Solution manual transfer and business taxes by valencia CHAPTER 2 TRANSFER TAXES AND BASIC SUCCESSION

BUSINESS AND TRANSFER TAXATION 5th Edition
Chapter 2: TRANSFER TAXES AND BASIC SUCCESSION

CHAPTER 2
TRANSFER TAXES AND BASIC SUCCESSION
Problem 2-1
1. True
2. False – first P100,000 of net gift is exempt.
3. False – subject to business tax
4. False – gratuitous
5. False – an income earned
6. False – upon right to transfer
7. True
8. False – upon death
9. True
10. False – the legitime is based on value of the estate, not on the form of the estate.
11. False – they are voluntary heirs.
12. True
13. False – fixed by law
14. False – executor
Problem 2-2
1. False – relatives up to the 5th degree
2. True
3. False – the relative is the legitimate heir
4. False – if part of inheritance is through the written will
5. False – if the transfer is testamentary
6. False – one for the legitimate child and half for the illegitimate child
7. True
8. True
9. False – equal rights
10. True

11. False
12. True
Problem 2-3
1. A
2. C
3. A
4. A
5. C
6. C
7. C
8. D
9. A
10. D
Problem 2-6

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

Problem 2-5
1. B
2. C

3. D
4. A
5. B
6. A
7. C
8. A
9. C
10. A

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BUSINESS AND TRANSFER TAXATION 5th Edition
Chapter 2: TRANSFER TAXES AND BASIC SUCCESSION

1. C
Car – first prize
Amount of mortgage assumed
Salary
Amount of onerous transfer
2. C
House and lot as donation, net of mortgage
Farm as inheritance
Amount of gratuitous transfer

P1,000,000
1,900,000
240,000

P3,140,000

(P2,000,000 – 1,900,000)

Problem 2-7
1. A
Car
2. C
House and lot – mortis causa
Problem 2-8 C
Net value of property left by the decedent (P5,000,000 –
P1,000,000)
Transfers in contemplation of death
Hereditary estate
Problem 2-9 C
Net hereditary estate
Legitime of children (P5,000,000 x ½)
Portion for the surviving spouse (P5,000,000 x ¼)
Free portion – may be distributed to strangers

P 100,000
500,000
P 600,000

P 800,000
P1,000,000
P 4,000,000
2,000,000
P 6,000,000
P5,000,000

( 2,500,000)
( 1,250,000)
P1,250,000

Note: The distribution is testamentary because there is a devise or legacy.
Problem 2-10
B
Inheritance of the spouse (P5,000,000/5)

P1,000,000

Problem 2-11
A
Hereditary estate
Legitime of children (P3,000,000 x ½)
Portion for the spouse (P1,500,000/4)
Free portion
Multiplied by
Legacy to the sister-in-law

P3,000,000
( 1,500,000)
( 375,000)
P1,125,000
20%
P 225,000

Problem 2-12
C
Hereditary estate

Portion for the illegitimate child (P3,000,000 x 1/3)

P3,000,000
(1,000,000)


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BUSINESS AND TRANSFER TAXATION 5th Edition
Chapter 2: TRANSFER TAXES AND BASIC SUCCESSION

Amount inherited by the wife

P2,000,000

Problem 2-13
Hereditary estate, net of charges (P7,000,000 – P1,000,000)
Legitime of legitimate children (P6,000,000 x ½)
Portion for the acknowledge natural child (P3,000,000/3) x 50%
Portion for the surviving spouse (P3,000,000/3)
Free portion – could be disposed of as legacy to the nanny

P 6,000,000
( 3,000,000)
( 500,000)
( 1,000,000)
P 1,500,000

Problem 2-14
Inheritance of each child (P5,000,000/5)

P 1,000,000

Problem 2-15
Cash in bank
House and lot
Investments in securities
Total gross estate
Less: Unpaid mortgage
Existing loan
Funeral expense
Estate tax
Hereditary estate

P 100,000
5,000,000
400,000
P5,500,000
P 200,000
100,000
100,000
100,000

Problem 2-16
Legitimate child – Mario (P1,200,000 x ½)
Illegitimate child – Maria (P600,000 x ½)
Surviving spouse (P600,000 x ½)
Problem 2-17
With respect to legitime:
Legitimate child (P4,200,000 – P200,000) x 50%

Surviving spouse (P2,000,000 x ½)
Remaining balance (divide based on the intention of
the will)
Legitimate child (P1,000,000 x ½)
Surviving spouse (P1,000,000 x ½)

500,000
P5,000,000
P 600,000
300,000
300,000
P1,200,000

Son
P2,000,000

Wife
P1,000,000

500,000
.
P2,500,000

500,000
P1,500,000


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BUSINESS AND TRANSFER TAXATION 5th Edition

Chapter 2: TRANSFER TAXES AND BASIC SUCCESSION

Problem 2-18
Gross estate
Less: Deduction
Net estate before share of the surviving spouse
Less: Share of the surviving spouse (P1,000,000 x 50%)
Net estate before estate tax
Less: Estate tax
Net distributable estate
Dorado
Maya
(child)
(child)
Fraction of share - intestate
Distribution of inheritance

1/3
P161,667

1/3
P161,667

P2,000,000
1,000,000
P1,000,000
500,000
P 500,000
15,000
P 485,000

Total

Jess
(hu
sba
nd)
1/3
P161,667

1
P485,000

Death of Jess
Exclusive share when Sabel died
Add: Share from distributable share
Distributable estate

Fraction of share - testate
Distribution of inheritance

Dorado
(child)

Maya
(child)

¼
P165,417

¼

P165,417

Free
Po
rtio
n
½
P333,883

P 500,000
161,667
P 661,667
Total

1
P 661,667

Problem 2-19
Gross taxable value for:
1. Capital gain tax

P 300,000

2. Donor’s tax

P 500,000

3. Business tax

P - 0 -

4. Estate tax

P1,800,000

Problem 2-20
Gross estate
Less: Deductions
Net estate before estate tax
Less: Estate tax
Net distributable estate

P3,000,000
1,000,000
P2,000,000
135,000
P1,865,000


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BUSINESS AND TRANSFER TAXATION 5th Edition
Chapter 2: TRANSFER TAXES AND BASIC SUCCESSION

Tito (legitimate
son)
1
P1,243,333

Fraction of share - intestate

Distribution of inheritance

Vic
(illegi’te son)
½
P621,667

Problem 2-21
1. Gross estate (P500,000 + P250,000 + P1,000,000 + 100,000)
2. Inheritance of Tim (P500,000 x ½)

Total
1.5
P1,865,000

P1,850,000
P 250,000

Problem 2-22
1. Testamentary
Legitime:
Legitimate son – Peter (P35,000,000 x 50%) x ½
Legally adopted son – Petros (P35,000,000 x 50%) x ½
Surviving spouse (P8,750,000 x ½)
Illegitimate son – Rocky
Free portion – that may be given to other relatives
2. Intestate Succession
Legitimate son – Peter (P35,000,000/3.5)
Legally adopted son – Petros (P35,000,000 x 3.5)
Surviving spouse (P35,000,000 x 3.5)

Illegitimate son – Rocky (P35,000,000 x 3.5) x ½

1
1
1
1/2

P8,750,000
8,750,000
4,375,000
4,375,000
8,375,000
P35,000,000
P10,000,000
10,000,000
10,000,000
5,000,000
P35,000,000

Problem 2-23
Fraction of share
Amount of
inheritance

Legitimate
child 1
1
P2,857,143

Legitimate

child 2
1
P2,857,143

Surviving
spouse
1
P2,857,143

Illegitimate Total
child
½
3.5
P1,428,571 P10,000,000

Note: The last will and testament is void because the presence of legitimate child
eliminates the parents from the inheritance. In all cases, the legitime must not be
impaired by the disposition through will.


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BUSINESS AND TRANSFER TAXATION 5th Edition
Chapter 2: TRANSFER TAXES AND BASIC SUCCESSION

Problem 2-24
1. Computation of net distributable share
Total gross estate (P10,000,000 + P20,000,000 +
P30,000,000)
Less: Ordinary deductions

Net estate before share of surviving spouse
Less: Share of surviving spouse (P57,500,000 x 50%)
Net estate before estate tax
Less: Estate tax (P28,750,000 x 15%)
Net distributable estate

P60,000,000
2,500,000
P57,500,000
28,750,000
P28,750,000
4,312,500
P24,437,500

2. Computation of the shares of the heirs
Share of legitimate son (P24,437,500 x ½)
Share of surviving spouse (P24,437,500 x ½)

P12,218,750
P12,218,750

Note: His mother and brother, as secondary heirs, are disqualified to share from the
portion of the legitime due to the presence of a legitimate child. Hence, the will becomes
void.
Problem 2-25
1. Computation of net distributable estate:
Gross estate (P4,000,000 + P1,000,000 + P200,000 + P5,000,000 + P3,000,000)
Less: Ordinary deductions:
Funeral expense
Unpaid mortgage

Allowable deduction – Stan’d deduction
Net taxable estate
Less: Estate tax (P11,900,000 x 15%)
Net estate after tax
Add: Standard deduction
Net distributable estate

P 100,000
200,000

2. Distribution of net distributable estate:
Christopher
Cristeta
(son)
(daughter)
Testate succession
Intestate succession
Mixed succession

P4,000,000
2,957,500
P6,957,500

P1,000,000
2,957,500
P3,957,500

P13,200,000

P 300,000

1,000,000

Crisistomo
(driver)
P 200,000
.
P 200,000

1,300,000
P11,900,000
1,785,000
P10,115,000
1,000,000
P11,115,000

Total
P 5,200,000
5,915,000
P 11,115,000