Income taxation by valencia chapter 5 (excluded from gross income)

22

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS

Chapter 5: Exclusion from Gross Income

CHAPTER 5

EXCLUSION FROM GROSS INCOME
Problem 5 – 1 TAXABLE
1. Nontaxable
2. Taxable
3. Nontaxable
4. Nontaxable with IT
5. Taxable
6. Taxable
7. Nontaxable
8. Nontaxable
9. Taxable
10. Nontaxable

OR NONTAXABLE with income tax
11. Taxable
21. Taxable
12. Nontaxable
22. Nontaxable
13. Taxable
14. Nontaxable
15. Nontaxable
16. Nontaxable

17. Taxable
18. Taxable
19. Nontaxable
20. Taxable

Problem 5 – 2 TAXABLE OR NONTAXABLE with income tax
1. Nontaxable
12. Nontaxable, if not exceeding 10 days
2. Nontaxable
13. Taxable
3. Nontaxable
14. Taxable (based on proceeds or selling price or zonal value,
whichever is higher).
4. Nontaxable
15. Taxable
5. Nontaxable
16. Taxable
6. Nontaxable
17. Taxable, except when BIR registered with 50 year old retiree;
10 years service and first time to avail.
7. Nontaxable
18. Taxable
8. Taxable
19. Nontaxable if Philippine Sweepstakes and Lotto
9. Nontaxable
20. Taxable
10. Taxable
21. Taxable
11. Taxable
22. Nontaxable

Problem 5 – 3 TRUE OR FALSE
1. False – nontaxable
2. True
3. True
4. False – Proceeds of life insurance is not taxable regardless of whoever would be the
recipient, except when the insured person outlived his life insurance and received the
proceeds. The excess of proceeds over premium paid is taxable.
5. False – include in gross income
6. False – Bequest is a personal property.
7. True
8. True
9. True
10. False – Nontaxable
11. True
12. False – Nontaxable
13. False – Some prizes and awards are not taxable. Eg. Ramon Magsaysay Awards
14. True
15. True
16. False – Include in gross income because income from gift is subject to income tax.
17. False – Exempt from income tax.
18. True
Problem 5 -4
1. A
2. D
3. C
4. D
5. D
6. B
7. A
8. A

9. C
10. C
11. A
12. D
13. D
14. A
15. B
Problem 5 –6
D
Availed 10-day sick leave pay

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

P1,500


23

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS

Chapter 5: Exclusion from Gross Income

Problem 5 –7
C
Take home pay
Nontaxable 13 th month pay
Withholding tax
Other income subject to normal tax
Taxable income

P212,000
( 17,500)
13,500
20,000
P228,000

In general, a MWE is not subject to WTW and income tax on his compensation income. But if
he has other income that is subject to normal tax, his entire income during the year will be
subject to income tax, his compensation income, however, will not be subject to WTW.
Problem 5 –8

C

Net pay
Withholding tax
Advances
3th month pay
Christmas bonus (de minimis)
SSS contribution

Totals
Problem 5 –9

Taxable
P265,000
50,000
6,000
(27,000)
( 5,000)
.
P289,000

Nontaxable

Taxable
P13,000

Tax-exempt

C

Net take home pay
SSS contributions
PAG-IBIG contributions
Union dues contributions
Office party contributions
Charitable contribution (deductible only from business income)
Withholding income tax
Totals
Problem 5 –10

Monthly salary

D

Problem 5 –11
Rent of apartment
Reimbursement
Taxable benefits

A

Problem 5 –12
Reportable taxable income

D

P300
100
100
75
25
400
P13,500

.
P500
P15,000
P 50,000
20,000
P70,000

P - 0 -

Problem 5 –13
B
Proceeds of life insurance received by insured person
Return of premium
Total premium paid
Taxable income
Problem 5 –14

P27,000
5,000
4,000
P36,000

P500,000
40,000
(490,000)
P 50,000

D

Zero, because, the P270,000 cash surrender value is just a return of contribution of P360,000.

Problem 5 –15

D
Nontaxable

Actual damages for unrealized profit

Interest on non-taxable damages
Actual damages for lost products
Exemplary damages
Moral damages
Actual liquidated damages
Total

Problem 5 –16
Taxable income

A

Problem 5 –17

D

P200,000
50,000
50,000
80,000
P380,000

Taxable
P100,000
20,000

.
P120,000

P -0Taxable

Nontaxable


24

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS

Chapter 5: Exclusion from Gross Income

Terminal pay
Life insurance
SSS death benefit
Donations
Totals

P 60,000
500,000
10,000
40,000
P610,000

.
P - 0 -

Problem 5 –18
A
The termination is due to cause within the control of Jalosjos.
Problem 5 –19

D
Last pay ujpon resignation from his first employer

P100,000

Problem 5 –20
A
Zero, all items enumerated are not subject to income tax.
Problem 5 –21
D
P50,000 business income for year 4
Problem 5 –22
C
Interest income from bank savings deposit

P4,000

Problem 5 –23
D
Zero. All gifts enumerated are not subject to income tax.
Problem 5 –24
D
Total income (P100,000 x 10 months)
Total average expenses (P20,000 x 10 months)
Income subject to income tax

P1,000,000
( 200,000)
P 800,000

Problem 5 –25
D
Zero. All winnings received by Miss Lara are subject to tax because she has entered into a
contest as Miss International.
Problem 5 –26
Lotto Philippine winnings

A

Problem 5 –27
B
Ramon Magsaysay award
Athlete of the year award
Prize for winning the silver Olympic medal
Gift from Mr. Lim
Gift from Nissan
Winnings – Philippine sweepstakes
Total winnings/ awards not subject to income tax

P10,000,000
P

50,000
100,000
500,000
250,000
1,000,000
100,000
P2,000,000

Problem 5 –28
D
Zero. Interest and gain on sale of investment in a 5-year government bonds is exempt from
income tax.
Problem 5 –29
B
Interest received from bond investment

P 120,000

Problem 5 –30
B
Interest income
Multiplied by final tax rate on interest income
Income tax

P120,000
20%
P 24,000

Problem 5 –31
D
Interest on expanded foreign currency deposit

P100,000

Problem 5 –32
A
Income from sale of invented products
Sale of technology

Total revenue
Less: Research and development costs
Nontaxable income

P5,000,000
2,000,000
P7,000,000
800,000
P6,200,000


25

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS

Chapter 5: Exclusion from Gross Income

Note: The cost of product produced need not to be deducted anymore because of the term
“income from sale of invented products.”
Problem 5 –33
C
Interest income on bank savings deposit

P10,000

Problem 5 –34
C
Interest income from foreign currency deposit (P2,000,000 x 7.5%)
Interest income from time deposit (P1,000,000 x 20%)

Income tax paid by BBC
Problem 5 –35
1. Compensation income (P5,000 x 10)
2.

P150,000
200,000
P350,000
P 50,000

Retirement benefits
Salary earned
Gross income

P500,000
50,000
P550,000

3. Same answer with No. 1

P 50,000

Problem 5 –36
Winnings from charity horse race sweepstakes from PCSO
Interest on government debt securities
Damages for breach of contract (P1,000,000 x 60%)
Gains from redemption of shares in mutual fund
Gain from sale of bonds with maturity of more than five years
Gifts from friends
Total exclusion from gross income

P 500,000
100,000
600,000
300,000
60,000
200,000
P1,760,000

Problem 5 –37
Proceeds of his life insurance (P2,000,000) – (P15,000 x 25)
Proceeds of his mother’s life insurance
Cash gift
Inheritance
Rent income
Total

Exclude
P 375,000
1,000,000
50,000
3,000,000
.
P4,425,000

Include
P1,625,000

100,000
P1,725,000

Problem 5 –38
No, the P1,500,000 transfer to be received by Miss Tandana is to be included for income
taxation because the transfer is in recognition of her services rendered. It is not to be
included as a part of estate tax.
Problem 5 –39
All enumerated items are not subject to normal (tabular) tax.