Professional Documents
Culture Documents
CHAPTER 8
Problem 8 3
1. C
2. C
3. A
4. D
5. A
6. B
7. A
8. C
9. C
10. D
Problem 8 7
Problem 8 4
1. D
2. B
3. B
4. C
5. A
6. D
7. C
8. C
9. A
10. A
Problem 8 5
1. A
2. C
3. C
4. A
5. D
6. C
7. A
8. B
9. A
10. C
Problem 8 6
1. C
2. C
3. B
4. C
5. C
6. D
7. D
8. A
9. C
10. C
Expensed Capitalized
P60,000
50,000
P20,000
10,000
9,000
1,000
.
P40,000
P110,000
P400,000
40,000
P440,000
P20,000
10,000
5,000
4,000
P39,000
Problem 8 10
D
Depreciation expense (P1,000,000 x 40%)/25
Loss of business equipment
Deductible expense
P16,000
38,000
P54,000
Problem 8 11
D
1. Letter A
No personal or business expense is
deductible.
2.
Letter B
Depreciation (P20,000 x 10%)
Repair (P100,000 x 10%)
Office supplies
Total deduction
Problem 8 12
P 2,000
10,000
6,000
P18,000
Tax laws
P200,000
30,000
.
P230,000
GAAP
P200,000
10,000
50,000
30,000
5,000
P295,000
Note: For tax purposes, the miscellaneous expense is not deductible because
it was not reported last year. For accounting purposes, the miscellaneous
expense can be deducted as prior period adjustment from retained earnings.
Problem 8 13
Sales
P300,0
00
40
%
P120,0
00
P100,00
0
500,00
0
P600,00
0
40
%
P240,00
0
Problem 8 16
Sales
Less: Cost of sales
Basis of OSD
Multiplied by OSD rate
Optional standard deduction
Problem 8 17
B
Operating expense before representation expense
(P2,000,000 P300,000)
Representation expense Actual
- Limit (P20,000,000 x
0.005)
- Lower
P1,700,00
0
P300,000
100,000
100,00
0
P1,800,00
0
B
P120,00
0
24,000
6,000
5,000
60,000
( 9,90
0)
P205,10
0
Rent expense
Advertising expense
Depreciation expense
Interest expense
Tax differential on interest income (P30,000 x 33%)
Total itemized deductions
Sales
Cost of sales
Gross income
Less: OSD or Itemized deductions
(P1,200,000 x 40%)
Net
income
exemption
before
personal
Using
OSD
P1,200,0
00
- 0
P1,200,0
00
Using
Itemized
P1,200,000
480,0
00
P
720,000
- 0 -
700,000
P 500,000
P 500,000
P 480,000
700,000
(P220,000)
P6,000,000
1,000,000
P7,000,000
Problem 8 21
C
Assume bonus is computed after tax but before bonus. The answer is letter D
= P8,143, computed as follows:
Net income before
charitable
contribution
(P75,000 + P5,000)
Less: Deductible contribution (P80,000 x 5%)
lower of actual
Net income before income tax and bonus
B = 15% (76,000 T)
T = 30% (76,000 B)
B = 15% [76,000 30% (76,000 B)]
B = 15% (76,000 24,320 + 30%B)
B = 11,400 3,420 +0.045B
B = 7,980
P 80,000
4,000
P 76,000
P76,000
20,285
P55,715
15%
P 8,356
Problem 8 22
B
Monthly salary
Death benefits
Terminal pay
Continuous compensation after the burial for three
months
Total deductible expenses
P 5,000
50,000
25,000
15,000
P95,000
Note: Donation for coffin and other wake expenses is not business or
compensation related and, hence, not deductible. (Sec. 72, Rev. Regs. 2)
Problem 8 23
Purchases
Decreased in inventory
Increased in inventory
Inventoriable
cost
P300,000
20,000
.
P320,000
Problem 8 24 D
Traveling expenses (P50,000 + P200,000)
Fringe benefit expense (P68,000/68%)
Transportation expense messenger
Total allowable expense
Problem 8 25 B
Monthly rent (P20,000 x 60%) x 2 mos from Oct. 31 to
Dec. 31
Insurance premium (P3,000 x 60%) x 2/12
Real property tax (P1,500 x 60%) x 2/12
Deductible rent expense
Note: The city services is not a rent expense.
Supplies
expense
P40,000
( 3,000)
P37,000
P250,000
100,000
40,000
P390,000
P24,000
300
150
P24,450
P96,000
2. Letter D
Actual cash collection for rent
P150,000
Problem 8 27 D
Monthly rental expense
Monthly depreciation (P600,000/8)/ 12
Monthly deductible expense
Problem 8 28 C
Rent expense (P5,000 x 12)
Add: Depreciation expense [(P950,000/9.5) x
11/12]
Deductible expense in 200y
P2,000
6,250
P8,250
P 60,000
91,667
P151,667
At the start of the used of the building, the remaining period for the
contract of lease is 9.5 years. The salvage value is ignored in the
computation of the depreciation because T Foods could no longer
benefit on it since the improvement on the land will be owned by the
lessor at the end of the 10-year contract of lease.
Problem 8 29
1. Letter B
Trading - Limit lower (P5,000,000 x .005)
P25,000
2. Letter C
Servicing actual lower
P30,000
Problem 8 30
P10,00
0
70%
P
7,000
P10,00
0
P3,500
30%
P
3,000
3,000
P6,500
Problem 8 31 A
Interest expense
Tax differential (P50,000 x 33%)
Deductible interest expense
Problem 8 32
P40,000
(16,500)
P23,500
paid in advanced
paid to a brother
paid on delinquency taxes
on borrowings to finance his family
paid to finance petroleum exploration
Problem 8 34
60,000
P275,000
30,000
.
P 8,000
Nondeductible
P 20,000
12,000
P 8,000
Salary expense
15,000
B
Deductible
Interest
Interest
Interest
Interest
home
Interest
Total
P200,000
100,000
P162,000
P
60,000
16,50
0
P
76,500
P600,00
0
Rent expense
Deductible interest expense
P16,500)
Total itemized deductions
bank
loan
(P40,000
200,000
23,50
0
P823,50
0
P30,000
(24,000)
P 6,000
Problem 8 36 A
Documentary stamp taxes
Local tax (P6,000 P800 P200)
Municipal tax
Community tax
Deductible taxes
P 1,000
5,000
2,000
1,500
P9,500
Note: The fringe benefit income taxes to key officers and rank-in-file
employees are to be classified as deductible fringe benefit expense and not
tax expense.
Problem 8 37
Business taxes
Documentary stamp taxes
Automobile registration fees
Postage stamp taxes
Import duty taxes
Total deductible taxes
Problem 8 38
D
Unadjusted net income (P520,000
P200,000)
Add back: Income tax foreign country
Adjusted net income
Personal exemption
P 20,000
1,000
3,000
500
50,000
P 74,500
P320,000
10,000
P330,000
(50,000)
P280,000
Note: The P10,000 income tax paid to foreign country is better to be treated
as tax credit rather than as operating expense.
Problem 8 39 A
Asset of Oliva
Payment to government (P200,000 x 50%)
Balance
P 60,000
(100,000)
(P40,000)
P100,000
Problem 8 40
B
Bad debts from business actual written off
(P100,000 x 40%)
Bad debts from profession actual written off
Deductible bad debts expense
P40,000
50,000
P90,000
Problem 8 41 D
Annual depreciation expense (P50,000
P5,000)/5
Multiplied by ratio of months used during the year (from June 30
to Dec. 31)
Depreciation expense 200B
Problem 8 42
A
Annual depreciation (P2,300,000/11.5 years)
Multiplied by ratio of months used in 200B (July
1 to Dec.)
Depreciation expense
Problem 8 43
D
Oil drilling machine (P800,000 x 90%)/8 years
Oil extracting machine (P900,000 x 90%)/10 years
limit
Computers (P100,000 x 90%)/4 years
Delivery truck (P200,000 x 90%)/5 years limit
Annual depreciation expense
P9,000
6/12
P4,500
P200,000
6/12
P100,000
P
90,000
81,000
22,500
36,00
0
P229,500
method on the basis of an estimated useful life of five (5) years. (Sec.
34(F)(4), NIRC)
Problem 8 44 C
Depletion base (P6,000,000 P1,000,000 +
P300,000)
Divided by number of extractible estimated tons
Depletion per ton
Multiplied by number of tons extracted during
the year
Depletion expense
P5,300,000
5,000,000
P
1.06
800,000
P 848,000
Problem 8 45
1 Letter D
.
Depletable costs, January 1, 200x
Exploration costs
Intangible development costs
Total
Less: Depletion expense (P15,000,000/7,500,000)
1,200,000
Adjusted basis
Divided by remaining reserves
(5,000,000 + 2,500,000 1,200,000)
New depletion rate/ unit
2
.
P 1,260,000
6,300,000
P 2.00
Letter A
Depletion cost 2007 (P2 x 1,200,000 units)
3
.
P12,500,000
1,000,000
1,500,000
P15,000,000
2,400,000
P2,400,000
Letter B
Value of production (P12 x 1,200,000 units)
Less: Production and selling costs:
Mining costs
P14,400,000
P2,000,0
00
3,000,00
0
1,500,00
0
1,000,0
00
Milling costs
Marketing expenses
Depreciation expense
Net income from operation
Multiplied by limit percentage
Deductible
amount
fro
exploration
and
7,500,000
P 6,900,000
25%
P 1,725,000
Letter B
Current exploration and development cost (P1,500,000
+ P1,000,000)
Less:
Deductible
amount
of
exploration
and
development cost (see 3)
Exploration and development cost chargeable to
succeeding years
Problem 8 46 B
Deductible expense:
1,725,000
P 775,000
Capitalized
Outright
expense
P180,000
P10,000,000
Problem 8 47
1 Letter B
2.
P2,500,000
200A
200B
800,000
800,000
20,000
.
20,000
10,000
820,000
830,000
200A
200B
400,000
200
C
300,000
Year X
700,000
Year Y
600,000
10,000
10,00
0
610,000
Letter A
Actual retirement payments
Problem 8 48
200
C
500,000
20,000
10,00
0
530,000
710,000
Note: Only the excess of the actual contribution over the normal valuation is
to be amortized over 10 years.
Problem 8 48 B
Allowed deductible contribution (P200,000 x 5%)
P10,000
[(P60,000
P10,000
+
Problem 8 51 B
Income before charitable contribution (P500,000
P130,000)
Multiplied by percent of limit
Allowed deductible contribution - lower
Problem 8 52
PPHHI per month
P6,500
P370,00
0
5
%
P
A
P200
Problem 8 53 D
Not allowed to deduct PPHHI because family income exceeded P250,000 per
year.
Problem 8 54 C
Actual value of donation priority program
Adopt a school program incentive (P1,000,000 x
50%)
Deductible donation
Problem 8 55
1 Operating expenses (1,000,000 x 30%) P50,000
.
Interest expense (P50,000 (P40,000/80%) x 33%]
Total itemized deductions
Add: NOLCO
Total deductible expenses
P1,000,000
500,000
P1,500,000
P250,000
33,500
P283,500
500,000
P783,500
P3,000,00
0
40
%
P1,200,00
0
Gross income
P3,000,00
0
1,200,00
0
P1,800,00
0
Less: OSD
Net taxable income
Problem 8 56
Salaries of assistants
Traveling expenses
Light and water office
Stationeries and supplies
Office rent
Total operating expenses before contribution
Add: Contribution subject to limit (P500,000 P176,850) x
10%)
Allowable itemized deductions
P 96,000
11,000
7,890
1,960
60,000
P176,850
32,315
P209,165
Problem 8 57
Sole
Proprietorsh Corporati Partnershi
ip
on
p
P 5,000 P 5,000 P 5,000
40,000
40,000
40,000
50,000
50,000
50,000
170,000
.
P 265,000
125,00
0
P 220,000
125,00
0
P 220,000
200A
1,000,00
0
25,00
0
1,025,00
0
200B
900,000
50,000,0
00
1,100,0
00
51,100,0
00
1,025,0
00
50,075,0
00
60,000,000
25,000
925,000
1,200,000
61,200,000
925,000
60,275,000
Problem 8 59
Salary expenses
Retirement (P250,000 + P50,000/10)
Representation expense (P10,000,000 x .005)
Interest expense paid to the BIR - full
Interest expense limit:
(P100,000 (P96,000/80%) x 33%)
Depreciation expense
Rent expense
Group insurance expense
Bad debts expense (P100,000 x 20%)
Contribution expenses:
TESDA priority project (500,000 x 1.5)
Local government limit (lower is actual)
Total itemized deductions
Corporati
on
500,000
255,000
50,000
20,000
Individua
l
500,000
255,000
50,000
20,000
60,400
40,000
250,000
50,000
20,000
60,400
40,000
250,000
50,000
20,000
750,000
100,000
750,000
100,00
0
2,095,40
0
2,095,400
Individual
580,000
100,000
620,000
195,000
180,000
30,000
50,000
203,500
Corporatio
n
580,000
100,000
620,000
195,000
180,000
30,000
50,000
203,500
1,958,500
1,958,500
750,000
750,000
400,000
400,000
100,000
100,000
.
.
3,208,500
Computation of sales:
Financial income
P
5,000,000
30,000,00
0
Cost of sales
Operating expenses deducted
(P680,000 + P370,000 + P1,000,000 + P800,000 +
P200,000
+ P300,000 + P150,000 + P160,000 +
P800,000)
Total sales
2
.
Individual
Gross income (P39,460,000 P30,000,000)
3,208,500
P9,460,00
0
4,460,0
00
P39,460,0
00
Corporatio
n
P9,460,00
0
3,208,50
0
P6,251,50
0
3,208,50
0
P6,251,50
0