BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 52
SUGGESTED ANSWERS
Chapter 7: BUSINESS TAXES
CHAPTER 7
BUSINESS TAXES
Problem 7-11. True
2. False – this is a casual sale not a business. 3. True
4. True
5. False – not business because contrary to law. 6. False – employment is not business.
7. False – importation for personal use is subject to VAT, which is a business tax. 8. True
9. False – NonVAT business is subject to VAT if its annual gross sales or receipts exceeds P1,919,500.
10. False – Only one TIN is issued to every taxpayer regardless of the number of his business. 11. True
12. False – the registration is after the end of the year on or before January 31. Problem 7-2
1. False – the surcharge is 50%. 2. True
3. True
4. False – irrevocable for a period of 3 years. 5. True
6. True
7. False – Input VAT is charged as cost of purchases which is a product cost. 8. True
9. False – treated as tax credit as Input VAT. 10. True
11. False – This is a description of official receipt. 12. True
Problem 7-3
1. False – shown as a separate item, not time.
2. False – Still need to acquire approval from BIR to become non-VAT. 3. True
4. False – Commercial activity is business.
5. False – Nonresident alien/foreign person is not subject to the rule of regularity, hence, considered engaged in business.
6. False – liable to VAT without the benefit of creditable input VAT. 7. False – Compensation from employment is not subject to VAT. 8. False – now more than P1,919,500 per year.
9. False – Not in the case of VAT person. VAT paid on purchases can be claimed as creditable input VAT.
10. False – employees are also required to register to BIR by obtaining their TIN. 11. True
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 53
SUGGESTED ANSWERS
Chapter 7: BUSINESS TAXES
Problem 7-4 1. True
2. False – P500 for each establishment
3. False – Cooperatives are also exempt from P500 registration fee 4. True
5. True
6. False – Required to become VAT if total gross sales/receipts exceed P1,919,500 a year. 7. True
8. True
9. False – should issue official receipt for the amount received. Commercial invoice is sales invoice.
10. False – the 3 year period is applicable only to those who registered first as VAT. A non-VAT person can shift anytime to VAT system.
11. True 12. True
Problem 7-5 Problem 7-6 Problem 7-7
1. D 1. B 1. A 2. C 2. D 2. D 3. B 3. C 3. A 4. A 4. A 4. D 5. C 5. B 5. C 6. A 6. D 6. D 7. A,B,C & D 7. A 7. D 8. B 8. A 8. A 9. C 9. B 9. D 10. C 10. D 10. B Problem 7-8 C
Annual registration fee = P500 Problem 7-9 B
Registration fee of:
Au Chemical Supplies P 500
Gusto Eatery 500
Total annual registration fee P1,000
Problem 7-10 A
Nonresident foreign persons are not required to register to the BIR. It is the obligation of the entity obtaining their services to pay the VAT and withhold the related income tax.
Problem 7-11 A
Cooperatives are exempt from registration fee. Problem 7-12 C
Total amount in the invoice [P50,000 + (P12% of P50,000)] P56,000 Problem 7-13 B
Cost (P84,000/1.12) P 75,000
Add: Profit margin (P75,000 x 20%) 15,000
Sales price (120% of cost) P 90,000
Add: VAT (P90,000 x 12%) 10,800
Problem 7-14 A
Business tax payable (P2,000,000 x 12%) P240,000
Problem 7-15 D
Business tax payable (P200,000 x 3%) P6,000
Problem 7-16 A
Output VAT (P300,000 x 12%) P36,000
Less: Input VAT (P200,000 + P100,000) x 12% 36,000
VAT payable P 0
-Problem 7 – 17 D
Zero. M is merely a collecting agent of the BIR, not a direct payee of the VAT. VAT is an indirect tax. Problem 7 – 18 D Business tax (P1,500,000 x 3%) P45,000 Problem 7-19 C Equity shares (P100,000 x 0.005) P 500 Long distance (P10,000 x 10%) 1,000
Total business tax P1,500
Problem 7-20 C
Output VAT (P1,000,000 x 12%) P120,000
Less: Input VAT – purchases from VAT supplier (P800,000 x 12%) 96,000 Net business tax payable or net VAT payable P 24,000
Problem 7-21 B
Output VAT (P300,000 x 12%) P 36,000
Less: Input VAT (P268,800/9.3333) 28,800
Net business tax payable or net VAT payable P 7,200
Problem 7-22 B b. Purchases 150,000 Input VAT 18,000 Cash 168,000 Problem 7-23 A a. Purchases 112,000 Cash 112,000 Problem 7-24 D Surcharge (P120,000 x 50%) P60,000 Problem 7-25 A Sales invoice 0024: OPT (P100,000 x 3%) P 3,000 Sales invoice 0025: OPT (P200,000 x 3%) P 6,000 Add: VAT P24,000 Surcharge (P24,000 x 50%) 12,000 36,000 42,000
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 55
SUGGESTED ANSWERS
Chapter 7: BUSINESS TAXES
Problem 7-26 C
Output VAT (P2,500,000 x 12%) P300,000
Less: Input VAT on purchases from:
VAT supplier inclusive of VAT (P1,120,000/9.333) P120,000
Non-VAT supplier inclusive of VAT (P560,000/9.333) 60,000 180,000
Net VAT payable P120,000
Problem 7-27
1. Letter C
Purchases, excluding VAT [P1,680,000 - (P1,680,000/9.333)] P1,500,000 Add: Beginning inventory 200,000
Total P1,700,000
Less: Ending inventory, excluding VAT
Beginning inventory P200,000
Increase in inventory, excluding VAT [P112,000 – (P112,000/9.333)] 100,000 300,000
Cost of sales P1,400,000
2. Letter A
Sales P2,000,000
Less: Cost of sales 1,400,000
Gross income P 600,000
Less: Operating expenses (P268,000 – P18,000) 250,000
Net taxable income P 350,000
Multiplied by normal corporate income tax rate 30%
Income tax due P 105,000
3. Letter D
Output VAT (P2,000,000 x 12%) P240,000
Less: Input VAT on purchases (P1,680,000/9.333) P180,000
Input VAT on expenses 18,000 198,000
Net VAT payable P 42,000
Note: The input VAT on the increase in inventory is already included in the total input VAT per purchases. Hence, not to be used again as input tax credit. Problem 7-28
1. Letter A
Purchases from nonVAT supplier P600,000
Add: Purchases from VAT supplier, including VAT P224,000
Decrease in inventory 150,000 374,000
Cost of sales P974,000
2. Letter B
Sales, excluding VAT [P1,344,000 – (P1,344,000/9.333) P1,200,000
Less: Cost of sales 974,000
Gross income P 226,000
Less: Operating expenses 76,000
Net income P 150,000
Less: Basic personal exemption 50,000
Net taxable income P 100,000
3. Letter D
OPT (P1,200,000 x 3%) P 36,000
Add: VAT collected (P1,344,000 – P1,200,000) P144,000
Surcharge (P144,000 x 50%) 72,000 216,000
Problem 7-29
1. Annual registration fee for main store (P500) + (P500) for sales outlet P 1,000 2. No, because the total sales during the year do not exceed P1,919,500.
Problem 7-30
Yes, the cooperative is required to register to the BIR. No registration fee or annual registration fee shall be collected from cooperatives.
Problem 7-31
Annual registration fee (1 + 50 + 10) x P500 P 30,500 Add: Interest (P30,500 x 20% x 8/12) P4,067
Surcharge (P30,500 x 25%) 7,625 11,692
Total amount to be paid to the BIR P 42,192
Note: Registration shall be made on or before the last day of January of the following year Problem 7-32
1. The business should be registered as nonVAT because the sales do not exceed P1,919,500 in a year.
2. Sales invoice because official receipts are issued only when there are collections. 3. Official receipts.
Problem 7-33
Net VAT payable P 180,000
Add: Input VAT (P5,040,000 x 12%) 604,800
Output VAT P 784,800 (1)
Divide by 12%
Sales P6,540,000 (2)
Problem 7-34
1. Satur Nino is not subject to VAT because the sale is a casual sale of personal property. 2. Assuming that the FMV remains the same, the VAT of ROX Realty would be twelve percent
(12%) of the FMV (higher value), hence, P4,200,000 or (P35,000,000 x 12%). Problem 7-35
1. Percentage tax (P1,680,000/1.12) x 3% P 45,000
Add: VAT (P1,680,000/9.333) P180,000
Surcharge (P180,000 x 50%) 90,000 270,000
Total business tax and surcharges P315,000
2. Percentage tax (P2,800,000/1.12) x 3% P 75,000
Add: VAT (P2,800,000/9.333) P300,000
Surcharge (P300,000 x 50%) 150,000 450,000
Total business tax and surcharges P525,000
Problem 7-36
Input VAT from VAT supplier (P280,000/9.333) P30,000 Input VAT from non-VAT supplier (P56,000/9.333) 6,000
Creditable input VAT P36,000
Note: A VAT-registered buyer is allowed to report input VAT on purchases from a non-VAT supplier collecting VAT.
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 57
SUGGESTED ANSWERS
Chapter 7: BUSINESS TAXES
Problem 7-37
1. As depreciable capital goods.
Capital gain (P4,424,000 – P2,700,000) P1,724,000
Multiplied by corporate tax rate 30%
Income tax due P 517,200
Add: Other taxes paid:
Custom duties (P1,500,000 x 50%) P 750,000 Excise tax (P2,250,000 x 20%) 450,000
Input VAT (P2,700,000 x 12%) 324,000 1,524,000 Total revenue contributed to government P2,041,200 Supporting Computation:
Purchase value P1,500,000
Add: Custom duties (P1,500,000 x 50%) P 750,000
Excise tax (P2,250,000 x 20%) 450,000 1,200,000 Total landed cost – if capital asset P2,700,000 Note: The input VAT of depreciable capital goods used in business (not as inventory) shall be amortized within 60 months or the estimated useful life of the asset, whichever is lower. 2. As ordinary asset
Gross income (P4,424,000 – P2,700,000) P1,724,,000
Less: OSD (P1,724,000 x 40%) 689,600
Net income P1,034,400
Multiplied by corporate tax rate 30%
Normal tax P 310,320
Add: Other taxes paid
Custom duties (P1,500,000 x 50%) P 750,000 Excise tax (P2,250,000 x 20%) 450,000
Input VAT (P2,700,000 x 12%) 324,000 1,524,000 Total revenue contributed to government P1,834,320 Supporting Computation:
Purchase value P1,500,000
Add: Custom duties (P1,500,000 x 50%) P 750,000
Excise tax (P2,250,000 x 20%) 450,000 1,200,000 Total landed cost – if ordinary asset P2,700,000
Note: The input VAT of ordinary asset (inventory) shall be allowed as input tax credit against the output VAT during the taxable quarter.
Problem 7-38 1. VAT-registered business a. Inventory, beginning 300,000 Input VAT 36,000 Cash 336,000 Inventory, beginning 200,000 Cash 200,000
b. Purchases 500,000 Input VAT 60,000 Cash 560,000 Purchases 300,000 Cash 300,000 c. Cash 56,000 Purchase returns 50,000 Input VAT 6,000 Cash 20,000 Purchase returns 20,000 d. Cash 1,680,000 Sales 1,500,000 Output VAT 180,000 e. Sales returns 150,000 Output VAT 18,000 Cash 168,000 f. Output VAT 162,000 Input VAT 90,000 VAT payable/cash 72,000 2. Non-VAT business a. Inventory, beginning 336,000 Cash 336,000 Inventory, beginning 200,000 Cash 200,000 b. Purchases 560,000 Cash 560,000 Purchases 300,000 Cash 300,000 c. Cash 56,000 Purchase returns 56,000 Cash 20,000 Purchase returns 20,000 d. Cash 1,500,000 Sales 1,500,000 e. Sales returns 150,000 Cash 150,000
f. Business tax expense (P1,350,000 x 3%) 40,500
