Business Taxes

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 52 SUGGESTED ANSWERS Chapter 7: BUSINESS TAXES

CHAPTER 7

BUSINESS TAXES Problem 7-1 1. True 2. False – this is a casual sale not a business. 3. True 4. True 5. False – not business because contrary to law. 6. False – employment is not business. 7. False – importation for personal use is subject to VAT, which is a business tax. 8. True 9.

False – NonVAT business is subject to VAT if its annual gross sales or receipts exceeds P1,919,500. 10. False – Only one TIN is issued to every taxpayer regardless of the number of his business. 11. True 12. False – the registration is after the end of the year on or before January 31. Problem 7-2 1. False – the surcharge is 50%. 2. True 3. True 4. False – irrevocable for a period of 3 years. 5. True 6. True 7. False – Input VAT is charged as cost of purchases which is a product cost. 8. True 9. False – treated as tax credit as Input VAT. 10. True 11. False – This is a description of official receipt. 12. True Problem 7-3 1. False – shown as a separate item, not time. 2. False – Still need to acquire approval from BIR to become non-VAT. 3. True 4. False – Commercial activity is business. 5. 6. 7. 8. 9.

False – Nonresident alien/foreign person is not subject to the rule of regularity, hence, considered engaged in business. False – liable to VAT without the benefit of creditable input VAT. False – Compensation from employment is not subject to VAT. False – now more than P1,919,500 per year.

False – Not in the case of VAT person. VAT paid on purchases can be claimed as creditable input VAT. 10. False – employees are also required to register to BIR by obtaining their TIN. 11. True 12. False – only one TIN per person.

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 53 SUGGESTED ANSWERS Chapter 7: BUSINESS TAXES

Problem 7-4 1. True 2. False – P500 for each establishment 3. False – Cooperatives are also exempt from P500 registration fee 4. True 5. True 6. False – Required to become VAT if total gross sales/receipts exceed P1,919,500 a year. 7. True 8. True 9.

False – should issue official receipt for the amount received. Commercial invoice is sales invoice. 10. False – the 3 year period is applicable only to those who registered first as VAT. A non-VAT person can shift anytime to VAT system. 11. True 12. True Problem 7-5 1. D 2. C 3. B 4. A 5. C 6. A 7. A,B,C & D 8. B 9. C 10. C

Problem 7-6 1. B 2. D 3. C 4. A 5. B 6. D 7. A 8. A 9. B 10. D

Problem 7-7 1. A 2. D 3. A 4. D 5. C 6. D 7. D 8. A 9. D 10. B

Problem 7-8 C Annual registration fee = P500 Problem 7-9 B Registration fee of: Au Chemical Supplies Gusto Eatery Total annual registration fee

P 500 500 P1,000

Problem 7-10 A Nonresident foreign persons are not required to register to the BIR. It is the obligation of the entity obtaining their services to pay the VAT and withhold the related income tax. Problem 7-11 A Cooperatives are exempt from registration fee. Problem 7-12 C Total amount in the invoice [P50,000 + (P12% of P50,000)] Problem 7-13 B Cost (P84,000/1.12) Add: Profit margin (P75,000 x 20%) Sales price (120% of cost) Add: VAT (P90,000 x 12%) Total VAT sales invoice amount

P56,000 P 75,000 15,000 P 90,000 10,800 P100,800

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 54 SUGGESTED ANSWERS Chapter 7: BUSINESS TAXES

Problem 7-14 A Business tax payable (P2,000,000 x 12%)

P240,000

Problem 7-15 D Business tax payable (P200,000 x 3%)

P6,000

Problem 7-16 A Output VAT (P300,000 x 12%) Less: Input VAT (P200,000 + P100,000) x 12% VAT payable Problem 7 – 17

P36,000 36,000 P - 0 -

D

Zero. M is merely a collecting agent of the BIR, not a direct payee of the VAT. VAT is an indirect tax. Problem 7 – 18 D Business tax (P1,500,000 x 3%)

P45,000

Problem 7-19 C Equity shares (P100,000 x 0.005) Long distance (P10,000 x 10%) Total business tax

P 500 1,000 P1,500

Problem 7-20 C Output VAT (P1,000,000 x 12%) Less: Input VAT – purchases from VAT supplier (P800,000 x 12%) Net business tax payable or net VAT payable

P120,000 96,000 P 24,000

Problem 7-21 B Output VAT (P300,000 x 12%) Less: Input VAT (P268,800/9.3333) Net business tax payable or net VAT payable Problem 7-22 b. Purchases Input VAT Cash

B

Problem 7-23 a. Purchases Cash

A

150,000 18,000

112,000

P 36,000 28,800 P 7,200

168,000

112,000

Problem 7-24 D Surcharge (P120,000 x 50%)

P60,000

Problem 7-25 A Sales invoice 0024: OPT (P100,000 x 3%) Sales invoice 0025: OPT (P200,000 x 3%) Add: VAT Surcharge (P24,000 x 50%) Total amount to be paid to the BIR

P 3,000

P24,000 12,000

P

6,000 36,000

42,000 P45,000

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 55 SUGGESTED ANSWERS Chapter 7: BUSINESS TAXES

Problem 7-26 C Output VAT (P2,500,000 x 12%) Less: Input VAT on purchases from: VAT supplier inclusive of VAT (P1,120,000/9.333) Non-VAT supplier inclusive of VAT (P560,000/9.333) Net VAT payable

P300,000 P120,000 60,000

180,000 P120,000

Problem 7-27 1.

Letter C Purchases, excluding VAT [P1,680,000 - (P1,680,000/9.333)] Add: Beginning inventory Total Less: Ending inventory, excluding VAT Beginning inventory Increase in inventory, excluding VAT [P112,000 – (P112,000/9.333)] Cost of sales

2.

Letter A Sales Less: Cost of sales Gross income Less: Operating expenses (P268,000 – P18,000) Net taxable income Multiplied by normal corporate income tax rate Income tax due

3.

Letter D Output VAT (P2,000,000 x 12%) Less: Input VAT on purchases (P1,680,000/9.333) Input VAT on expenses Net VAT payable

P1,500,000 200,000 P1,700,000 P200,000 100,000

300,000 P1,400,000

P2,000,000 1,400,000 P 600,000 250,000 P 350,000 30% P 105,000

P180,000 18,000

P240,000 198,000 P 42,000

Note: The input VAT on the increase in inventory is already included in the total input VAT per purchases. Hence, not to be used again as input tax credit. Problem 7-28 1. Letter A Purchases from nonVAT supplier Add: Purchases from VAT supplier, including VAT Decrease in inventory Cost of sales

P224,000 150,000

2. Letter B Sales, excluding VAT [P1,344,000 – (P1,344,000/9.333) Less: Cost of sales Gross income Less: Operating expenses Net income Less: Basic personal exemption Net taxable income 3. Letter D OPT (P1,200,000 x 3%) Add: VAT collected (P1,344,000 – P1,200,000) Surcharge (P144,000 x 50%) Total amount of business taxes including surcharges

P600,000 374,000 P974,000 P1,200,000 974,000 P 226,000 76,000 P 150,000 50,000 P 100,000

P144,000 72,000

P 36,000 216,000 P252,000

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 56 SUGGESTED ANSWERS Chapter 7: BUSINESS TAXES

Problem 7-29 1. Annual registration fee for main store (P500) + (P500) for sales outlet 2.

P 1,000

No, because the total sales during the year do not exceed P1,919,500.

Problem 7-30 Yes, the cooperative is required to register to the BIR. No registration fee or annual registration fee shall be collected from cooperatives. Problem 7-31 Annual registration fee (1 + 50 + 10) x P500 Add: Interest (P30,500 x 20% x 8/12) Surcharge (P30,500 x 25%) Total amount to be paid to the BIR

P 30,500

P4,067 7,625

11,692 P 42,192

Note: Registration shall be made on or before the last day of January of the following year Problem 7-32 1.

The business should be registered as nonVAT because the sales do not exceed P1,919,500 in a year.

2.

Sales invoice because official receipts are issued only when there are collections.

3.

Official receipts.

Problem 7-33 Net VAT payable Add: Input VAT (P5,040,000 x 12%) Output VAT Divide by Sales

P

180,000 604,800 P 784,800 12% P6,540,000

Problem 7-34 1. Satur Nino is not subject to VAT because the sale is a casual sale of personal property. 2.

Assuming that the FMV remains the same, the VAT of ROX Realty would be twelve percent (12%) of the FMV (higher value), hence, P4,200,000 or (P35,000,000 x 12%).

Problem 7-35 1. Percentage tax (P1,680,000/1.12) x 3% Add: VAT (P1,680,000/9.333) Surcharge (P180,000 x 50%) Total business tax and surcharges 2. Percentage tax (P2,800,000/1.12) x 3% Add: VAT (P2,800,000/9.333) Surcharge (P300,000 x 50%) Total business tax and surcharges Problem 7-36 Input VAT from VAT supplier (P280,000/9.333) Input VAT from non-VAT supplier (P56,000/9.333) Creditable input VAT

P180,000 90,000

P300,000 150,000

P 45,000 270,000 P315,000 P 75,000 450,000 P525,000 P30,000 6,000 P36,000

Note: A VAT-registered buyer is allowed to report input VAT on purchases from a non-VAT supplier collecting VAT.

(1) (2)

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 57 SUGGESTED ANSWERS Chapter 7: BUSINESS TAXES

Problem 7-37 1. As depreciable capital goods. Capital gain (P4,424,000 – P2,700,000) Multiplied by corporate tax rate Income tax due Add: Other taxes paid: Custom duties (P1,500,000 x 50%) Excise tax (P2,250,000 x 20%) Input VAT (P2,700,000 x 12%) Total revenue contributed to government

P1,724,000 30% P 517,200 P 750,000 450,000 324,000

1,524,000 P2,041,200

Supporting Computation: Purchase value Add: Custom duties (P1,500,000 x 50%) Excise tax (P2,250,000 x 20%) Total landed cost – if capital asset

P 750,000 450,000

P1,500,000 1,200,000 P2,700,000

Note: The input VAT of depreciable capital goods used in business (not as inventory) shall be amortized within 60 months or the estimated useful life of the asset, whichever is lower. 2. As ordinary asset Gross income (P4,424,000 – P2,700,000) Less: OSD (P1,724,000 x 40%) Net income Multiplied by corporate tax rate Normal tax Add: Other taxes paid Custom duties (P1,500,000 x 50%) Excise tax (P2,250,000 x 20%) Input VAT (P2,700,000 x 12%) Total revenue contributed to government Supporting Computation: Purchase value Add: Custom duties (P1,500,000 x 50%) Excise tax (P2,250,000 x 20%) Total landed cost – if ordinary asset

P1,724,,000 689,600 P1,034,400 30% P 310,320 P 750,000 450,000 324,000

P 750,000 450,000

1,524,000 P1,834,320

P1,500,000 1,200,000 P2,700,000

Note: The input VAT of ordinary asset (inventory) shall be allowed as input tax credit against the output VAT during the taxable quarter. Problem 7-38 1. VAT-registered business a. Inventory, beginning Input VAT Cash Inventory, beginning Cash

300,000 36,000 200,000

336,000 200,000

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 58 SUGGESTED ANSWERS Chapter 7: BUSINESS TAXES

b.

c.

500,000 60,000

Purchases Cash

300,000

Cash Purchase returns Input VAT

56,000

Cash Purchase returns

20,000

d.

Cash Sales Output VAT

e.

Sales returns Output VAT Cash

150,000 18,000

Output VAT Input VAT VAT payable/cash

162,000

f.

2.

Purchases Input VAT Cash

Non-VAT business a. Inventory, beginning Cash

b.

c.

1,680,000

336,000

Inventory, beginning Cash

200,000

Purchases Cash

560,000

Purchases Cash

300,000

Cash Purchase returns

56,000

Cash Purchase returns

20,000

d.

Cash Sales

e.

Sales returns Cash

f.

Business tax expense (P1,350,000 x 3%) Business tax payable/cash

1,500,000 150,000 40,500

560,000 300,000 50,000 6,000 20,000 1,500,000 180,000

168,000 90,000 72,000

336,000 200,000 560,000 300,000 56,000 20,000 1,500,000 150,000 40,500