Chapter 10 - Vat on Goods2013

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 70 SUGGESTED ANSWERS Chapter 10: VAT ON GOODS OR PROPERTIES

CHAPTER 10

VALUE-ADDED TAX Problem 10–1 1. False – subject to VAT. This is considered as transaction deemed sale. 2. True 3. False – sale of real property classified as capital asset is not subject to VAT. 4. False – sale of real property classified as ordinary asset is exempt from VAT if the amount of lot is P1,919,500 and below or house and lot if the price is P3,199,200 and below. 5. True 6. False – acquisition cost or current market price of goods whichever is lower. 7. True 8. False – the basis is the amount of debt cancelled. 9. True 10. False – subject to VAT. 11. True 12. True 13. True 14. False – not subject to output VAT. This is to be treated as operating expense. 15. False – not transactions deemed sale. Problem 10–2 1. False – subject to VAT. 2. True 3. True 4. True 5. False – the exemption is applicable only to residential lot and the amount of selling price should not exceed P1,919,500 per residential lot. 6. True 7. False – this would refer to gross selling price. 8. False – deemed inclusive of VAT. 9. True 10. True 11. False – disregarded as part of the initial payment. 12. True 13. True 14. True 15. False – original estate and not subject to VAT. Problem 10–3 1. D 2. A 3. B 4. C 5. C 6. D 7. B 8. A 9. A 10. A

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

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 71 SUGGESTED ANSWERS Chapter 10: VAT ON GOODS OR PROPERTIES

Problem 10 – 5 A Warehouse Business delivery trucks Amount subject to VAT

P4,000,000 500,000 P4,500,000

Problem 10 – 6 B Sale of furniture – within Furniture taken from inventory for personal use Amount subject to 12% VAT

P1,800,000 200,000 P2,000,000

Problem 10 – 7 D Zero. The person responsible to pay the VAT is the buyer. Therefore, Kamukamo is not liable to pay VAT to the Philippine Government. Corona Enterprise is responsible to remit to the BIR the related VAT on the purchase transaction. Problem 10 – 8 A Raw materials used Direct labor Factory overhead Excise tax Mark-up Total amount subject to VAT Output VAT (P1,200,000 x 12%) Less: Input VAT from purchases (P896,000/9.333) Input VAT from factory overhead Net VAT payable Problem 10 – 9 B Cash sales of goods to regular customers Credit sales of goods to regular customers Merchandise use by the owner for personal consumption (P200,000 x 70%) Reasonable taxable base of sales for VAT purposes Problem 10 – 10 D Gross sales: Cash sales Credit sales Sales returns Sale of obsolete inventories Consigned goods (unsold after 90 days) Total Multiplied by VAT rate Output VAT Problem 10 – 11 C Consumption of inventory by the manager at cost Merchandise used to pay dividends at cost Payment to creditors at the amount of debt cancelled Sale of scrap materials at market price Total unreported additional sales Multiplied by VAT rate Output VAT

P400,000 200,000 100,000 70,000 430,000 P1,200,000 P144,000 P96,000 4,000

100,000 P 44,000 P1,500,000 500,000 140,000 P2,140,000

P

500,000 800,000 ( 100,000) 60,000 100,000 P1,360,000 12% P 163,200 P

100,000 600,000 800,000 40,000 P1,740,000 12% P 208,800

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 72 SUGGESTED ANSWERS Chapter 10: VAT ON GOODS OR PROPERTIES

Problem 10 – 12 A Output VAT – January 1 to Sept. 30, 201A Output VAT – October 1 to Dec. 31, 201A (P700,000/9.333) Total output VAT Less: Input VAT from: Purchases (P1,120,000/9.333) Operating expenses (P4,200 + P1,800) Net VAT payable

P144,000 75,000 P219,000 P120,000 6,000

Problem 10 – 13 C Merchandise inventory Equipment Furniture and fixtures Total assets Multiplied by VAT rate Output VAT Less: Input VAT Net VAT payable

126,000 P 93,000 P 80,000 160,000 60,000 P300,000 12% P 36,000 16,000 P 20,000

Problem 10 – 14 A Zero. Transfers of assets as a result of merger or consolidation are not considered transactions deemed sales. These are just transfers in form, not in substance. (RMC No. 47-99) Problem 10 – 15 NOT IN THE CHOICES Sales (P1,500,000/60%) Obsolete inventory sold at 80% discount, at cost (P100,000 x 20%) Consigned goods beyond 60 days at cost Total taxable base Multiplied by VAT rate Output VAT Problem 10 – 16 C Cash sales Add: Net credit sales: Gross amount, net of trade discount (P365,000 x 90%) Less: Sales return (P65,000 x 90%) Taxable base Multiplied by VAT rate Output VAT

P2,500,000 20,000 400,000 P2,920,000 12% P 350,200 P135,000 P328,500 58,500

270,000 P405,000 12% P 48,600

Problem 10 – 17 1. Letter D Sale of residential lot not exceeding P1,919,500 is VAT-exepmt. 2.

Letter A VAT (P2,000,000 x 12%)

Problem 10 – 18 D 1 lot – class A (P3,200,000 x 12%) 2 Commercial lots (P4,480,000/9.333) Total output VAT

P240,000 P384,000 480,000 P864,000

Note: The basis of VAT for l lot – class A is the fair market value, which is higher than the selling price. If the FMV is higher than the selling price, the FMV is VAT exclusive. (Rev. Regs. No. 4-2007)

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 73 SUGGESTED ANSWERS Chapter 10: VAT ON GOODS OR PROPERTIES

Problem 10 – 19 1.

Letter D

Zero, because the sale is not subject to VAT. Aside from the property is a capital asset, it is a residential house and lot with a selling price not exceeding P3,199,200. 2.

Letter A

Output VAT (P3,500,000 x 12%)

P420,000

Problem 5 – 20 C VAT on down payment – November 200A (P600,000 x 4M/3M) x 12% Add: December 200A VAT on monthly collection (P20,000 x 4M/3M) x 12% Output VAT on the year of sale Problem 5 – 21 B Second installment Add: Surcharge (P3,750,000 x 5%) Interest (P3,750,000 x 12% x 3/12) Taxable base Multiplied by VAT rate Output VAT Problem 10 – 22 A Output VAT – year 3 (P2,940,000/9.333) Less: Creditable input VAT – year 3 Excess creditable input VAT – year 2 (P315,000 – P350,000) Net VAT payable

P96,000 3,200 P99,200 P3,750,000

P187,500 112,500

P200,000 35,000

300,000 P4,050,000 12% P 486,000 P315,000 235,000 P 80,000

Problem 10 – 23 A Output VAT (P7,500,000 x 12%), higher amount Less: Creditable input VAT – year 1 Net VAT payable (initial payment exceeds 25% = considered cash sales)

P900,000 300,000 P600,000

Problem 10 – 24 C Output VAT – higher (P5,000,000 x 12%) Less: Output VAT already paid (P3,360,000/4) x 3 Output VAT still to be paid

P600,000 270,000 P330,000

Problem 10 – 25 B 2,000 Sacks of cotton and cotton seedlings at P900 each Sale of woods and charcoal Total Multiplied by VAT rate VAT payable Problem 10 – 26 Cost of goods manufactured (P200,000 + P100,000 + P100,000) Less: Unsold goods manufactured Total cost of goods sold Add: Excise tax (P385,000 x 20%) Mark-up (P385,000 x 50%) Total sales Multiplied by VAT rate Output VAT Less: Input VAT from: Raw materials purchase per invoice (P336,000/9.333) Repair of store office Supplies purchase per invoice (P28,000/9.333) VAT payable

P1,800,000 400,000 P2,200,000 12% P 264,000 P400,000 15,000 P385,000 P 77,000 192,500

P 36,000 450 3,000

269,500 P654,500 12% P 78,540

39,450 P 39,090

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 74 SUGGESTED ANSWERS Chapter 10: VAT ON GOODS OR PROPERTIES

Problem 10 – 27 Cash sales Add: Credit sales Installment sales collected Deemed sales (P20,000 + P180,000) x 60% Total sales including deemed sales Multiplied by VAT rate Output VAT Less: Input VAT: Purchases including VAT (P448,000/9.333) Input VAT credit from previous month Net VAT payable

P200,000 100,000 120,000

P

2.

Sales Less: Sales returns Sales discounts Net sales Less: Cost of sales (P1,000,000 + P600,000) Gross income Less: OSD (P3,100,000 x 40%) Net taxable income Multiplied by corporate income tax rate Net taxable income

84,400 62,000

P1,000,000 100,000 P1,100,000 12% P 132,000 P48,000

P25,000 10,000

Problem 10 – 30 1. Sales Less: Sales returns Vatable sales Output VAT (P4,900,000 x 12%) Less: Input VAT from: Purchases/services (P1,120,000/9.333) Importation (P600,000 x 12%) Capital goods (P1,344,000/9.333)/ 5 years Net VAT payable

800,000

420,000 P1,220,000 12% P 146,400

P 48,000 36,400

Problem 10 – 28 Total domestic sales Inventory consumed for personal use Total sales subject to 12% VAT Multiplied by VAT rate Output VAT Problem 10 – 29 Output VAT (P500,000 – P100,000) x 12% Less: Input VAT per record Business tax paid Remaining unpaid VAT

P

35,000 P13,000 P5,000,000 100,000 P4,900,000 P

P120,000 72,000 28,800

588,000

220,800 P367,200 P5,000,000

P100,000 200,000

300,000 P4,700,000 1,600,000 P3,100,000 1,240,000 P1,860,000 30% P 558,000

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 75 SUGGESTED ANSWERS Chapter 10: VAT ON GOODS OR PROPERTIES

Problem 10 – 31 1. Sales Consigned goods to Victoria’s (65 days) Vatable sales

P5,000,000 500,000 P5,500,000

Note: The accounts receivable is assumed to have been included as part of sales. Raw materials used (P1,880,000 x 60%) Increase in inventory – raw materials Total purchases Output VAT (P5,500,000 x 12%) Less: Input VAT from expenses Presumptive input VAT (P1,488,000 x 4%) Net VAT payable 2.

P1,128,000 360,000 P1,488,000 P660,000

P36,000 59,520

Actual sales Less: Cost of sales Gross income Less: OSD (P3,120,000 x 40%) – higher – better Net taxable income Multiplied by corporate income tax rate Income tax due

95,520 P564,480 P5,000,000 1,880,000 P3,120,000 1,248,000 P1,872,000 30% P 561,600

Note: It is assumed that Sardines Manufacturing is a corporation. Problem 10 – 32 1. Output VAT from deemed sales (P100,000 + P400,000) x 12% 2.

P60,000

Output VAT Less: Input VAT VAT payable

P60,000 20,000 P40,000

Problem 10 – 33 Output VAT (P11,200,000/1.12) x 12% Less: Input VAT from: Purchases (P7,840,000/1.12) x 12% Unutilized input VAT of M Corporation Net VAT payable Problem 10 – 34 1. Total Output VAT First year: (P2,500,000 x 20%) = P500,000 x 12%

P1,200,000 P840,000 300,000 P

1,140,000 60,000

P 60,000

Second year:

(P2,000,000 x ½ ) x 12% (P2,000,000 x 6% x 12%)

120,000 14,400

Third year:

(P1,000,000 x 12%) (P1,000,000 x 6% x 12%)

120,000 7,200 P321,600

Total Output VAT 2. Additional Output VAT Required VAT (P3,000,000 x 12%) Less: Previously paid VAT from first to third year Additional Output VAT

P360,000 321,600 P 38,400

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 76 SUGGESTED ANSWERS Chapter 10: VAT ON GOODS OR PROPERTIES

Problem 10 – 35 1. Year of sale Output VAT (P100,000 x 12%) 2.

3.

P 12,000

Second year Output VAT (P200,000 x 12%) (P400,000 x 6% x 12%)

P 24,000 2,880

Total Output VAT – 2nd year

P 26,880

Third year Output VAT (P200,000 x 12%) (P200,000 x 6% x 12%)

P 24,000 1,440

Total Output VAT – 3rd year

P 25,440

Problem 10 – 36 1. VAT (P10M x 12%) Real property sales subject to 25% rule. Sales of house and lot of P2,500,000 & below is exempt from business taxes. 2.

Cash sales (P10,000,000 + P400,000) Installment sales Total sales Less: Cost of sales of: Cash sales Installment sales (P1,500,000 x 4/20) Gross income Less: Operating expenses Net income Multiplied by corporate normal income tax rate Income tax due

Problem 10 – 37 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 Operating expense before taxes Community tax Amount subject to VAT

P1,200,000

P10,000,000 400,000 P10,400,000 P6,000,000 300,000

6,300,000 P4,100,000 2,000,000 P2,100,000 30% P 630,000 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.

P 480,000 120,000 P 360,000

Output VAT Less: Input VAT VAT payable

Problem 10 – 38 1. Gross income Add: Cost of sales (P10,000,000 + P150,000 – P850,000) Net sales (P12,300,000 + P9,000,000) Add: Sales discounts – due to prompt payments Vatable base Multiplied by VAT rate

P12,300,000 9,300,000 P21,600,000 200,000 P21,800,000 12%

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 77 SUGGESTED ANSWERS Chapter 10: VAT ON GOODS OR PROPERTIES

Output VAT Less: Input VAT Net VAT payable 2.

P 2,616,000 1,200,000 P1,416,,000

Gross income Less: OSD (P12,300,000 x 40%) higher deduction allowed Net taxable income Multiplied by normal tax rate Income tax due

Problem 10 – 39 Cash sales Sales on account Installment sales – collection (P500,000 x 20%) Transactions deemed sale: Owner’s personal use (P50,000 x 70%) Consigned goods (P100,000 x 70%) Total sales Multiplied by VAT rate Output VAT Less: Input VAT from purchases Input VAT credit from previous month Input VAT from imported machines used in business (P200,000 x 150%) x 12% Net VAT payable

P12,300,000 4,920,000 P 7,380,000 30% P2,214,000 P1,000,000 300,000 100,000

35,000 70,000 P1,505,000

12% P 180,600 P48,000 36,000 36,000

120,000 P 60,600

Note: The transactions deemed sale may be reduced by 30%. (R.A. 9337) Problem 10 – 40 1. Sales Transactions deemed sale: Consigned goods (P560,000 x 70%) Inventory used to pay dividends (P400,000 x 70%) Total Less: Sales returns and allowances Amount subject to VAT Multiplied by VAT rate Output VAT 2. Actual net sales Less: Cost of sales Gross profit Less: OSD (P4,000,000 x 40%) – higher – better* Net taxable income Multiplied by corporate income tax rate Income tax due

P10,000,000 P392,000 280,000

672,000

P10,672,000 300,000

P10,372,000 12% P 1,244,640 P9,500,000

5,500,000

P4,000,000

1,600,000

P2,400,000

30% P 720,000

*Note: The actual operating expense is lower than OSD because the bad debts is based on percent of receivable which is not allowed as deduction. Also, the interest expense deductible would only be P34,800.