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LONG PROBLEM with FORMSA VAT-registered company, had the following data (net of VAT) for the first quarter of 2020 in Philippine peso.January February March Quarterly Totals Sales: VATable sales to private entities P200, P200, P300, P700, Exempt sales 100,000 200,000 - 300, Sales to the government10...

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Tax: TRAIN Illustrative Problems

LONG PROBLEM with FORMS A VAT-registered company, had the following data (net of VAT) for the first quarter of 2020 in Philippine peso. January Sales: VATable sales to private entities Exempt sales Sales to the government Export sales Total

February

Quarterly Totals

P200,000 100,000 100,000

P200,000 200,000 -

P300,000 100,000

P700,000 300,000 200,000

100,000 P500,000

P400,000

50,000 P450,000

150,000 P1,350,000

Purchase of goods from VAT suppliers related to January February Sales: VATable sales to private entities P40,000 PExempt sales 30,000 Sales to the government Export sales 20,000 Purchase of services from VAT suppliers related to: January February Sales: VATable sales to private entities PP20,000 Exempt sales 20,000 Sales to the government 100,000 Export sales 20,000 Purchase of depreciable capital good

March

3,000,000 3-yr life

2,000,000 6-yr life

March

Quarterly Totals

P50,000 50,000 -

P90,000 80,000 -

-

20,000

March

Quarterly Totals

P-

P20,000 20,000

100,000 -

200,000 20,000

-

-

The corporation had excess input tax credit from the previous quarter in the amount of P3,900. In February 2020, it chose to file an application for VAT refund/TCC in the amount of P2,000. The purchase of the depreciable capital goods is for the benefit of all its businesses.

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Tax: TRAIN Illustrative Problems

1. In BIR Form No. 2550M for January 2020 of the Company, how much is its total output tax, and where will it be indicated? a. P36,000; Part II, Item 16B b. P386,700; Part II, Item 19 c. P24,100; Part II, Item 21 d. P11,900; Part II, Item 22 ANS: A 2. In BIR Form No. 2550M for January 2020 of the Company, how much is its total input tax, and where will it be indicated? a. P36,000; Part II, Item 16B b. P386,700; Part II, Item 19 c. P24,100; Part II, Item 21 d. P11,900; Part II, Item 22 ANS: B 3. In BIR Form No. 2550M for January 2020 of the Company, how much is it's total allowable (creditable) ITCs, and where will it be indicated? a. P36,000; Part II, Item 16B b. P386,700; Part II, Item 19 c. P24,100; Part II, Item 21 d. P11,900; Part II, Item 22 ANS: C 4. In BIR Form No. 2550M for January 2020 of the Company, how much is the VAT withheld on Sales to the Government, and where will it be indicated? a. P36,000; Part II, Item 16B b. P386,700; Part II, Item 19 c. P24,100; Part II, Item 21 d. P5,000; Schedule 8; Part II, Item 23C ANS: D 5. In BIR Form No. 2550M for January 2020 of the Company, how much is the VAT still payable after credits, and where will it be indicated? a. P36,000; Part II, Item 16B b. P386,700; Part II, Item 19 c. P24,100; Part II, Item 21 d. P6,900; Part II, Item 26 ANS: D

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Tax: TRAIN Illustrative Problems

6. In BIR Form No. 2550M for February 2020 of the Company, how much is the Output Tax from VATable sales/receipts (private), and where will it be indicated? a. P24,000; Schedule 1; Part II, Item 12 B b. P350,000; part II, Item 17B c. P597,200; Part II, Item 19 d. P576,000, Schedule 3; Part II, Item 20A ANS: A 7. In BIR Form No. 2550M for February 2020 of the Company, how much is the unamortized input tax carried over from the previous period, and where will it be indicated? a. P24,000; Schedule 1; Part II, Item 12 B b. P350,000; part II, Item 17B c. P597,200; Part II, Item 19 d. P576,000, Schedule 3; Part II, Item 20A ANS: B 8. In BIR Form No. 2550M for February 2020 of the Company, how much is the input VAT from domestic purchases of goods other than capital goods, and where will it be indicated? a. P24,000; Schedule 1; Part II, Item 12 B b. P350,000; part II, Item 17B c. P2,400; Part II, Item 18F d. P576,000, Schedule 3; Part II, Item 20A ANS: C 9. In BIR Form No. 2550M for February 2020 of the Company, how much is the unamortized input tax to be carried over to the next period, and where will it be indicated? a. P24,000; Schedule 1; Part II, Item 12 B b. P350,000; part II, Item 17B c. P2,400; Part II, Item 18F d. P576,000, Schedule 3; Part II, Item 20A ANS: D 10. In BIR Form No. 2550M for February 2020 of the Company, how much is the input tax allocable to exempt sales, and where will it be indicated? a. P9,400; Schedule 5; Part II, Item 20C b. P350,000; part II, Item 17B c. P2,400; Part II, Item 18F d. P576,000, Schedule 3; Part II, Item 20A ANS: A

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Tax: TRAIN Illustrative Problems

11. In BIR Form No. 2550M for 1st Quarter of 2020 of the Company, how much is input VAT from domestic purchases of services, and where will it be indicated? a. P31,200; Schedule 1; Part II, Item 21J b. P15,630; Schedule 4; Part II, Item 23B c. P20,444; Schedule 5, Part II, Item 23C d. P21,100, Part II, Sec 26A ANS: A 12. In BIR Form No. 2550Q for 1st Quarter of 2020 of the Company, how much is input VAT on sale to the government closed to expense, and where will it be indicated? a. P31,200; Schedule 1; Part II, Item 21J b. P15,630; Schedule 4; Part II, Item 23B c. P20,444; Schedule 5, Part II, Item 23C d. P21,100, Part II, Sec 26A ANS: B

13. In BIR Form No. 2550Q for 1st Quarter of 2020 of the Company, how much is input VAT allocable to exempt sales, and where will it be indicated? a. P31,200; Schedule 1; Part II, Item 21J b. P15,630; Schedule 4; Part II, Item 23B c. P20,444; Schedule 5, Part II, Item 23C d. P21,100, Part II, Sec 26A ANS: C 14. In BIR Form No. 2550Q for 1st Quarter of 2020 of the Company, how much is VAT paid in the first two months of the quarter, and where will it indicate? a. P31,200; Schedule 1; Part II, Item 21J b. P15,630; Schedule 4; Part II, Item 23B c. P20,444; Schedule 5, Part II, Item 23C d. P21,100, Part II, Sec 26A ANS: D 15. In BIR Form No. 2550Q for 1st Quarter of 2020 of the Company, how much is VAT still payable, and where will it be indicated? a. P19,074; Part II, Item 29 b. P15,630; Schedule 4; Part II, Item 23B c. P20,444; Schedule 5, Part II, Item 23C d. P21,100, Part II, Sec 26A ANS: A

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Tax: TRAIN Illustrative Problems

January 2020 Output VAT Input tax Purchases for VATable and 0-rated sales (P40,000 + P20,000) x 12% Unattributed input VAT allocated to VATable sales and export sales (P360,000/36) x (P300,000/P500,000) Excess input tax from prior period

P24,000

P7,200 6,000 3,900

VAT payable

(17,100) P6,900

February 2020 Output VAT Input tax Purchases for VATable and 0-rated sales (P20,000 + P20,000) x 12%^ Unattributed input VAT allocated to VATable sales and export sales (P14,000 x (200,000/400,000) Excess input tax from the prior period Less application for input tax refund/TCC

P24,000 P4,800 7,000 (2,000)

VAT payable

(9,800) P14,200

1st Quarter Cumulative Output VAT Input tax Purchases for VATable and 0-rated sales (P110,000 = P40,000) x 12% Unattributed input VAT allocated to VATable sales and export sales (P38,000 x (200,000/400,000) Excess input tax from the prior period Less application for input tax refund/TCC

P84,000 18,000 23,926 3,900 (2,000)

(43,826)

VAT payable for the quarter Less: VAT paid previous two months

40,174 (21,100)

VAT still payable

P19,074

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Tax: TRAIN Illustrative Problems

VAT 1. A taxpayer is a VAT-registered person. He purchased goods from a supplier for P125,000, exclusive of the VAT. The taxpayer then sold these same goods to a buyer for P150,000, exclusive of the VAT. How much is the VAT payable by X to the BIR on the transaction? ANS: The purchase has an input tax of P15,000 (P125,000 x 12%). The sale has an output tax of P18,000 (P150,000 x 12%). The VAT payable by X is the difference between the output tax and the input tax, which is P3,000 (P18,000 - P15,000). 2. A taxpayer is a VAT-registered person. He purchased goods from a supplier for P125,000, exclusive of the VAT. The taxpayer then sold these same goods to a buyer for P150,000, exclusive of the VAT. How much may be claimed by the taxpayer as a tax credit? ANS: The taxpayer may claim the P15,000 input tax on his purchase as a tax credit. That is why it was deducted from P18,000, leaving his VAT liability to only P300. 3. A taxpayer is a VAT-registered person. He purchased goods from a supplier for P125,000, exclusive of the VAT. The taxpayer then sold these same goods to a buyer for P150,000, exclusive of the VAT. How much may be claimed by the buyer as a tax credit? ANS: The buyer, the end-consumer, has nobody to pass on the burden of the output tax shouldered by him when he purchased the goods. He can claim no tax credit and shall ultimately bear the burden of the indirect tax. 4. A subdivision developer sold ten sets of a lot to different vendees at P1,500,000 per set, or a total of P15 million, and another five sets of residential house and lot to different vendees at P2,000,000 per set, or a total of P10 million during the 12 months. Is the subdivision developer liable to the 12% VAT on the transactions? ANS: The following sales of real property, among others, are classified as exempt transactions for purposes of VAT. 1. Sale by real estate dealer and lessor of residential lot valued at p1.5 million and below; NICE Online Review

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Tax: TRAIN Illustrative Problems

2. Sale by real estate dealers and lessors of residential house and lot and other residential dwellings valued at P2.5 million and below. The sales are not subject to 12% VAT because the selling price did not exceed the threshold. Such sales shall be subject to the 3% percentage tax on VAt-exempt persons.

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Tax: TRAIN Illustrative Problems

INCOME TAX INDIVIDUALS 5. How to compute the taxable income of an individual taxpayer? ANS: Fixed income groups are salary and wage earners arising from an employer-employee relationship. Their taxable income is computed as follows: Gross compensation income Pxxx Less: Premium payments on health insurance xx Taxable income Pxxx A variable income group is individuals who are engaged in trade, business, or in the exercise of their profession. Their taxable income is computed as follows: Gross income Pxxx Less: Business-related expenses xx Net income Pxxx Less: Premium payments on health insurance xx Taxable income Pxxx 6. What does gross income include (exclude)? ANS: Gross income means all income derived from whatever source, including (but not limited to) the following income: Compensation for services in whatever form paid including, but not limited to, salaries, wages, commissions Gross income derived from the conduct of a trade or business or the exercise of a profession Gains derived from dealings in property Interests Rents Royalties and dividends Annuities Prizes and winnings Pensions Partner’s distributive share from net income of the general professional partnership

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Pxxx xx xx xx xx xx xx xx xx xx Pxxx

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Tax: TRAIN Illustrative Problems

The gross income excludes the following: Proceeds of life insurance paid to the heirs or beneficiaries upon the death of the insured The amount received by the insured as a return of premium or premiums paid by him under life insurance Value of property acquired by gift, bequest, but the income from such property shall be included in the gross income Income exempt under the treaty Retirement benefits Separation pay Social security benefits (SSS, GSIS) Income derived by a foreign government, by the Philippine government Prizes and winnings made in recognition of religious and civic achievement Prizes and awards to athletes given by their national sports associations 13th -month pay and Christmas bonus Gains from the redemption of shares of stocks in a mutual fund company Minimum wage, including holiday, overtime, night shift differential , and hazard pay.

Pxxx xx xx xx xx xx xx xx xx xx xx xx xx xx

7. MRU Company (a domestic employer/company) granted Ms. MLHCO (a Filipino branch manager-employee) in addition to her basic salaries, P5,000 per quarter, for her membership fees at Country Golf Club. The fringe benefits tax is ANS: FBT = Monetary value of fringe benefit / 65%) x 35% FBT = (P5,000,000/65%) x 35% FBT = P7,692.31 x 35% FBT = P2,692.31 8. MRU Company (a domestic employer/company) granted Ms. MLHCO (a non-resident alien individual not engaged in trade or business within the Philippines) in addition to her basic salaries, P5,000 per quarter for her membership fees at Country Golf Club. The fringe benefits tax is ANS: FBT = Monetary value of fringe benefit / 75%) x 25% FBT = (P5,000,000/75%) x 25% FBT = P6,666.67 x 25% FBT = P1,666.67

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Tax: TRAIN Illustrative Problems

9. A minimum wage earner, works for a foundation. He is not engaged in business nor has any other source of income other than his employment. In 2019, the taxpayer earned a total compensation income of P135,000. He contributed to the SSS, Philhealth, and HDMF amounting to P5,000 and has received 13th-month pay of P11,000. In 2020, the taxpayer earned, aside from his basic wage, additional pay of P140,000, which consists of the overtime pay of P80,000, night shift differential of P30,000, hazard pay of P15,000, and holiday pay of P15,000. He contributed to the SSS, Philhealth, and HDMF amounting to P5,000 and has received 13th-month pay of P11,000. What is his income tax liability in 2020? ANS: Minimum wage earners shall be exempt from the payment of income tax based on their statutory minimum wage rates. The holiday pay, overtime pay, night shift differential pay, and hazard pay are likewise exempt. Total compensation income Add: Overtime, night shift differential, hazard, and holiday pay Total income Less: Mandatory contributions Non -taxable benefits Net taxable income

P135,000 140,000 275,000 5,000 11,000

16,000 P259,000 Exempt

10. A taxpayer operates a convenience store while she offers bookkeeping services to her clients. In 2020, her gross sales amounted to P800,000, in addition to her receipts from bookkeeping services of P300,000. She already signified her intention to be taxed at an 8% income tax rate in her 1st quarter return. How much is his tax due in 2020? ANS: Gross sales - convenience store Gross receipts - bookkeeping Total sales and receipts Less: Allowable deduction under Section 24 Taxable income % of P850,000

P800,000 300,000 P1,100,000 250,000 P850,000 P68,000

The total gross sales and gross receipts are below the VAT threshold of P3,000,000.

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Tax: TRAIN Illustrative Problems

The taxpayer’s source of income is purely from the practice of a profession. Thus she is entitled to the allowable deduction of P250,000 under Section 24 as amended. The income tax imposed is based on total gross sales and gross receipts. Income tax payment is instead of the new graduated income tax rates. 11. A taxpayer operates a convenience store while she offers bookkeeping services to her clients. In 2020, her gross sales amounted to P800,000, in addition to her receipts from bookkeeping services of P300,000. She failed to signify her intention to be taxed at an 8% income tax rate on gross sales in her initial Quarterly Income Tax Return, and she incurred the cost of sales and operating expenses amounting to P600,000 and P200,000, respectively, or a total of P800,000. How much is his tax due in 2020? ANS: Gross sales - convenience store Gross receipts - bookkeeping Total sales and receipts Less: Cost of sales Gross income Less: Operating expenses Taxable income Tax due On excess (P300,000 - P250,000 x 20%)

P800,000 300,000 P1,100,000 600,000 500,000 200,000 300,000 P10,000

The total gross sales and gross receipts are below the VAT threshold of P3,000,000. The income tax imposed is based on total gross sales and gross receipts. Income tax payment is instead of the new graduated income tax rates. Aside from income tax, Jane is also liable to pay business tax. 12. A taxpayer signified his intention to be taxed at an 8% income tax rate on gross sales in his 1st quarter income tax return. He has no other source of income. His total sales and cost of sales are as follows:

Sales Cost of sales Operating expenses

1st Quarter P500,000 300,000 120,000

2nd quarter P500,000 300,000 120,000

3rd quarter P2,000,000 1,200,000 480,000

4th quarter P3,500,000 1,200,000 720,000

What is his income tax due?

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Tax: TRAIN Illustrative Problems

ANS: 2nd 1st Quarter 3rd 4th Quarter Quarter Quarter P500,000 P500,000 P2,000,000 P3,500,000 300,000 300,000 1,200,000 1,200,000 P200,000 P200,000 P800,000 P2,300,000

Total sales Less: Cost of sales Gross income Less: Operating expenses 120,000 120,000 Taxable income P80,000 P80,000 Income tax due Less: 8% income tax previously paid (Q1 to Q3) (3,000,000 - 250,000) x 8%) Annual income tax payable

480,000 P320,000

720,000 P1,580,000

Total P6,500,000 3,000,000 P3,500,000 1,440,000 P2,060,000 P509,200 220,000 P289,200

The gross receipts exceeded the VAT threshold of P3,000,000. The taxpayer shall be liable to pay income tax under the graduated rates of Section 24. The taxpayer shall be allowed an income tax credit of quarterly payments initially made under the 8% income tax option computed net of the allowable deduction of P250,000 granted for purely business income. The taxpayer is also liable for business taxes in addition to income tax. He needs to update his registration from non-VAT to VAT taxpayers. Percentage tax is imposed from the beginning of the year until the taxpayer is liable to VAT. VAT shall be imposed prospectively. Percentage tax due on the non-VAT portion of the sales shall be collected without penalty if timely paid on the due date immediately following the month/quarter when the taxpayer ceases to be a non-VAT. 13. A prominent independent contractor who offers architectural and engineering services. Since his career flourished, her total gross receipts amounted to P4,250,000 for the taxable year 2020. His recorded cost of service and operating expenses were P2,150,000 and P1,000,000, respectively.

How much is the income tax due in 2020 ANS: Gross receipts Less: Cost of service Gross income Less: Operating expenses Taxable income NICE Online Review

P4,250,000 2,150,000 2,100,000 1,000,000 P1,100,000 Page 12

Tax: TRAIN Illustrative Problems

Tax due On P800,000 On excess (P1,100,000 - P800,000) x 30% Income tax due

P130,000 90,000 P220,000

The gross receipts exceeded the VAT threshold of P3,000,000, subject to graduated income tax rates and liable for VAT in addition to income tax. 14. In 2018, a taxpayer owned a nightclub and videoke bar, with gross sales of P2,500,000, with the cost of sales and operating expenses of P1,000,000 and P600,000, respectively, and with a non-operating income of P100,000. How much is income tax due? ANS: The taxpayer has no option to avail of the 8% income tax rate on his income from the business since his business income is subject to Other Percentage Tax under Section 125 of the Tax Code. Aside from the income tax, the taxpayer is liable to pay the prescribed business tax, a percentage tax of 18% on the gross receipts. Gross sales...