Income taxation by valencia chapter 3 (concepts of income)

False – Some wealth that made to increase the taxpayer’s net worth are gifts and inheritance and these are not taxable income.. False – Filipino citizen who is not residing in the Philip

CHAPTER 3

CONCEPT OF INCOME

Problem 3 – 1 TRUE OR FALSE

1 False – Some wealth that made to increase the taxpayer’s net worth are gifts and

inheritance and these are not taxable income

2 True

3 True

4 False – Filipino citizen who is not residing in the Philippines is taxable only for income earned within

5 False – The basis of tax is the fair market value of the instrument

6 False – Not income for the employee and not subject to income tax because the

beneficiary is the employer

7 False – Accrual reporting reports income when there is earning regardless of collection

8 False – Calendar year basis

9 True

10 False – This rule applies to individual taxpayers

11 False – There is no rule of 25% initial payment if the sale is made on regular basis of personal goods

12 True

13 True

14 True

Problem 3 – 2

21 A

Decrease in total liabilities 160,000

Return of Capital Return on Capital

Taxable Income Nontaxable

Income

Outside:

Note: Lotto winnings earned outside the Philippines by a resident Filipino citizen are taxable in

the Philippines

Subject to ITR Subject to Final Tax

Gain on sale of principal residence 400,000

Multiplied by the present value factor of 10% annuity 0.909

Note: Upon receipt of the note, no interest income yet is to be reported

Problem 3 – 19

1 A

The sale is considered cash sales because the 2006 initial payments (P1,000 + P1,000 + 2,000) exceeds 25% of the selling price; P4,000/P12,000 = 33%

2 B

Reportable income 2006 – regular sale (P9,000 x P4,000/P12,000) P3,000 Since the personal property is sold in regular basis, installment reporting of income is allowed

Problem 3 – 20

1 P37,500 = Not in the choices

2 B

Less: Total costs (P432,000 + P184,250 + P103,750) 720,000

Less: Previous years’ reported income:

Accomplished contract price for 2008 and 2009 (P1,200,000 x

Previous years’ actual costs:

Less: Cost incurred as of year 3:

Less: Total direct costs:

Problem 3 – 26

Total harvest for the year

Cash Accrual Cash Accrual

Harvests sold:

Ending inventory:

Beginning inventory:

(20 cavans x P500) ( 10,000)

Problem 3 – 27

1 Cash Method Farming Trading Rent Total

Costs:

Carrying value of farm

equipment

( 25,000)

Gross income P 50,000 P 60,000 P100,000 P210,000

2 Accrual Method Farming Trading Rent Total

Costs:

Carrying value of farm

equipment ( 25,000)