%* 180,000 . . 180,000 Totals P1,062,000 P324,000 P160,000 P1,546,000
Percentage 68.69% 20.96% 10.35% 100%
Input VAT from:
Creditable input VAT balance P 20,000
VAT business (P571,760/9.333) 61,260
Office supplies (P28,000/9.333) 3,000
Payments VAT persons
(P110,000 x 12%) 13,200
Importation (P298,144/9.333) 31,945
Input VAT allocations P88,888 P27,123 P13,394 P129,405 Notes:
1. The goods consumed for personal use can be price at cost being transaction deemed sale. 2. The deemed sale consigned goods is also price at cost, computed as follows:
Consignment price excluding VAT (P241,920/1.12) P216,000 Multiplied by percent of cost based on the goods consumed for
personal use (P90,000/P108,000) 83.33%
