Chapter 10 - Concepts of Vat 7th

BUSINESS AND TRANSFER TAXATION 7th Edition (BY: VALENCIA & ROXAS) 72 SUGGESTED ANSWERS Chapter 10: CONCEPTS OF VAT

CHAPTER 10

CONCEPTS OF VAT Problem 10–1 1. True 2. False – Some sales are VAT-exempt. 3. False – the buyer is legally liable for the payment of VAT on importation of goods or services. 4. True 5. True 6. False – Goods and services sold outside the Philippines are either zero-rated or VAT-exempt. 7. False – VAT is not a specific tax, but an ad valorem tax because its computation is based on the value of goods or services sold. 8. True 9. False – 4%. 10. True 11. True 12. False – regardless of the amount of sales, a VAT-registered person is subject to VAT. 13. False – the privilege of input VAT is granted only to VAT-registered taxpayer. 14. False – Subject to VAT whether for business or not. 15. False – To be treated separately. Problem 10–2 1. True 2. False – should not be subjected to the same tax. 3. False – VAT sales invoice or VAT official receipt. 4. True 5. True – for as long as the buyer is VAT-registered. 6. False – VAT refund. 7. False – excess of input VAT over output VAT. 8. False – importation is subject to VAT whether for business or personal use. 9. True 10. True 11. False – goods for sale is not covered by the P1,000,000 threshold. The goods must depreciated/amortized as a result of use in business. 12. False – only zero-rated/ effectively zero-rated sales and cancellation of VAT registration can apply for TCC issuance. 13. True 14. False – the resident lessee or licensee must file the VAT return in the name of nonresident foreign entity. 15. True Problem 10–3 1. True 2. False – deductible from the VAT-registered buyer’s output VAT. 3. True 4. True 5. False – the transitional input VAT is allowed only once upon shifting from non-VAT to VAT. 6. False – presumptive input VAT is allowed only to raw materials used in the production of few products such as milk, sardines, mackerel, refined sugar, cooking oil, and instant noodles. 7. True 8. True 9. False – input VAT is recognized in effectively zero-rated sales. 10. False – within 2 years. ALL RIGHTS RESERVED BY VALENCIA EDUCATIONAL SUPPLY. This solution manual is not for sale. Any person who sells it in photocopy, mechanical or electronically is unauthorized and shall be prosecuted in accordance with law.

BUSINESS AND TRANSFER TAXATION 7th Edition (BY: VALENCIA & ROXAS) 73 SUGGESTED ANSWERS Chapter 10: CONCEPTS OF VAT

11. 12. 13. 14. 15.

True True False – more than P1,000,000. True True

Problem 10–4 1. B 2. A 3. B 4. D 5. C 6. D 7. C 8. C 9. A 10. C 11. A 12. B 13. A

Problem 10–5 1. C 2. D 3. A 4. B 5. C 6. D 7. C 8. D 9. B 10. D 11. A 12. C

Problem 10–6 D The sale of Y is not subject to VAT because its registration is nonVAT and its sales do not exceed P1,919,500. Problem 10–7 A Mar Roxas – non-VAT Baguio City Government SSS Baguio San Marino Total amount subject to VAT

P300,000 200,000 100,000 400,000 P 1,000,000

Problem 10–8 C Sales to: Regular customers Government Employees Total amount of sale subject to VAT

Within P2,000,000 500,000 300,000 P2,800,000

Problem 10–9 D The ultimate consumer is not VAT-registered and does not sale the products. Therefore, no output VAT. If the consumer is VAT-registered still there is no output VAT, but instead input VAT. Problem 10–10 A Output VAT (P5,000,000 + P5,000,000) x 12% Less: Input VAT (P6,720,000/9.333) Net VAT payable Problem 10–11 C Sales per VAT invoice, no output VAT is shown (P224,000/9.333) Sales per VAT invoice, output VAT shown separately amounted to P30,000 inclusive in the invoice (P330,000/9.333) Sales per purchase order – delivered (P100,000 x 12%) Amount of output VAT

P1,200,000 720,000 P 480,000 P24,000 35,358 12,000 P71,358

ALL RIGHTS RESERVED BY VALENCIA EDUCATIONAL SUPPLY. This solution manual is not for sale. Any person who sells it in photocopy, mechanical or electronically is unauthorized and shall be prosecuted in accordance with law.

BUSINESS AND TRANSFER TAXATION 7th Edition (BY: VALENCIA & ROXAS) 74 SUGGESTED ANSWERS Chapter 10: CONCEPTS OF VAT

Problem 10–12 D Total manufacturing costs Delivery and insurance Excise tax (P1,000,000 x 10%) Gross margin (P1,000,000 x 70%) Total sales price Multiplied by VAT rate Output VAT

P1,000,000 200,000 100,000 700,000 P2,000,000 12% P 240,000

Problem 10–13 B Fair market value of machine Freight charges Insurance charges Duty tax Excise tax Total Vatable amount Multiplied by VAT rate VAT on importation

P1,500,000 100,000 50,000 150,000 75,000 P1,875,000 12% P 225,000

Problem 10-14 B Output VAT [(P1,800,000/30%)/40%] x 12% Less: Input VAT (P8,960,000/9.333 Net VAT payable

P1,800,000 960,000 P 840,000

Problem 10 – 15 D Total sales (P2,000,000 + P800,000) Multiplied by VAT rate VAT payable

P2,800,000 12% P 336,000

Problem 10 – 16 B Output VAT (P40M x 4 x 12%) Less: Ouput VAT (P180M /5) x 4 x 12%) Net VAT payable Supporting computations: Purchase price Excise taxes Duty taxes Insurance Freight Total landed cost Problem 10 – 17 D Gross receipts – sale of electricity Sale of assets: Power general assets Other real properties Total Multiplied by VAT rate Output VAT

P19,200,000 17,280,000 P 1,920,000 P100,000,000 40,000,000 30,000,000 5,000,000 5,000,000 P180,000,000 P 5,000,000 30,000,000 20,000,000 P55,000,000 12% P 6,600,000

Problem 10 – 18 A Zero. The business is non-VAT; hence, no input VAT is allowed.

ALL RIGHTS RESERVED BY VALENCIA EDUCATIONAL SUPPLY. This solution manual is not for sale. Any person who sells it in photocopy, mechanical or electronically is unauthorized and shall be prosecuted in accordance with law.

BUSINESS AND TRANSFER TAXATION 7th Edition (BY: VALENCIA & ROXAS) 75 SUGGESTED ANSWERS Chapter 10: CONCEPTS OF VAT

Problem 10 – 19 A Output VAT (P425,600/9.3333) Less: Input VAT (P448,000/9.3333) Input VAT carry-over

P45,600 48,000 P 2,400

VAT-registered buyers of non-VAT business that collects VAT is allowed to deduct input VAT. Problem 10 – 20 D Input VAT from: VAT invoice in the name of Capoy Enterprises (P224,000/9.333) NonVAT invoice with VAT charges (P168,000/9.333) Total creditable input VAT

P 24,000 18,000 P42,000

The VAT invoice in the name of Capuypoy Trading is not allowed because it does not bear the name of Capoy Enterprises. Problem 10 – 21 B Input VAT from VAT purchased invoice (P1,792,000/9.333) Non-VAT purchase invoice (P313,600/9.333) Transitional input VAT Total input VAT from purchases Less: Proportionate input VAT for sales to the government (P192,000 + P33,600) x 500/2,000 Input VAT balance Add: Standard input VAT on sales to government (P560,000/9.333) x 7% Total creditable input VAT

P192,000 33,600 5,800 P231,400 56,400 P175,000 35,000 P210,000

Problem 10 – 22 A Purchases per VAT invoice amount (P140,000/9.3333) Payments for VAT person’s services inclusive of VAT (P1,232/9.3333) Payment for services of VAT person, net of VAT (P917 x 12%) Total available input VAT

P 15,000 132 110 P 15,242

Problem 10 – 23 C Input VAT from: Machine 1 – inventory (P1,680,000/9.333) Amortization of input VAT from: Machines 2 and 3 [(P672,000 + P560,000)/9.333]/60 months Creditable input VAT – January

P180,000 2,200 P182,200

Note: Machines 2 and 3 are depreciable capital goods with aggregate costs of P1,100,000 excluding VAT; hence, their input VAT is subject to amortization of 60 months or estimated useful life, whichever is shorter. Problem 10 – 24

D

Output VAT Input VAT from purchases of: Goods Capital goods – March acquisition Capital goods – February acquisition Net VAT payable (refundable)

January P120,000

February P156,000

March P180,000

(72,000)

(84,000)

. P 48,000

( 3,000) P 69,000

(96,000) (60,000) ( 3,000) P21,000

Problem 10 – 25 1. Letter B Total costs incurred to date ALL RIGHTS RESERVED BY VALENCIA EDUCATIONAL SUPPLY. This solution manual is not for sale. Any person who sells it in photocopy, mechanical or electronically is unauthorized and shall be prosecuted in accordance with law.

BUSINESS AND TRANSFER TAXATION 7th Edition (BY: VALENCIA & ROXAS) 76 SUGGESTED ANSWERS Chapter 10: CONCEPTS OF VAT

Year 1 Year 2 Multiplied by percent of construction costs subject to VAT Construction costs subject to VAT Multiplied by VAT rate Creditable input VAT in year 2 2.

Letter C Output VAT Less: Input VAT from purchases Input VAT from construction in progress Year 3 (P3,000,000 x 60% x 12%) Net VAT payable

Problem 10 – 26 A Output VAT Less: Input VAT from purchases Input VAT from CIP: Materials (P3,600,000 x 30%) Labor (P2,400,000 x 20%) Overhead (P1,200,000 x 20%) Net VAT payable

P4,000,000 8,000,000

P3,600,000 P1,200,000 216,000

P6,000,000 1,080,000 480,000 240,000

3,800,000 P2,200,000

P69,000 6,600 6,000 P81,600

2. Letter A Output VAT (P784,000/9.333) Less: Creditable input VAT Net VAT payable (refundable)

P 84,000 81,600 P 2,400

Problem 10 – 28 B Equipment (P2,500,000 x 12%) = P300,000/60 Supplies (P10,000 x 12%) Goods (P800,000 x 12%) Creditable input VAT

Problem 10 – 30 1. Letter A Total machines – imported (P100,000 + P200,000 + P300,000)

1,416,000 P2,184,000

P2,000,000

Problem 10 – 27 1. Letter D Purchases from VAT person (P644,000/9.333) Purchases from Non-VAT person in VAT invoice (P61,600/9.333) Payments to VAT services (P56,000/9.333) Total creditable input VAT

Problem 10 – 29 C Siopao machine (P300,000 x 1) Siomai machines (P250,000 x 2) Pizza machines (P200,000 x 3) Oven (P150,000 x 4) Total amount Add: Custom duty (P2,000,000 x 10%) Excise tax (P2,000,000 x 5%) Storage fee (P2,000,000 x 2%) Total landed costs Multiplied by VAT rate Input VAT

P12,000,000 60% P 7,200,000 12% P 864,000

P 5,000 1,200 96,000 P102,200 P300,000 500,000 600,000 600,000 P2,000,000 P200,000 100,000 40,000

340,000 P2,340,000 12% P 280,800

P 600,000

ALL RIGHTS RESERVED BY VALENCIA EDUCATIONAL SUPPLY. This solution manual is not for sale. Any person who sells it in photocopy, mechanical or electronically is unauthorized and shall be prosecuted in accordance with law.

BUSINESS AND TRANSFER TAXATION 7th Edition (BY: VALENCIA & ROXAS) 77 SUGGESTED ANSWERS Chapter 10: CONCEPTS OF VAT

Add: Excise tax (P600,000 x 50%) Total Multiplied by VAT rate VAT paid on importation 2. Letter D Output VAT (P1,000,000 x 12%) Less: Creditable input VAT: Machine 2 (P200,000 + P100,000) x 12% Machine 3 (P300,000 + P150,000) x 12% VAT payable

300,000 P 900,000 12% P 108,000 P 120,000 P36,000 54,000

Problem 10 – 31 D Actual input VAT (P896,000 x 20%)/9.333, higher Transitional input VAT (P1,500,000 x 50%) x 2% Total transitional input VAT allowed, the higher amount Problem 10 – 32 A Output VAT (P1,600,000 + P2,000,000) x 12% Less: Other percentage tax paid Output VAT balance Less: Input VAT from purchases – August to December Transitional input VAT, (P100,000 x 2%) = P2,000; higher - actual Net VAT payable

P19,200 15,000 P34,200 P432,000 48,000 P384,000 P240,000 34,000

Problem 10 – 33 B Prime raw materials – coconut for cooking oil (P1,000,000 x 3/5) Multiplied by presumptive VAT rate Presumptive input VAT Problem 10 – 34 C Output VAT (P2,800,000/9.333) Less: Input VAT from Presumptive input VAT – sardines (P800,000 x 4%) Supplies (P50,400/9.333) Amortization of capital goods [(P1,232,000/9.333)/60] x 3 months Net VAT payable Problem 10 – 35 B Output VAT (P600,000 + P1,500,000) x 12% Less: OPT (P600,000 x 3%) Output VAT balance Less: Transitional input VAT (P100,000 x 2%) Presumptive input VAT (P800,000 – P200,000) x 4% Net VAT payable

90,000 P 30,000

274,000 P110,000 P600,000 4% P 24,000 P300,000

P32,000 5,400 6,600

44,000 P256,000 P252,000 18,000 P234,000

P 2,000 24,000

26,000 P208,000

Note: The basis of presumptive input VAT is the gross value of the purchased raw materials used in the production. Problem 10 –36 C Input VAT from purchases – second quarter (P5,040,000/9.333) Input VAT carry-over from first quarter Input VAT - Purchases returns (P50,000 x 12%) Input VAT amortized on capital goods (P180,000/60) x 3 Creditable input VAT – second quarter

P540,000 57,000 ( 6,000) 9,000 P600,000

ALL RIGHTS RESERVED BY VALENCIA EDUCATIONAL SUPPLY. This solution manual is not for sale. Any person who sells it in photocopy, mechanical or electronically is unauthorized and shall be prosecuted in accordance with law.

BUSINESS AND TRANSFER TAXATION 7th Edition (BY: VALENCIA & ROXAS) 78 SUGGESTED ANSWERS Chapter 10: CONCEPTS OF VAT

Problem 10 –37 B Amount of input VAT allowed for VAT refund or Issuance of TCC (P600,000 x 20/50) – export sales or zero-rated VAT related Problem 10 –38 C Input VAT from importation (P1,120,000/9.333) Input VAT per VAT invoice issued by nonVAT person (P896,000/9.333) Total input VAT refund Problem 10 – 39 A Output VAT on actual sales [P400,000 + (P560,000/1.12)] x 12% Add: Output VAT on deemed sales (P30,000 + P20,000) x 12% Total output VAT Less: Other percentage tax paid (P400,000 x 3%) Output VAT balance Less: Input VAT from: Purchases (P672,000/9.333) Input VAT previous quarter Transitional input VAT Input VAT carry-over D Problem 10 – 40 Contract price Less: VAT withholding (P6,720,000/9.333) Final withholding income tax (P6,000,000 x 7.5%) Net remittance to Japan Inc. Problem 10 – 41 1. Total Output VAT (P1,344,000/9.333) 2.

Total Output VAT Less: Input VAT VAT purchase invoice amount (P840,000/9.333) Net VAT payable

Problem 10 – 42 1. Output VAT (P880,000 + P720,000) x 12% 2.

Output VAT Less: Input VAT (P1,200,000 x 12%) Net VAT payable

P240,000 P120,000 96,000 P216,000 P108,000 6,000 P114,000 48,000 P 66,000

P72,000 42,000 2,000

116,000 (P50,000)

P6,720,000 P 720,000 450,000

1,170,000 P5,550,000 P 144,000 P144,000 90,000 P 54,000 P 192,000 P 192,000 144,000 P 48,000

Problem 10 – 43 1. Output VAT (P125,000 x 12%)

P 15,000

2.

P 9,000

Input VAT (P84,000/9.3333)

Note: The sales is multiplied by 12% because the term used is not per VAT invoice while the purchase is divided by 9.333 because the purchase is inclusive of VAT. Problem 10 – 44 Total sales price (P20 x 10) Add: VAT (P200 x 12%) Total sales invoice amount

P 200 24 P 224

ALL RIGHTS RESERVED BY VALENCIA EDUCATIONAL SUPPLY. This solution manual is not for sale. Any person who sells it in photocopy, mechanical or electronically is unauthorized and shall be prosecuted in accordance with law.

BUSINESS AND TRANSFER TAXATION 7th Edition (BY: VALENCIA & ROXAS) 79 SUGGESTED ANSWERS Chapter 10: CONCEPTS OF VAT

Problem 10 – 45 1. Net income (P570,000/30%) Less: Gain on sale of capital asset Net operating income Add: Cost of sales (P120,000/12%) Sales discounts due to prompt payments Operating expense before taxes Community tax Vatable base – Sales subject to VAT

P1,900,000 50,000 P1,850,000 P1,000,000 150,000 990,000 10,000

2,150,000 P4,000,000

2.

Output VAT (P4,000,000 x 12%)

P 480,000

3.

Output VAT Less: Input VAT VAT payable

P 480,000 120,000 P 360,000

Problem 10 – 46 1. Net income (P600,000/30%) Less: Gain on sale of capital asset Net operating income Add: Cost of sales (P240,000/12%) – P400,000 Sales discounts due to prompt payments Operating expenses before taxes Community tax Sales subject to VAT Output VAT (P4,500,000 x 12%) Less: Input VAT from purchases Presumptive input VAT Net VAT payable Add: Surcharge (P240,000 x 25%) Interest from Jan. 25 to Mar. 25 (P240,000 x 20% x 2/12) Compromise for late payment Total amount payable 2.

P2,000,000 150,000 P1,850,000 P1,600,000 45,000 1,000,000 5,000

2,650,000 P4,500,000 P540,000

P240,000 60,000 P60,000 8,000 1,000

300,000 P240,000 69,000 P309,000

None, because the payment of income tax is made on time – April 15, of the succeeding year.

Problem 10 – 47 Importation for business use Add: Customs duties (P1,000,000 x 50%) Total Add: Excise tax (P1,500,000 x 10%) Total Multiplied by VAT rate Creditable Input VAT

P1,000,000 500,000 P1,500,000 150,000 P1,650,000 12% P 198,000

Problem 10 – 48 1. Output VAT (P1,456,000/9.3333)

P156,000

2. Input VAT (P1,120,000/9.3333)

P120,000

3.

P 36,000

Net VAT payable (P156,000 – P120,000)

ALL RIGHTS RESERVED BY VALENCIA EDUCATIONAL SUPPLY. This solution manual is not for sale. Any person who sells it in photocopy, mechanical or electronically is unauthorized and shall be prosecuted in accordance with law.

BUSINESS AND TRANSFER TAXATION 7th Edition (BY: VALENCIA & ROXAS) 80 SUGGESTED ANSWERS Chapter 10: CONCEPTS OF VAT

Problem 10 – 49 1. Net income (P1,200,000/30%) Add: Operating expenses (P2,540,000- P240,000) Gross income Add: Cost of sales (P3,360,000/1.12) Less: Increase in inventory Sales 2.

Output VAT (P9,000,000 x 12%) Less: Input VAT from purchases (P3,360,000/9.333) Input VAT from operating expenses Input VAT from CIP: Materials (P560,000 + P448,000 + P672,000)/9.333 Labor (P1,500,000 x 40%) x 12% Overhead (P1,500,000 x 20%) x 12% Net VAT payable

Problem 10 – 50 Non-VAT Total sales as of November 1, 201B Add: Sales on November to December 201B (P672,000/1.12) + P100,000 = P700,000/70% Total sales Multiplied by VAT rate Output VAT Less: Other percentage tax paid Output VAT balance VAT-registered Output VAT Less: Other percentage tax paid Output VAT balance Less: Transitional input VAT (P672,000/1.12) + (P100,000) = P700,000 x 2% = P14,000 (P672,000/9.333) = P72,000, higher + (P100,000 x 2%) VAT advantage to register under VAT system

P4,000,000 2,300,000 P6,300,000 P3,000,000 300,000

2,700,000 P9,000,000 P1,080,000

P360,000 240,000 180,000 72,000 36,000

888,000 P 192,000

P1,900,000 1,000,000 P2,900,000 12% P 348,000 57,000 P 291,000 P 348,000 57,000 P 291,000 74,000 P

217,000 74,000

Alah Nganin should register under VAT system. Problem 10 – 51 Output VAT (P5,000,000 x 12%) Less: Input VAT from: Supplies (P784,000/9.333) Rent (P214,000/107%) x 12% Creditable input VAT from previous period Presumptive input VAT (P2,200,000 – P200,000) x 2% Net VAT payable Problem 10 – 52 Output VAT (P3,000,000 x 12%) Less: Transitional input VAT (P100,000 x 2%) Presumptive input VAT (P1,620,000 x 4%) Input VAT from operating expenses Net VAT payable

P600,000 P84,000 24,000 112,000 40,000

260,000 P340,000 P360,000

P 2,000 64,800 3,600

70,400 P289,600

ALL RIGHTS RESERVED BY VALENCIA EDUCATIONAL SUPPLY. This solution manual is not for sale. Any person who sells it in photocopy, mechanical or electronically is unauthorized and shall be prosecuted in accordance with law.

BUSINESS AND TRANSFER TAXATION 7th Edition (BY: VALENCIA & ROXAS) 81 SUGGESTED ANSWERS Chapter 10: CONCEPTS OF VAT

The presumptive input VAT is based on primary raw materials used. The primary raw materials used during the period are computed as follows: Copra raw materials, beginning Add: Purchases of copra from farmers Total Less: Copra raw materials, ending Copra raw materials used Problem 10 – 53 Output VAT Less: Input VAT from: Purchases Carry-over from last quarter Capital goods (P180,000/60) Creditable input VAT for next quarter Problem 10 – 54 1. Input VAT from purchases for business (P112,000/9.333) Input VAT from importation (P79,520/9.333) Creditable input VAT for the period Less: Output VAT Input VAT carry-over

P 100,000 1,900,000 P2,000,000 380,000 P1,620,000 P200,000 P240,000 30,000 3,000

273,000 (P 73,000) P 12,000 8,520 P20,520 20,000 P 520

2. Input VAT carry-over (P20,520 – P20,520)

P - 0 -

Problem 10 – 55 Input VAT on Depreciable Capital Goods from purchase of Truck (P1,120,000/9.333) Processing machine (P1,568,000/9.333)/60 x 1 Total Input VAT for the last quarter

P120,000 2,800 P122,800

Note: The Input VAT from the purchase of truck should not be amortized because its cost does not exceed P1,000,000. Problem 10 – 56 Transitional input VAT Presumptive input VAT Input VAT on purchases of depreciable capital goods (P180,000 x 10/15) Input VAT on operating expenses (P96,000 x 10/15) Input VAT not allowed for TCC issuance

P 40,000 50,000 120,000 64,000 P274,000

Only input VAT that can be traced or allocated to zero-rated or effectively zero-rated is allowed for issuance of TCC. Transitional and presumptive input VATs are not allowed for TCC issuance. Problem 10 – 57 VAT invoice in the name of Busal Enterprises (P448,000/9.333) NonVAT invoice charged with VAT (P313,600/9.333) Total input VAT Multiplied by percent of VAT for regular sales (P1M/P1.5M) = 2/3 Creditable input VAT from regular VAT sales

P 48,000 33,600 P 81,600 2/3 P 54,400

The input VAT on sales to government is subject to SIV and is deductible only from the Output VAT on sales to the government. Its actual input VAT of P18,000 is not allowed to be deducted from output VAT. (R.A. 9337) ALL RIGHTS RESERVED BY VALENCIA EDUCATIONAL SUPPLY. This solution manual is not for sale. Any person who sells it in photocopy, mechanical or electronically is unauthorized and shall be prosecuted in accordance with law.

BUSINESS AND TRANSFER TAXATION 7th Edition (BY: VALENCIA & ROXAS) 82 SUGGESTED ANSWERS Chapter 10: CONCEPTS OF VAT

Problem 10 – 58 Input VAT carry-over Input VAT from purchases Input VAT capital goods Total Less: Adjustments: Input VAT on purchase returns (P100,000 x 12%) Input VAT on VAT-exempt sales (P60,000 x 5/20) Unamortized portion of input VAT on capital goods (P240,000 – (P240,000/60) Adjusted creditable input VAT

P 24,000 60,000 240,000 P324,000 P 12,000 15,000 236,000

263,000 P 61,000

ALL RIGHTS RESERVED BY VALENCIA EDUCATIONAL SUPPLY. This solution manual is not for sale. Any person who sells it in photocopy, mechanical or electronically is unauthorized and shall be prosecuted in accordance with law.