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INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)

46

SUGGESTED ANSWERS
Chapter 6: Fringe Benefits Tax

CHAPTER 6

FRINGE BENEFITS TAX


Problem 6 1 TRUE OR FALSE
False FBT is a final tax of the employee. However, this is the liability of the employer to withhold the final
tax of 32%
True
True
True
True
True
True
True
False Some housing fringe benefit is not subject to income tax. Ex. Temporary housing for three months or
housing benefit under the employers benefit rule.
True, also FB is also a form of incentives to rank-in-file employees.
False These are benefits other than salaries and also given to rank-in-file employees.
False Wage and salaries are not subject to reduction once given regardless of the financial condition of
the employer.
True
True
False The corporate income tax rate is 30% as of 2012, while the fringe benefit tax remains at final tax rate
of 32%.
True, unless these are among the de minimis
Problem 6 2 TRUE OR FALSE
False De minimis are also fringe benefits in small amount but not subject to FBT.

False Fringe benefits given to rank-in-file, except those which are among the de minimis and those given
for employers convenience, are not subject to FBT but subject to compensation income tax.
True
True
False P750/semester is the ceiling for exempt medical allowance
False- the exempt meal allowance must be related in the rendering of overtime work to be considered de
minimis.
True
True
True
False A travel required by the company to its officer is not subject to FBT because by its nature a travelling
expense.
true
False Scholarship grants to employees not related to business is taxable.
False These are among those exempted from fringe benefit tax.

Cash INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)


47

SUGGESTED ANSWERS
Chapter 6: Fringe Benefits Tax

Problem 6-3
Problem 6-4

1.
C
1.
A Yes, also if received by supervisor

2.
B
2.
C

3.
C
3.
A

4.
C
4.
D

5.
D
5.
D

6.
A
6.
A

7.
B
7.
B

8.
D
8.
B

9.
A
9.
A only P5,000 is taxable the excess of

10.
B
P10,000.

10. D

11.
B
11. D

12.
D
12. D

Problem 6 5
Not in the choices = P51,000
P1,000,000
Net income (P300,000/30%)

Add: FB charged to miscellaneous expense

170,000

Taxable net income

P1,170,000

Multiplied by corporate tax rate

30%

Income tax due

P
351,000

Less: Income tax already paid

300,000
Additional tax to be paid

P
51,000

The fringe benefits of rank-in-file employee are subject to regular withholding tax on wages, [Sec. 24 (A),
NIRC]. There is no grossed-up monetary value involved. If the BIR uncover the concealment resulting to the
nonpayment of withholding tax, the fringe benefits shall be disallowed as deductible expense. [Sec. 34 (A)
(1ai), NIRC]
Problem 6 6
C

P48,000
Fringe benefit tax (P102,000/68%) x 32%

Income tax:
P2,500,000

Net income before tax (P1,750,000/70%)

Add: Fringe benefits charge to miscellaneous expense


102,000

Total
P2,602,000

Multiplied by corporate income tax rate


30%

Corporate income tax


P 780,600
30,600
Less: Income tax already paid (P2,500,000 P1,750,000)
750,000

Tax recovered by the government

P78,600

Note: The fringe benefit tax expense is not deductible because the related withholding tax was not
withheld and paid until the tax evasion was discovered by the BIR.

Problem 6 7

Cash INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)


48

SUGGESTED ANSWERS
Chapter 6: Fringe Benefits Tax

Correction: Should be - The car ownership was transferred to Mr. Alegre.

1. Letter B
P
34,000

Cash

House and lot FMV, higher (ownership transferred)


544,000
Car ownership transferred (P680,000 x 9/10)
612,000
Monetary value of fringe benefits
P1,190,,000

Letter C

Grossed-up monetary value (P1,190,000/68%)


P1,750,000
Problem 6 8

1.
Letter C

P170,000

Monetary value of FB (P80,000/32%) x 68%

2.
Letter B

P250,000

Grossed-up monetary value (P80,000/32%)

3.
Letter D

P
-0 -

A fringe benefit tax is not an income tax of

employer.

Problem 6 9
C
P
61,200

Meal benefits (P10,200 x 6 months)

Educational assistance (P13,600 x 6 months)

81,600
Fringe benefits subject to FBT

P142,800

Salaries are subject to normal tax. The fringe benefits subject to FBT shall only start from the time Mr. Rojas
was promoted to managerial level. His fringe benefits prior to his promotion should be subject to normal tax.
Problem 6 10
B
P 200,000
Deductible from business income (P136,000/68%)

Problem 6 11
A

None, because fringe benefit tax is a final tax and no deduction is allowed from gross compensation income
except personal exemptions and health or hospitalization insurance actually paid if the family income does
not exceed P250,000.
Problem 6 12 D

Zero. No Fringe benefit tax is to be imposed on fringe benefit of rank -in-file employee. Mr. Estrada
is a company messenger. His fringe benefit is subject to withholding tax on wages.

Problem 6 13

Cash INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)

49

SUGGESTED ANSWERS
Chapter 6: Fringe Benefits Tax

1
Letter A

.
Grossed-up monetary value (P6,000,000 x 5% x 50%)/68%
P220,588

Multiplied by FBT rate

32%

Fringe benefit tax

P
70,588

2
Letter B

.
Down payment
P2,000,000

Present value of 4 installments (P1,000,000 x 3.037)


3,037,000

Total
P5,037,000

GMV (P5,037,000 x 5% x 50%)/68%


P185,183

Multiplied by FBT rate

32%

Fringe benefit tax

P
59,258

Problem 6 14
D

P73,529
FB Expense is equal to GMV (P2,000,000 x 5% x 50%)/68%

Problem 6 15
B
P2,040,000
Acquisition cost = fair market value (higher than zonal

value)

Monthly fringe benefit [(P2,040,000 x 5% x 50%)/12]/68%

P 6,250
Problem 6 16
A

Zero. Jeans used of the condominium is not for her benefit but for the benefit of B
Corporation as the former conducts investigation for inventory fraud.

Problem 6 17
A
P47,500,000
Discounted price of the cars (P1,000,000 x 95% x 50)

Add: Transportation, insurance and testing cost


500,000

Total acquisition cost


P48,000,000

Acquisition cost assigned to officers


P9,600,000

[(P48,000,000/50) x 10]

Monetary value of 10 cars [(P9,600,000/5) x 50%]


P 960,000

Divided by number of officers to received the cars

10

Monetary value of fringe benefit of each officer


P
96,000

[Sec. 2.33 (B), Rev. Regs. No. 3-98]

Problem 6 18

1
Letter A

.
Grossed-up monetary value [(P1,000,000/5) x 50%] /68%
P147,059

Multiplied by FBT rate

32%

Fringe benefit tax

P
47,059

2
Letter C

.
Grossed-up monetary value (P1,000,000/5)/68%
P294,117

Multiplied by FBT rate

32%

Fringe benefit tax

P
94,117

Cash INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)

50

SUGGESTED ANSWERS
Chapter 6: Fringe Benefits Tax

Problem 6 19
D
P150,000
Lease price per vehicle [P6,000,000/(20 + 14 + 6)]

Multiplied by number of vehicle assigned to officers

6
Total fringe benefits to officers

P900,000

Annual value of fringe benefits of each officer


P
75,000

[(P900,000/6) x 50%]

Problem 6 20
C
P
850,000

Annual depreciation allowed (P17,000,000/20)

Divided by GMV factor

68%

Grossed-up monetary value

P1,250,000

Multiplied by FBT rate

32%

Annual fringe benefit tax


P
400,000

Divided by number of the members of the BOD

Annual fringe benefit tax for each director


P
80,000

The use of aircraft (including helicopters) owned and maintained by the employer shall be treated as
business use and not b e subject to the fringe benefit tax.
The use of yacht whether owned and maintained or leased by the employer shall be treated as taxable fringe
benefit. The value of the fringe benefit shall be measured based on the depreciation of a yacht at an
estimated useful life of 20 years. [Sec. 2.33 (B), Rev. Regs. No. 3-98]
Problem 6 21
B
P 5,440
Light and power of his residential house

Grocery items
6,800

Reimbursable expense subject to FBT


P12,440

Only the personal expense reimburse.

Problem 6 22
D

P17,000

Grocery items

Pants and T-shirt


3,400
Total monetary value of FB

P20,400
Fringe benefit tax (P20,400/68%) x 32%

P 9,600
Problem 6 23
B
P525,000
FB expense (P476,000 x 75%)/68%

Problem 6 24
D

P 7,680
Fringe benefit tax (P16,320/68%) x 32%

Problem 6 25
C

P27,200
Fringe benefit tax (P57,800/68%) x 32%

Problem 6 26

Cash INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)


51

SUGGESTED ANSWERS
Chapter 6: Fringe Benefits Tax

Letter D
There is no FBT for rank-in-file employee.
Letter B
Benchmark interest (P88,400 x 12%)
P10,608
Less: Actual interest charge (P88,400 x 3%)
P

2,652
Difference

7,956
FBT (P7,956/68%) x 32%
P

3,744
Problem 6 27
D
P
5,440
Professional Tax Receipts

PICPA Lifetime membership

13,600
Goma golf club

68,000
Baguio Country Club
340,000

Total taxable fringe benefits


P427,040
FBT (P427,040/68%) x 32%
P200,960

All membership fees paid by the company in behalf of the comptroller are considered fringe benefits; hence,
subject to FBT.
Problem 6 28
A
P
20,000
Hotel accommodation [($1,600- ($300 x 4)] x P50/$1

Personal expenses ($280 x P50/$1)


14,000
Total amount of fringe benefits
P
34,000
Fringe benefit expense (P34,000/68%)
P
50,000

Problem 6 29
C
P 7,680
Fringe benefit tax [(P54,400 x 30%) / 68%] x 32%

Problem 6 30
B
P600,000
Fringe benefit expense (P408,000/68%)

Problem 6 31
A

Zero. The scholarship was obtained through competitive examination.

Problem 6 32

1.
Letter D

None. Exempt because the educational benefit is related to work. (Employers benefit rule)
Letter B
P65,280 Only the monetary value is deductible because the benefit is tax-exempt.
Problem 6 33
D
P200,000
Grossed-up monetary value (P170,000/85%)

Multiplied by applicable FBT rate


15%
Fringe benefit tax
P

30,000

Problem 6 34 B

Cash INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)


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SUGGESTED ANSWERS
Chapter 6: Fringe Benefits Tax

Fringe benefit tax:

P10,000

Chan (P30,000/75%) x 25%

Lapid (P51,000/68%) x 32%

24,000

Total fringe benefit tax withheld

P34,000

Problem 6 35
C

P100,000
Annual life insurance premium
P1,000,000

Amount of loan

107,000
Less: Present value at 12% (P1,000,000 x 0.893)
893,000

Monetary value of fringe benefit subject to FBT

P207,000
Problem 6 36
C

P 2,040
Insurance premium - VP for Operation (50% x P4,080)

Divided by GMV factor

68%

Grossed-up monetary value

P 3,000

Multiplied by FBT rate

32%

Fringe benefit tax

P 960

Problem 6 37

P12,000
1.
Rice subsidy

Nontaxable uniform and clothing allowance

4,000

Employees achievement award

10,000

Nontaxable medical allowance to dependents (P125 x 12)

1,500

Laundry allowance

3,600

Actual medical benefits

10,000

Total nontaxable fringe benefits

P41,100
2.
Car

P214,000

Divided by grossed-up rate

68%

Grossed-up monetary value

P314,705

Multiplied by FBT rate

32%

Fringe benefit tax

P100,705

Note: The new BIR interpretation is that the excess of the actual fringe benefit given shall be
taxable after deducting the de minimis threshold amount. The excess amount of fringe benefit
shall be subject to withholding tax on wages whether the recipient employee is a rank-in-file or
managerial employee.
Problem 6 38
P13,464
1.
Housing benefit (P12,240 x 110%)

Lions Club membership fee


20,400

Total
P33,864

Divided by grossed-up rate


68%

Taxable amount of FB
P49,800

2.
Fringe benefit tax (P49,800 x 32%)
P15,936

Violeta Vicente cannot deduct the FBT from her gross income.
San Miguel Corporation, however, can deduct the entire amount of grossed-up monetary value amounting to
P49,800 from the gross income of the corporation as fringe benefit expense.

Cash INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)


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SUGGESTED ANSWERS
Chapter 6: Fringe Benefits Tax

Problem 6 39

P68,000
A.
1.
Monetary value

2.
FBT (P68,000/68%) x 32%

P32,000
B.
1.
Down payment

P200,000

Add: Present value of P180,000 installment at 18% per

year:

152,550

Yr. 1: (P180,000 x 0.8475)

Yr. 2: (P180,000 x 0.7182)

129,276

Yr. 3: (P180,000 x 0.6086)

109,548

Yr. 4: (P180,000 x 0.5158)

92,844

562,896

Yr. 5: (P180,000 x 0.4371)

78,678

Acquisition cost

P762,896

Divided by

Monetary value

P152,579

2.
FBT (P152,579/68%) x 32%

P
71,802

C.
1.
Monetary value (P816,000 x 150%)

P1,224,000

2.
FBT (P1,224,000/68%) x 32%

P
576,000

D.
1.
Annual monetary value = annual depreciation (P1,020,000/25)

P
40,800

2.
FBT (P40,800/68%) x 32%

P
19,200

E.
1.
Monetary value (P244,000 x 50%)

P
122,000

2.
FBT (P122,000/68%) x 32%

P
57,412

F.
1.
Monetary value (P1,360,000 x 5% x 50%)

P
34,000

2.
FBT (P34,000/68%) x 32%

P
16,000

Problem 6 40

1. FBT condominium [(P6,000,000 x 5% x 50%)/68%] x 32%

P
70,588

FBT car:
P

300,000

Down payment

Present value of P240,000 yearly installment at 12%

865,200

(P240,000 x 3.605)

Acquisition cost
P1,165,200

Divided by

Monetary value
P
233,040
P
109,666

FBT car (P233,040/68%) x 32%

2.
Journal entries:

70,588

FB expense

70,588

Cash / FBT payable

FB expense

342,706

233,040

Car

Cash / FBT payable

109,666

Cash INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)


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SUGGESTED ANSWERS

Chapter 6: Fringe Benefits Tax

Problem 6 41
P 125,000
1.
Monetary value assignment of condominium (P5,000,000 x 5% x

50%)

2.
Grossed-up monetary value of condominium (P125,000/68%)
P 183,823
3.
Fringe benefit tax on the use of condominium (P183,823 x 32%)
P 58,823
4.
Grossed-up monetary value of the car (P500,000/5)/68%
P 147,059
5.
FBT of car (P147,059 x 32%)
P 47,059

None. The cash is a fixed compensation income


Zero. Compensation income is subject to normal income tax.

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