This Study Resource Was: Determine The Following 1. Deductible Interest Expense For The Year P129,500.00
This Study Resource Was: Determine The Following 1. Deductible Interest Expense For The Year P129,500.00
This Study Resource Was: Determine The Following 1. Deductible Interest Expense For The Year P129,500.00
BSA 103
PROBLEMS
1. The following data were provided by Alpha Corporation (domestic corporation) for 2018:
Taxes and licenses 40,000
Documentary stamp taxes 4,000
Other Percentage taxes 120,000
Refund of local business taxes and licenses paid in 2017 10,000
Income tax due for 2018 300,000
Refund of income tax for 2017 25,000
Interest income
From trade notes receivable 100,000
From peso bank deposits 100,000
From bank deposits abroad 20,000
Interest expense on bank loan 150,000
Tax assessment on underpayment of Percentage taxes 75,000
Surcharges on tax assessments 25,000
Interest expense on tax assessments 12,500
DETERMINE THE FOLLOWING
1. Deductible interest expense for the year P129,500.00
2. Deductible taxes for the
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3. Taxable tax refunds P10,000.00
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Solution:
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Interest Tax expense Taxable tax
Expense refunds
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Taxes and Licenses - P40,000.00 -
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Documentary stamp taxes - P4,000.00 -
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Other percentage taxes - P120,000 -
Refund of local taxes and licenses in - P10,000.00
2017
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[150,000-(P100,000x33%)
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2. On January 1, 2016, Mike leased his vacant lot for a period of 12 years to Leomar at an annual
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rate of P2,400,000. It was also agreed that Leomar will pay the following:
P4,800,000 representing rental payment for year 2016 and 2017.
Security deposit of P2,400,000.
Annual real property tax of P30,000.
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The lease contract provides, among others that the lessee will construct a 5-storey building for parking
purposes at a cost of P9,500,000. Ownership of the building shall belong to the lessor upon the expiration
or termination of the lease contract.
The building was completed on July 1, estimated useful life of 15 years.
DETERMINE THE FOLLOWING
1. Deductible expenses of Leomar in 2016 P2,430,000.00
2. Deductible expenses of Leomar in 2017 P2,430,000.00
3. Deductible expenses of Leomar in 2018 P2,930,000.00
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Solution:
2016 2017 2018
Annual Rent P2,400,000.00 P2,400,000.00 P2,400,000.00
Annual real property tax P30,000.00 P30,000.00 P30,000.00
Depreciation exp.- leasehold
improvement
(9.5M/9.5 years x 6/12 P500,000.00
Deductible expense P2,430,000.0 P2,430,000.0 P2,930,000.0
0 0 0
3. Clifford borrowed money from the Citibank amounting to P1,000,000 at an annual interest rate of
10%. He invested the money in deposit substitutes earning annual interest income of 12%.
Required:
Determine the deductible interest of Clifford. P60,400.00
Solution:
Interest expense (1M x 10% ) P1,000,000.00
Less: 33% x (P1M x 12% ) (P39,600.00)
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Deductible Interest Expense P60,400.00
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4. Lester received an assessment from the BIR amounting to P250,000 including interest of P50,000
due to non-payment of stock transaction tax. He also received a P125,000 assessment from the
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City of Mandaluyong due to under payment of various local business taxes. The amount is
inclusive of P25,000 interest. During the year, however, he earned P100,000 interest income from
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his various bank deposits.
Required:
Determine the deductible interest of Lester. P25,000.00
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Explanation: interest paid or accrued on taxes related to business of practice of profession, such
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as those paid for deficiency or delinquency (since taxes are considered indebtedness) are
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deductible as interest expense, provided that, the tax is a deductible tax. It is deductible in “full”.
It shall not be reduced by 33% of interest income subject to final tax.
5. On July 1, 2017, a taxpayer obtained a P6,000,000 loan from a bank with annual interest rate of 12%.
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The proceeds of the loan amounted to P5,280,000 net of interest. Answer the questions under the
following independent cases:
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1. Assume the taxpayer is a resident citizen (under cash basis) and the loan including the interest is
payable on June 30, 2018. How much is the deductible interest expense for 2017 and 2018?
P0; P720,000.00
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2. How much is the correct interest expense for 2017 and 2018 assuming the taxpayer is a resident citizen
(under cash basis) and the loan is payable on installment as follows; P1,500,000 on September 30, 2017,
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December 31, 2017, March 31, 2018 and June 30, 2018
P360,000.00; P360,000.00
3. Assume the taxpayer is a domestic corporation (under cash basis) and the loan including the interest is
payable on June 30, 2018. How much is the deductible interest expense for 2017 and 2018?
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P720,000.00; P0
6. On January 2, 2018 Erwin contracted a 1-year P200,000 loan from BPI for the purchase of computers.
The computers were acquired three (3) months after securing the loan with depreciable life of eight (8)
years. Erwin paid P20,000 interest to BPI on December 31, 2018 in relation to the loan. On the other
hand, his bank deposit with BDO earned P4,000 interest during the year.
DETERMINE THE FOLLOWING:
1. Deductible interest expense for the year P18,680.00
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2. Allowable deduction of Erwin from his gross income assuming that the interest on loan was
capitalized.
Answer:
Acquisition cost of computers P200,000.00
Add: Interest expense P20,000.00
Capitalizable cost of computers P220,000.00
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REQUIRED:
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Determine the deductible interest of Omega for 2018 P300,000.00
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Solution:
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Interest paid for late payment for 2016 income tax P50,000.00
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Surcharge and compromise penalty for late payment of 2016 income -
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tax
Interest on bonds issued by omega P250,000.00
Deductible interest P300,000.00
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Required:
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If the taxpayer had signified in his return to avail of tax credit of foreign income tax paid, how much
deduction for taxes may he claim on his 2018 income? P92,750.00
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Solution:
Professional tax P750.00
Gravel and sand tax 20,000 P20,000.00
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9. In 2018, Omega Corporation incurred the following expenses in connection with the conduct of its
business:
■ P100,000 worth of plane tickets and hotel bills of its employees who were sent to business seminars.
• P136,000 transportation allowances of its officers from home to office and vice versa as part of their
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employment contract, net of P64,000 withholding tax
▪ P80,000 transportation expenses of messengers from office to several clients
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■ P20,000 special assessment
Required:
Determine the allowable expenses that could be deducted by Omega Corporation from its gross income
P380,000.00
Solution:
Plane tickets P100,000.00
Transportation expenses- officers (136,000 + 64,000) P200,000.00
Transportation expense- messengers P80,000.00
Deductible expenses P380,000.00
10. Delta Corporation took two key men insurance on the life of its President, Mr. Masigasig. In one
policy, the beneficiary is Delta Corporation to compensate it for its expected loss in case of death of its
president. The company paid a total premiums of P50,000 on that policy. The other policy designates Mr.
Masigasig's wife as its irrevocable beneficiary. Delta paid P75,000 premiums on that policy.
Required:
Determine the amount of allowable premium payment that could be deducted by Delta Corporation from
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its gross income. Deductible Premium = P75,000.00
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11. A taxpayer had the following data for 2018:
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Gross income from business P1,000,000
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Capital gain Capital loss Operating expenses Donation to an accredited NGO Donation to CBCP
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P1,000,000 50,000 20,000 400,000 30,000 20,000
DETERMINE THE FOLLOWING:
1. Taxable income assuming the taxpayer is an individual taxpayer, single, and with a compensation
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Add (Deduct):
Net capital gain P30,000.00
Compensation income P600,000.00
Taxable Net Income P1,180,000.00
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12. The following contributions and donations were made by a taxpayer.
To Christ the King Catholic Church P250,000
To Bukas Palad, non-profit domestic corporation 300,000
To the fire victims of Recto 200,000
To the Gospel church of Taiwan 350,000
Required: Determine following:
1. Total deductible charitable and other contributions subject to limit. = P550,000.00
( P250,000.00 + P300,000.00)
13. A domestic corporation has the following data on income and expenses:
Gross business income P6,200,000
Operating expenses ( including SSS and Philhealth contributions of P150,000 ) 2,500,000
Contributions to Government for priority project in education 100,000
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Contribution to a foreign private foundation 100,000
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Contribution to a domestic charitable organization 190,000
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REQUIRED:
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Determine total amount of deductible charitable and other contributions
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Actual (w/limit) P190,000.00
Limit [(6,200,000.00 – 2,500,000.00) x 5% ] P185,000.00
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Allowed P185,000.00
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Salaries of employees,( net of P100,000 withholding tax and P50,000 SSS, Medicare and Pag-
Ibig premiums contributions) 800,000
Fringe benefits given to rank and file employees 300,000
Fringe benefits given to managerial employees 136,000
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REQUIRED:
Determine the taxable income of Juan.
Answer:
Gross Income P5,000,000.00
Cost of Sales P3,000,000.00
Sales P8,000,000.00
Sales P8,000,000.00
COS P3,000,000.00
Gross Income P5,000,000.00
Salaries(gross of withholding tax, SSS, Medicare/Pag-ibig) of (P950,000.00
employees, gross of P100,000.00 withholding tax and P50,000.00 SSS,
Medicare and Pag-ibig premiums contribution
Fringe benefits given to rank and file employees (P300,000.00)
Fringe benefits given to managerial and supervisory employees (P136,000.00)
(@grossed-up monetary value)
Rent Expenses (P120,000.00)
Represenation and entertainment expenses (1/2 % of N. sales) (40,000.00)
Net income before contributions P3,454,000.00
Donation to religious and charitable institutions (limit) (345,400.00)
Limit: P3,454,000.00 x 10%
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Net Income P3,108,600.00
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15. On July 1, 2015, a taxpayer purchased for P1,000,000 a vehicle which he used as delivery truck for
his trading business. He deducted annual depreciation on the basis of an estimated useful life of five (5)
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years. On July 1, 2018, the automobile was partially damaged in an accidental collision with another
vehicle. The cost of repairs amounted to P200,000. The taxpayer received insurance proceeds of P100,000
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Required:
Determine the amount of loss that could be deducted from the taxpayer's gross income.
Answer:
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16. A domestic corporation provided the following results of operations for 2018 taxable year:
Sales P6,200,000
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Income tax paid for first 3 quarters 75,000
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Determine the following:
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a. income tax payable at the end of the year
Solution:
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Sales P6,200,000.00
Cost of Sales (P2,500,000.00)
OPEX:
Bad debt written-off P20,000.00
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