2. Gross income inclusion and exclusion -key answers psba PDF

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GROSS INCOME (EXCLUSIONS AND INCLUSIONS)REVIEW QUESTIONSProblem 1: Determining the Taxability of an ItemIndicate whether the item is taxable or nontaxable with income tax Taxable Non- taxable Nobel prize received for achievement civic achievements. X Prizes and awards in sports competition, not sanc...

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GROSS INCOME (EXCLUSIONS AND INCLUSIONS) REVIEW QUESTIONS Problem 1: Determining the Taxability of an Item Indicate whether the item is taxable or nontaxable with income tax Taxable 1. Nobel prize received for achievement civic achievements. 2. Prizes and awards in sports competition, not sanctioned by their respective national association accredited by POSC (Philippine Olympic Sport Committee) 3. World Bank’s income earned in the Philippines. 4. Cost of Living Allowance. 5. Union due Contribution. 6. Mandatory SSS Contribution. 7. Excess Mandatory SSS Contribution. 8. Income tax paid by employer. 9. Winnings from Philippine Sweepstakes or Lotto, P10,000 10. Interest on Winnings from Philippine Sweepstakes or Lotto, P10,000 11. Proceeds of from life insurance policy, revocable designation of beneficiary. 12. Pensions, in general. 13. Income of PAGCOR. 14. Proceeds from the sale of land (capital asset) P100,000: costs P120,000 15. Income of government from holders of public utility franchise. 16. Interest income. 17. Board of director’s fee. 18. Mandatory retirement pay 19. Professional athlete’s salary. 20. 13 th month pay P90,000 21. Income derived from smuggling. 22. Interest received from life insurance’s annuity. 23. Annual clothing allowance of P4,000 24. Hazard pay received by MWE. 25. Gains from redemption of shares in mutual fund. 26. Magsaysay awards. 27. GSIS Retirement benefits. 28. Cash surrender value received from insurance in excess of premium paid. 29. Proceeds from life insurance of a deceased employee received by the employer. 30. Dividend income derived in the Philippines by the Taiwan Government. 31. Gains from the sale of bond with a maturity of four years. 32. Gains from the sale of certificate of indebtedness with a maturity of six years. 33. Cancellation of debt in lieu to services rendered. 34. Shares of stock received due to professional service rendered. 35. Accumulated vacation and sick leave credits for government employees converted into cash at the end of employment contract. 36. Monetized sick leave credits of private employees Notes: Vacation leave exceeding 10 days as well as payment of sick leave, regardless of number of days shall be added to “other benefits” with a P90,000 ceiling. Any amount exceeding the P90,000 ceiling shall be subject to basic and creditable withholding tax on compensation income (R.R. No. 8-2000) 37. Overtime pay of a minimum wage earner 38. Statutory minimum wage of MWE who has other reportable income 39. Amount received in payment of moral damages due to physical injuries 40. Interest income in bank deposit earned by the duly registered cooperative 41. Maternity benefits 42. Tuition fees collected by non-profit educational institution 43. Interest income from savings deposit earned by non-taxable senior citizen 44. Interest income derived from Philippine National Red Cross 45. Shelter within the employer’s home provided by the employer to the maid 46. Thirteenth month pay in excess of P90,000 47. Separation pay due to voluntary resignation 48. Money received as donation

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Nontaxable X

X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X

X X X X X X X X X X X X

Taxable 49. Money acquired through illegal means 50. Philippine lotto winnings, P10,000 51. Separation pay received resulting from business merger 52. Income derived by Quezon City Government in leasing Building 53. Availed vacation leave with pay 54. Exemplary damages due to breach of contract 55. Damages for unrealized profits 56. Prizes received (Joined the contest) 57. Prizes and awards in sports competition sanctioned by Philippine Olympic Sport Committee 58. Income earned within the Philippines by the World Bank 59. Fixed transportation and representation allowance 60. Employees Union Due Contribution

Nontaxable

X X X X X X X X X X X X

Problem 2: Determine whether or not the income/proceeds described below is a taxable. If applicable, determine the appropriate tax and final tax rate.

Problem 3:

Problem 4: (Prize and awards) 1. How much is gross income inclusion to Anthony? B. P1,400,000 A. P2,100,000

C. P42,000,000

2. How much is gross income inclusion to Pacman?

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D. P12,000,000

A. P42,000,000

C. P67,000,000

B. P1,400,000

D. P12,000,000

Problem 5: Paolo was sideswiped by Jun in a vehicular accident in 20x8. Consequently, he incurred and paid medical expenses of P400,000 and legal fees of P200,000 during the year. Later during the year, he accepted the P800,000 settlement offered by Jun. Required: Determine the amount of income taxable to Paolo in 20x8. Problem 6: A non-resident alien earned the following interest income: Interest income from peso savings deposit Interest from expanded foreign currency deposit Interest from yield deposit and other deposit substitutes

P500,000 1,000,000 300,000

Required: How much of the above income is nontaxable? Problem 7: Belen took out a life insurance policy for P1,000,000 naming her son as beneficiary. Under the terms of the policy, the insurer, BBB Insurance Corporation will pay Belen the amount of P1,000,000 after the 25th year of the policy, and her beneficiary, should she died before that date. Belen outlive the policy and received the proceeds. The premiums paid on the policy was P600,000. Required: How much of proceeds from the insurance policy is taxable? Problem 8: Mr. Suki, a non-resident Japanese, received a dividend income of P300,000 in 20x8 from Kaway Corporation, a resident foreign corporation. The income of Kaway from within and without the Philippines for three years preceding 20x8 are as follows: Sources of income 20x5 20x6 20x7 From within the Philippines P16,000,000 P12,000,000 P14,000,000 From without the Philippines 18,000,000 14,000,000 15,000,0000 Required: How much of the dividend income received by Mr. Suki is considered income from sources within the Philippines?

Problem 9: Mac retired at the end of 20x8 after rendering 25 years of continuous service for ABC Corporation which employed him immediately after his graduation from college. equired: Determine the gross “compensation income” of Mac

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1.

Problem 10: (Retirement Benefits) Mr. Mario Matiyaga, Compensation income (P5,000 x 10)

P 50,000

2.

Retirement benefits Salary earned Gross income

P500,000 50,000 P550,000

Problem 11: (Separation pay) Nilo, a known latecomer in the company was dismissed from employment due to inefficiency service. He reasoned out that the frequent cause of his tardiness is the daily heavy traffic in Metro Manila. However, the explanation was not considered by his employer as a valid excuse. He received a separation pay P80,000. Is this amount taxable to him?

The amount is taxable to Nilo. Separation pay is exempt from income tax if the cause of separation from service is death, sickness, physical disability, or any cause beyond the control of the employee. None of the above-mentioned can be pointed out as the very cause of his separation from service. Inefficiency in service due to frequent tardiness caused by heavy traffic is not beyond the control of the employee. Problem 12: (Items of gross income) 1. How much was total exempted/excluded income? 2. How much was the total final withholding taxes on passive income? 3. How much was the total capital gain tax? 4. How much was the total gross income subject to the 30% corporate income tax? 1. 2. 3. 4.

P460,000 (40,000 x 20%) + (80,000 x 20%) + (60,000 x 15%) + (70,000 x 20%) = P47,000 (300,000 x 6%) + (50,000 x 15%) = P25,500 P2,690,000

Problem 13: (Exclusion from gross income) Required: 1. How much was the total amount of excluded or exempted income? 2. How much was the total final tax from certain income? 3. How much was the taxable net income subject to Section 24 (A) using itemized deductions? 4. How much was the taxable net income subject to Section 24 (A) using optional standard deductions?

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Excluded or Exempted Gross sales Cost of sales Business expenses Interest income bank - Philippines Prize- he joined Prize- he joined prize-did not joined Winnings-Philippines Winnings-Philippines Lotto-Philippines Lotto-Philippines Gain from sale of bonds- (6 years Sepearation pay Cash inherited Proceeds of his wife Premium Tax informer's reward Interest government bond Winnings-illegal gambling

Subject to Final tax

50,000 100,000

Itemized deductions OSD 1,500,000 1,500,000 (1,000,000) (200,000) 20% 20%

10,000 20,000 10,000

10,000

60,000 100,000 10,000

20% 20%

20,000 2,000

20,000

20%

4,000

10,000 5,000 250,000 300,000 1,000,000 150,000 500,000 20,000

1,525,000

10% 20%

50,000

50,000

10,000

10,000

50,000 4,000

110,000

620,000

OSD (40%) Net income from business Compensation income Taxable income

Problem 14: Mr. Louis presented 1. Gross income subjected to graduated rate 2. Total final taxes on passive income 3. Total income not subject to tax 4. Income tax due

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1,570,000 (628,000) 942,000 250,000 1,192,000

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Problem 15: (Bad Debt Recovery) ABC Company has the following data: 20x4 Case 1 Case 2 Net income before write off bad debt P70,000 P70,000 Less: Bad debt written off (40,000) (80,000) Net income after bad debt P30,000 (P10,000)

Case 3 P70,000 (55,000) P15,000

Case 4 P70,000 (85,000) (P15,000)

20x5 Amount recovered

P40,000

P85,000

P40,000

P30,000

The taxable amount on recovery of bad debt previously deducted is ______________ Case 1 Case 2 Case 3 Case 4 A. P40,000 P30,000 P40,000 P85,000 B. 40,000 20,000 40,000 70,000 C. 30,000 30,000 55,000 85,000 D. 30,000 60,000 25,000 70,000

Problem 16: (Tax Refund) The taxes paid and tax refunds by XYZ in 20x1 and 20x2, respectively, are itemized below: 20x2 tax refund 20x1 tax payment Philippine income tax P13,000 P3,000 Special assessment 20,000 6,000 Value added tax 135,000 100,000 Donor's tax 10,000 600 Amusement tax 80,000 80,000 Local business tax 40,000 8,500 Stock transaction tax 15,000 10,000 For tax purposes, how much income should be declared by XYZ on the tax refund? B. P88,500 C. P80,000 D. P114,600 A. P120,000 Problem 17: The following were taken from the statement of comprehensive income of a domestic corporation for 20x8: Sales P2,500,000 Cost of sales 1,500,000 Operating expenses (excluding bad debts) 500,000 Rental income (including P50,000 security deposit) 300,000 Provision for bad debts 50,000 Provision for income tax 75,000 Additional information: Accounts written off during the year 20x8 recoveries on accounts receivable written off in 20x7 (only P10,000 were recognized by the BIR as a reduction for 20x7 income) Refunds for various local taxes paid in 20x7 (50% of the amount recovered were recognized by the BIR as a reduction for 20x7 income) Refunds for overpayment of 20x7 income tax Refund of special assessment Acquisition of a real property to be used in business (acquired from a shareholder) FMV – P800,000 Determine the following: 1. Taxable recovery of accounts receivable previously written off 2. Taxable tax refunds 3. Income tax payable for 20x8

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P60,000 20,000 30,000 25,000 12,000 1,000,000

Problem 18: Tessie leased a 1. The income to be reported by AAA in 20x6 2. The income to be reported by AAA in 20x7 3. The income to be reported by AAA in 20x8 assuming the company opted to report income from improvement using the lump-sum method 4. The income to be reported by AAA in 20x8 assuming the company opted to report income from improvement using the spread-out method

Problem 19: Joy presented the following data regarding the items of income he 1. Total income from sources within the Philippines 2. Total income derived from sources without outside the Philippines 3. Net taxable income of Joy assuming she is a resident citizen 4. Net taxable income of Joy assuming she is a nonresident citizen

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