Solution manual transfer and business taxes by valencia CHAPTER 3 GROSS ESTATE

BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS)
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Chapter 3: GROSS ESTATE

CHAPTER 3

GROSS ESTATE
Problem 3-1
1. False – should be including revocable transfers and transfers for insufficient consideration.
2. False – depending on the citizenship and residency of the decedent.
3. True
4. False – common stock only; preferred stock is measured at its par value.
5. False – resident alien = properties within and without
6. True
7. True
8. False – donation mortis causa is subject to estate tax.
9. True
10. False – only revocable transfer is taxable.
Problem 3-2
1. False – the relationship must be one degree of generation.
2. True – If he is a nonresident alien.
3. False – the other way around
4. True
5. False – it will depend on how the jewelry was acquired.
6. True
7. False – revocable designation.
8. True
9. False – exclusively to wife

10. False – surviving spouse capital is not included.
Problem 3-3
1. C
6. A
2. A
7. D
3. C
8. A
4. D
9. C
5. B
10. B, C & D
Problem 3-4
1.

The reportable gross estate is P2,000,000.

2.

Reportable gross estate is P600,000. As a rule, property donated by the decedent to a
nonprofit and nonstock educational institution shall not be considered in the computation
of gross estate.

3.

The reportable estate of A in the Philippines is P5,000,000. Even if A is a nonresident
Filipino, his properties located outside the Philippines are reportable in the Philippines
because he is a Filipino citizen.

4.

P10,000,000. The properties left by a resident alien which are located within and outside
the Philippines are required to be reported for Philippine estate tax purposes.

5.

At market value of P750,000. The law provides that the valuation should be at the market
value of the property at the time of the owner’s death. The book value is irrelevant
because the properties left by the decedent are considered under liquidating concern.


BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS

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Chapter 3: GROSS ESTATE

6.

Only the market value of P500,000 is the reportable gross estate. The rule is to report the
market value of the property at the time of the decedent’s death. The compensatory
damages of P900,000 is nontaxable and besides the accrued to the decedent’s heirs after
death.

7.

If the cash dividend accrued to X before his death but received only after death, then the
additional gross estate would be P2,000,000. But if cash dividend accrued only after death,
then there is no addition to the gross estate.

Note: If the problem is silent as to the par value of the shares of stock, it is assumed that
the cost is the par value per share.
The market value of the shares of stock shall be the reportable amount of the gross estate,
not the acquisition cost of the shares of stock.

8.

A has 20% in the book value of U Corporation. The book value of U Corp. is P2,000,000.
Therefore the reportable gross estate of A would be P400,000 or (P2,000,000 x 20%).

9.

Zero. The beneficiary is irrevocable. Therefore, the P5,000,000 proceeds of life insurance
should be excluded from the gross estate.

10. Property brought into marriage before August 3, 1988 shall be classified as an exclusive
property but its fruits shall be classified as part of the conjugal property. The exclusive
gross estate of Mr. X is P8,000,000.
11. Marriage on or after August 3, 1988 shall be governed by the absolute community regime
of property relation. Therefore, the exclusive gross estate of Mr. X is zero because his
property brought into marriage including its fruits shall be classified as part of the absolute
community property.
12. Reportable gross estate is P6,000,000, but the entire amount shall be allowed as
deductions from the gross estate as transfer for public use.
13. Reportable gross estate is P4,000,000. The claims against insolvent person should still be
reported in the gross estate but allowed as deductions from the gross estate.
14. Since M is a resident alien, all of his properties within and outside the Philippines should be
reported as part of the gross estate for Philippine estate tax purposes. The reportable
gross estate should be P11,000,000.
15. No amount is allowed as exemption because the rule of reciprocity is applied only on the

intangibles of nonresident alien.
16. Since Mr. T is a nonresident alien in this case, the gross estate is zero because the rule of
reciprocity can now be applied.


BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS

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Chapter 3: GROSS ESTATE

Problem 3 – 5
A
House and lot, Daly City
Mansion, Boracay, Philippines
Cars, Philippines
Shares of stock, Hongkong
Accounts receivable
Gross estate of Molina
Problem 3-6 C
Real property in the Philippines
Personal properties in foreign country
Amount to be included in the gross estate

P10,000,000
50,000,000
2,000,000
5,000,000
3,000,000

P70,000,000
P1,000,000
300,000
P1,300,000

Problem 3-7 D
Since the alien is nonresident all of his properties outside the Philippines are reportable for
Philippine estate tax purposes.
Problem 3-8
1. A
Real properties – Philippines
Car – Philippines
Collectibles – Taiwan
Taxable gross estate
2.

D
Real properties – Philippines
Car – Philippines
Taxable gross estate

P1,000,000
500,000
500,000
P2,000,000
P1,000,000
500,000
P1,500,000

Problem 3-9 A

The gross estate shall be valued at its fair market value at the time of death.
Problem 3-10 C
Amount to be included in the gross estate [(P120+P150)/2] x 1,000

P135,000

Problem 3-11 D
Properties acquired and brought into marriage on or before August 3, 1988 is governed by
absolute community of property ownership.
Problem 3-12 A
Equity in SMC book value (P1,250,000,000 x 40%)
Investment income (P100,000,000 x 40%)
Amount to be included in the gross estate

P500,000,000
40,000,000
P540,000,000

Note: Investment income is considered because there is significant controlling interest.
Problem 3-13 B
Proceeds to revocable life insurance

P 800,000

Problem 3-14 D
The proceeds of life insurance is not reportable because the beneficiary is irrevocable.
Problem 3-15 C
Fair market value – date of death
Less: Selling price paid by the son
Amount included in the gross estate

P3,000,000
100,000
P2,900,000


BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS

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Chapter 3: GROSS ESTATE

Problem 3-16 C
Fair market value – date of death
Less: Selling price received by Singsong
Amount included in the gross estate

P2,000,000
1,300,000
P 700,000

Problem 3-17 C
The entire amount of receivable, irrespective whether collectible or not, shall be included as
part of the gross estate.
Problem 3-18 A
Revocable donation to the Ramon Magsaysay Foundation
Family home
Benefits under R.A. 4917
Transfers in contemplation of death

Donation to the government
Total reportable gross estate

P1,000,000
1,000,000
500,000
2,000,000
1,000,000
P5,500,000

Problem 3-19 B
Condominium in Makati as a fiduciary heir
Cash as bequest to the University of the Philippines
Amount to be excluded from reportable gross estate

P5,000,000
2,000,000
P7,000,000

Problem 3-20 A
Only nonresident alien shall be subject to reciprocity.
Problem 3-21
1. Conjugal partnership of gains = A
Conjugal properties:
Accum. income from boarding house
P3,000,000
Personal properties acquired during marriage
5,000,000
Exclusive property – boarding house inherited from his parents before marriage
Total gross estate

P 8,000,000
4,000,000
P12,000,000

2. Absolute community of property = D
Absolute communal properties:
Accum. income from boarding house
Personal properties acquired during marriage
Boarding house inherited from his parents before marriage
Total gross estate

Problem 3-22
1
Resident citizen
.
Real estate – Philippines
Real properties – Taiwan
Personal properties – Philippines
Gross estate
2
.

P 5,000,000
10,000,000
500,000
P15,500,000

Resident alien
Real estate – Philippines

Real properties – Taiwan
Personal properties – Philippines
Gross estate

3
.

P 3,000,000
5,000,000
4,000,000
P12,000,000

Nonresident alien

P 5,000,000
10,000,000
500,000
P15,500,000


BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS

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Chapter 3: GROSS ESTATE

Real estate – Philippines
Personal properties – Philippines
Gross estate

P 5,000,000
500,000
P 5,500,000

Problem 3-23
Real properties in the Philippines
Car in the Philippines
Collectibles
Time deposit
Accrued interest on time deposit (P300,000 x 12% x 5/12)
Gross estate

Problem 3-24
Shares of stock – Japanese Corporation – 85% of business in the Philippines
Time deposit in Equitable-PCI Bank
Investments in bonds in Jollibee Corporation
Gross estate
Problem 3-25
House and lot
Investment in property
Car
Furniture
Gross estate

P2,000,000
800,000
500,000
300,000
15,000

P3,615,000

P120,000,000
500,000,000
4,000,000
P624,000,000
P6,000,000
2,000,000
600,000
300,000
P8,900,000

Problem 3-26
1
Listed in the local exchange
.
Common (P190/2) x 10,000 shares
2
.

P 950,000

Not listed in the local exchange
Total stockholders’ equity
Less: Liquidating value of preferred stock
(P110 x 60,000 shares)
Revaluation surplus
Total book value to common shares
Divided by outstanding common shares
Book value per share

Multiplied by number of Mr. Tulog’s
investment in common shares
Value of securities as part of gross estate

Problem 3-27
Real estate properties
Time deposit – principal amount
Accrued interest on time deposit (P2,000,000 x 12% x 8/12)
Tangible personal properties
Other intangible properties
Gross estate
Problem 3-28
Proceeds of life insurance – revocable
Donation to take effect upon her death
Diamond necklace
Gross estate

P15,000,000
6,600,000
200,000
P 8,200,000
100,000
P
82
P

10,000
820,000

P 3,000,000

2,000,000
160,000
1,000,000
500,000
P 6,660,000
P1,000,000
500,000
500,000
P2,000,000


BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS

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Chapter 3: GROSS ESTATE

Problem 3-29
1
Accrued interest (P1,000,000 x 6% x 9/12)
.
Transfers in contemplation of death
Additions to the reportable gross estate
2
.

P

45,000

1,500,000
P1,545,000

Family home

P2,000,000

Time deposit
Proceeds of life insurance received by his wife
Claims against insolvent person
Additions to the reportable gross estate (see 1)
Total gross estate

1,000,000
500,000
200,000
1,545,000
P5,245,000

Problem 3-30
Properties:
Acquired by decedent prior to marriage
Acquired by surviving spouse prior to marriage
Inherited by decedent during the marriage
Acquired during the marriage
Income derived from property inherited by surviving
spouse during the marriage
Time deposit
Accrued interest

Total gross estate of the decedent

Conjugal
Partnership

Absolute
Community

P600,000
800,000
1,000,000

P600,000
700,000
800,000
1,000,000

450,000
850,000
90,000
P3,790,000

850,000
90,000
P4,040,000