ACC 311 Corporation Illustrative Problems Tabag PDF

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Illustration 1: Assume the following data for Hananiah Corporation for the current year: Gross Income, Philippines P975, Expenses, Philippines 750, Grosses Income, Malaysia 770, Expenses, Malaysia 630, Interest on Bank Deposit 25, Determine the income tax due assuming the corporation is:Case A: The ...

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Illustration 1: Assume the following data for Hananiah Corporation for the current year: Gross Income, Philippines

P975,000

Expenses, Philippines

750,000

Grosses Income, Malaysia

770,000

Expenses, Malaysia

630,000

Interest on Bank Deposit

25,000

Determine the income tax due assuming the corporation is:

Case A: The cooperation is a domestic corporation 

Answer: P109,500 computed as follows: Gross Income, Philippines P975,000 Gross income, Malaysia 770,000 Expenses, Philippines (750,000) Expenses, Malaysia (630,000) Taxable Income 365,000 Tax Rate 30% Income Tax Due P109,500



Domestic corporation are subjected to 30% income tax on their regular net income from sources within and without the Philippines The interest income on blank deposit is not a regular income. It is a “passive income” subject to final tax of 20%. Final taxes on certain passive income are discussed in the succeeding topics of this Chapter. Refer to Table 5-2 for the list of certain passive incomes subject to final taxes



Case B: The corporation is a resident corporation 

Answer: P67,500 computed as follows Gross Income, Philippines Expenses, Philippines Taxable income Tax Rate Income Tax Due

P975,000 (750,000) 225,000 30% P67,500

Case C: The corporation is a nonresident corporation 



Answer: P300,000 computed as follows Gross Income, Philippines P975,000 Interest on bank deposit 25,000 Total Gross Income 1,000,000 Tax Rate 30% Income Tax Due 300,000 Nonresident foreign corporation are subjected to 30% income tax on their “gross” income from Philippine sources (except income subject to CGT and tax income)

Illustration 2 Assume the following data for Hananiah Corporation for the current year (4 th year of business operation): Gross Income, Philippines

P975,000

Expenses, Philippines

950,000

Grosses Income, Malaysia

700,000

Expenses, Malaysia

720,000

Interest on Bank Deposit

25,000

Determine the income tax due assuming the corporation is: Case A: The corporation is a domestic corporation 

Answer: P33,500 computed as follows: Gross Income, Phils. & Malaysia Expenses, Phils. & Malaysia Taxable Income RCIT rate RCIT/ Basic Tax

P1,675,000 (1,675,000) 5,000 30% P1,500

Versus: MCIT: Gross Income, Phils. & Malaysia MCIT Rate: MCIT Income Tax Due (Higher)





P1,675,000 1,675,000 2% P33,500 P33,500

As discussed in Illustration 1, the interest income on bank deposit is a “passive income” subject to final tax on 20% Rules of Final Taxes on certain passive income are applied to RCIT or MCIT because of the different nature of income to which the taxes were based If MCIT is higher than RCIT, the excess or difference (P33,500 vs. P1,500= 32,000) is known as “excess MCIT.” Any excess of the MCIT over RCIT shall be carried forward and credited (deducted) against the RCIT for the three succeeding taxable years, provided, that the RCIT is higher than the MCIT in the year to which the excess MCIT is forwarded. Refer to illustration # 3 for a more detailed discussion on carry-over of excess MCIT

Case B: The corporation is a resident corporation 

Answer: P19,500 computed as follows: RCIT Gross Income, Philippines Expenses, Philippines Taxable income Tax Rate Income Tax Due MCIT: Gross Income, Philippines MCIT Rate MCIT Income Tax Due (Higher)

P975,000 (950,000) 25,000 30% P7,500 P975,000 2% P19,500 P19,500

Case C: The corporation is nonresident corporation 

Answer: P300,00. [(P975,00 + P25,000) X 30%] MCIT is not applicable to nonresident corporation

Illustration 3 A domestic corporation which commenced operations in 2014 provided the following data:

Gross Income Allowable Deductions Income (loss)

2018

2019

2020

P10,000,000

P12,000,000

P14,000,000

9,500,000)

12,000,000

12,,800,000

P500,000

P(200,000)

P1,200,000

Determine the Incoome Tax payable for 2018, 2019, and 2020 Answers: 2018: P200,000 RCIT or Basic Tax (P500,000 X 30%) MCIT (P10M X 2%) Tax Due/ payable (Higher Amount) Excess MCIT 2018

P150,000 200,000 P200,000 P50,000

2019: P240,000 RCIT or Basic Tax MCIT (P12M X 2%) Tax Due/ payable (Higher Amount) Excess MCIT 2019 

0 240,000 P240,000 P240,000

The excess MCIT for 2018 was no carried over or deducted in 2019 tax due because MCIT in 2019 was higher than the RCIT. As a rule, MCIT can be carried over only if, at the time excess MCIT is claimed, RCIT is higher than MCIT

2020: P10,000 Gross Income 2020

P14,000,000

Allowable deductions 2020

12,800,000

Net Income

1,200,000

Less:2019 NOLCO***

(200,000)

Taxable income 2020

1,000,000

RCIT Rate

30%

RCIT or Basic Tax

P300,000

MCIT (14M x 2%)

P280,000

Tax Due (RCIT-higher amount)

P300,000

Less: Excess MCIT 2018

(50,000)

2019

(240,000)

Income Tax Payable





P100,000

***Net Operating Loss during the year may be carried over as a part of deductible expenses of a corporation for the next three succeeding years following the year the loss was incurred. Such loss is known as Net Operating Lass Carry-Over (NOLCO) RCIT and MCIT were not amended under RA 10963 (TRAIN Law)

Illustration 4 Case A: A corporation’s computed Regular Corporate Income Tax (RCIT, MCIT and Income Taxes withheld from 1 st to 4th quarters including excess MCIT and Excess withholding taxes from prior year(s) are as follows:

Quarter

RCIT

MCIT

Taxes Withheld during the year

Excess MCIT prior year 60,000

1st 2nd 3rd 4th

P200,000 240,000 500,000 400,000

160,000 500,000 200,000 200,000

40,000 60,000 80,000 70,000

-

Determine the following: 1. 2. 3. 4.

Income tax payable for the first quarter Income tax payable for the second quarter Income tax payable for the third quarter Annual income tax payable

Excess Withholding tax of Prior Year -

ANSWER/SOLUTION Question #1: P80,000 computed as follows: Quarterly Tax Due (Higher-RCIT) Less: Excess withholding tax-previous year

P200,000 (20,000)

Taxes withheld-this quarter

(40,000)

**Excess MCIT-previous year

(60,000)

Income Tax Paid/Payable

(80,000)

**The Cary-over of excess MCIT from the previous year is allowed if the tax due for the quarter is based on RCIT Question #2: P460,000 Quarterly Tax Due (Higher- MCIT)

P660,000

Less: Excess withholding tax-previous year st

nd

Taxes withheld-1 and 2 quarters

Income tax paid-1st quarter **Excess MCIT-previous year Income Tax Paid/Payable  

(20,000) (100,000)

(80,000) P460,000

**The carry-over of excess MCIT from previous year is not allowed if the tax due for the quarter is based on MCIT. The P660,000 quarterly tax due was computed by adding the MCIT of the 1st and 2nd quarter. The amount of higher compared to the total of the RCIT for the 1 st and 2nd quarter

Question #3: P140,000 computed as follows Quarterly tax due (Higher-RCIT)

P940,000

Less: Excess withholding tax-previous year Taxes withheld -1st and 2nd and 3rd quarters

(180,000)

Income Tax paid-1st and 2nd quarters

(540,000)

**Excess MCIT-previous year Income Tax Playable 

(20,000)

**Refer to the explanation in question #1

(60,000) P140,000

Quarterly #4: P330,000 computed as follows Quarterly tax due (Higher_RCIT)

P940,000

Less: Excess withholding tax-previous year

(20,000)

Taxes withheld-1st, 2nd and 3rd quarters

(180,000)

Income tax paid-1st and 2nd quarters

(540,000)

**Excess MCIT-previous year

(60,000)

Income tax payable

P330,000

Case B: (MCIT at Year-End is higher than RCIT): Assuming the following data: Quarter

RCIT

MCIT

Taxes withheld during the year

Excess MCIT Prior Year

1st 2nd 3rd 4th

P200,000 240,000 500,000 100,000

160,000 500,000 200,000 240,000

40,000 60,000 80,000 70,000

60,00 -

Excess Withholding tax of Prior Year -

Determine the income tax payable at year-end

ANSWER/SOLUTIONS 150,000 Annual tax due (Higher-MCIT)

P1,100,000

Less: Excess withholding tax-previous year

(20,000)

Taxes withheld-for the entire year

(250,000)

Taxes paid-for the first 3 quarters

(680,000)

Excesss MCIT-previous year (not allowed) Income tax paid/payable

P150,000

-The computation of the taxes paid for the first three quarters (680,000) is the same with the computations made in illustration 4...