BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS)

SUGGESTED ANSWERS

14

Chapter 4: DEDUCTIONS FROM GROSS ESTATE

CHAPTER 4

DEDUCTION FROM GROSS ESTATE

Problem 41
1. True
2. True
3. True
4. False not deductible. Only those expenses actually taken from the gross estate.
5. False actual or 5% of the gross not exceeding P200,000
6. False funeral expense
7. False Only those expenses actually taken from the gross estate.
8. True brokerage fee is part of judicial expense if necessary for the administration of the
estate.
9. True
10. False not terminated upon death but shall be paid by the remaining estate.
Problem 42
1. True
2. True
3. False deductible only if included in the gross estate.
4. False either against the gross estate or against income
5. False included after death
6. True
7. False not deductible because not yet accrued expense.
8. True
9. False only those related to gathering, preservation and settlement of the estate.
10. True
Problem 43
1. True
2. False of net, after ordinary deductions and exemptions
3. True
4. True
5. True
6. False whether paid or unpaid, the maximum deductible medical expense is P500,000.
7. False not allowed as deduction is in excess of P500,000
8. False this is in addition to other allowable deductions.
9. False no receipt is necessary for standard deduction.
10. True
Problem 44
1. A
2. A
3. C
4. D
5. A
6. B

Problem 45
1. A & B
2. C
3. A
4. D
5. D
6. D

Problem 46
1. A
2. A
3. B
4. A
5. D
6. D

BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS)
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Chapter 4: DEDUCTIONS FROM GROSS ESTATE

7. A
8. C
9. B
10. A

7. C
8. A
9. A
10. D

7. C
8. D

Problem 47
A
Allowable deductions against Philippine gross estate (P500,000 x 3/5)

P 300,000

Problem 48
D
None, because the decedent is a nonresident alien and the amount of gross estate located in the
Philippines is not defined.
Problem 49
C
Funeral expense (P3,000,000 x 5%)
Judicial expense (P250,000 x 60%)
Bad debts (P150,000/3)
Ordinary deductions

P150,000
150,000
50,000
P350,000

Problem 410
D
Standard deduction
Family home
Special deductions

P1,000,000
1,000,000
P2,000,000

Problem 411
B
Gross estate (P3,150,000 + P175,000)
Multiplied by funeral rate
Deductible funeral expense

P3,325,000
5%
P 166,250

Problem 412
B
Gross estate
Multiplied by funeral rate
Deductible funeral expense

P3,500,000
5%
P 175,000

Problem 413
C
Real properties
Claims against insolvent persons
Gross estate
Multiplied by funeral expense rate
Funeral expense

P1,560,000
100,000
P1,660,000
5%
P
83,000

Problem 414
C
Judicial expense (P1,900,000/95%) P1,900,000

P100,000

Problem 415
C
Deductible loss (P48,000/40%)

P120,000

Problem 416
A
Unpaid mortgage on the real property included in the gross estate

P500,000

BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS)
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16

Chapter 4: DEDUCTIONS FROM GROSS ESTATE

Problem 417
C
Loans from Metro Bank (not notarized per banks policy)

P500,000

Problem 418
D
Accounts receivable
Multiplied by percent of uncollectible (100% - 66.67%)
Bad debts deductible

P500,000
33.33%
P166,667

Percent of collectible is computed as follows:

Assets, net of unpaid taxes (P1,500,000 P500,000)
Divided by liabilities, net of taxes payable (P2,000,000 P500,000)

P1,000,000
P1,500,000

Problem 419
C
Collectible from a debtor
Problem 420

66.67%

P160,000

Properties
Ordinary deductions:
Unpaid mortgage loan used to finance family business
Funeral expense
Properties after ordinary deductions

Exclusive
P2,800,000

Conjugal
P3,500,000

.
P2,800,000

( 800,000)
( 180,000)
P2,520,000

Problem 421
B
Unpaid real property tax incurred prior to date of death

P100,000

Problem 422
D
Deductible transfer for public use (P2,000,000/1,000) x 200

P400,000

Problem 423
A
Value taken (lower)
Proportionate ordinary deduction (P1,000,000/P3,000,000) x P150,000
Final basis
Multiplied by percent of vanishing deduction
Amount of vanishing deduction

P1,000,000
50,000
P 950,000
60%
P 570,000

Problem 424
D
Value taken (lower)
Less: Mortgage paid
Initial basis
Less: Proportionate deduction (P1,700,000/P5,000,000) x P400,000
Final basis
Multiplied by percent of vanishing deduction
Amount of vanishing deduction

P2,100,000
400,000
P1,700,000
136,000
P1,564,000
40%
P 625,600

Computation of ELIT:

BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS)
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Chapter 4: DEDUCTIONS FROM GROSS ESTATE

Funeral expense, limit

Judicial expense
Unpaid mortgage
Total ELIT
Problem 425

P200,000
100,000
100,000
P400,000

Properties
Transfer for public use
Share of surviving spouse (P2,000,000 x 50%)
Net estate

Exclusive
P1,000,000
( 500,000)
.
P 500,000

Conjugal
P2,000,000
(1,000,000)
P1,000,000

Problem 426
B
Conjugal estate
Deductible funeral expense
Net estate before share of surviving spouse
Multiplied by share of surviving spouse
Share of surviving spouse

P5,000,000
( 200,000)
P4,800,000
50%
P2,400,000

Problem 427
C
Standard deduction to Filipino and resident alien

P1,000,000

Problem 428
D
Nonresident alien does not have standard deduction
Problem 429
C
Deductible medical expense (paid or unpaid) within one year prior to death

P300,000

Problem 430
A
The unpaid medical expense in excess of the maximum P500,000 is nondeductible as
claims against the estate.
Problem 431
D
Medical expenses incurred from October 2004 to December 2004
Problem 432
D
Maximum amount of family home deductible
The family home is an exclusive property of the decedent.
Problem 433
C
Building conjugal (P1,000,000/2)
Land exclusive
Family home - deductible
Problem 434
1. D

P100,000

P1,000,000

P500,000
400,000
P900,000

BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS)
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Chapter 4: DEDUCTIONS FROM GROSS ESTATE

2.

Donation to the government

Benefits received under RA 4917
Funeral expense
Total ordinary deductions

P1,000,000
500,000
100,000
P1,600,000

C
Standard deduction
Family home
Medical expense
Total special deductions

P1,000,000
1,000,000
400,000
P2,400,000

Problem 435
Burial lot (P50,000 x 80%)
Expenses for wake before burial
Telegrams and cable to relatives
Mourning apparel of the surviving spouse and children
Entertainment expenses during the rites and burial ceremonies
Allowable funeral expenses

P40,000
20,000
1,000
3,000
2,500
P66,500

Problem 436
Real estate property
Personal property
Total
Funeral expense (P700,000 + P2,600,000) x 5%
Judicial expenses
Mortgage payable to the bank
Net estate before share of surviving spouse
Multiplied by percent share of surviving spouse
Share of surviving spouse
Problem 437
October 1 to 20, 2005 from Saint Lukes Hospital:
Diagnostic fee
Doctors fee
Hospital rooms
Operating costs
Medicines
Total medical expense deductible

Exclusive
P700,000
.
P700,000

Conjugal
P2,200,000
400,000
P2,600,000
( 165,000)
( 50,000)
( 400,000)
P1,985,000
50%
P 992,500

P 60,000
120,000
80,000
50,000
90,000
P400,000

Problem 438
Funeral expense, actual
Judicial expense
Medical expense, maximum allowed
Standard deductions
Total deductions

P 150,000
50,000
500,000
1,000,000
P1,700,000

Problem 439
1. Gross estate

P3,000,000

BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS

19

Chapter 4: DEDUCTIONS FROM GROSS ESTATE

2.

Actual deductions (P200,000 + 500,000)

P700,000

3.

Deductible allowance standard deduction

P1,000,000

4.

Net taxable estate (P3,000,000 P700,000 P1,000,000)

P1,300,000

Note: Since the funeral and judicial expense are combined, it is assumed that the limit for funeral
expense amounting to P150,000 or 5% of gross estate is complied and the remaining balance of
P50,000 is for the judicial expense.