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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 101
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 102
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 103 Problem 104
1. D 1. C
2. A 2. D
3. B 3. A
4. C 4. C
5. C 5. D
6. D 6. B
7. B 7. A & B
8. A 8. D
9. A 9. B
10. A 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 P4,000,000
Business delivery trucks 500,000
Amount subject to VAT P4,500,000
Problem 10 6 B
Sale of furniture within P1,800,000
Furniture taken from inventory for personal use 200,000
Amount subject to 12% VAT 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 P400,000
Direct labor 200,000
Factory overhead 100,000
Excise tax 70,000
Mark-up 430,000
Total amount subject to VAT P1,200,000
Output VAT (P1,200,000 x 12%) P144,000
Less: Input VAT from purchases (P896,000/9.333) P96,000
Input VAT from factory overhead 4,000 100,000
Net VAT payable P 44,000
Problem 10 9 B
Cash sales of goods to regular customers P1,500,000
Credit sales of goods to regular customers 500,000
Merchandise use by the owner for personal consumption (P200,000 x 70%) 140,000
Reasonable taxable base of sales for VAT purposes P2,140,000
Problem 10 10 D
Gross sales:
Cash sales P 500,000
Credit sales 800,000
Sales returns ( 100,000)
Sale of obsolete inventories 60,000
Consigned goods (unsold after 90 days) 100,000
Total P1,360,000
Multiplied by VAT rate 12%
Output VAT P 163,200
Problem 10 11 C
Consumption of inventory by the manager at cost P 100,000
Merchandise used to pay dividends at cost 600,000
Payment to creditors at the amount of debt cancelled 800,000
Sale of scrap materials at market price 40,000
Total unreported additional sales P1,740,000
Multiplied by VAT rate 12%
Output VAT 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 P144,000
Output VAT October 1 to Dec. 31, 201A (P700,000/9.333) 75,000
Total output VAT P219,000
Less: Input VAT from:
Purchases (P1,120,000/9.333) P120,000
Operating expenses (P4,200 + P1,800) 6,000 126,000
Net VAT payable P 93,000

Problem 10 13 C
Merchandise inventory P 80,000
Equipment 160,000
Furniture and fixtures 60,000
Total assets P300,000
Multiplied by VAT rate 12%
Output VAT P 36,000
Less: Input VAT 16,000
Net VAT payable 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%) P2,500,000
Obsolete inventory sold at 80% discount, at cost (P100,000 x 20%) 20,000
Consigned goods beyond 60 days at cost 400,000
Total taxable base P2,920,000
Multiplied by VAT rate 12%
Output VAT P 350,200

Problem 10 16 C
Cash sales P135,000
Add: Net credit sales:
Gross amount, net of trade discount
(P365,000 x 90%) P328,500
Less: Sales return (P65,000 x 90%) 58,500 270,000
Taxable base P405,000
Multiplied by VAT rate 12%
Output VAT 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%) P240,000
Problem 10 18 D
1 lot class A (P3,200,000 x 12%) P384,000
2 Commercial lots (P4,480,000/9.333) 480,000
Total output VAT 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% P96,000
Add: December 200A VAT on monthly collection (P20,000 x 4M/3M) x 12% 3,200
Output VAT on the year of sale P99,200
Problem 5 21 B
Second installment P3,750,000
Add: Surcharge (P3,750,000 x 5%) P187,500
Interest (P3,750,000 x 12% x 3/12) 112,500 300,000
Taxable base P4,050,000
Multiplied by VAT rate 12%

Output VAT P 486,000
Problem 10 22 A
Output VAT year 3 (P2,940,000/9.333) P315,000
Less: Creditable input VAT year 3 P200,000
Excess creditable input VAT year 2 (P315,000 P350,000) 35,000 235,000
Net VAT payable P 80,000
Problem 10 23 A
Output VAT (P7,500,000 x 12%), higher amount P900,000
Less: Creditable input VAT year 1 300,000
Net VAT payable (initial payment exceeds 25% = considered cash sales) P600,000
Problem 10 24 C
Output VAT higher (P5,000,000 x 12%) P600,000
Less: Output VAT already paid (P3,360,000/4) x 3 270,000
Output VAT still to be paid P330,000
Problem 10 25 B
2,000 Sacks of cotton and cotton seedlings at P900 each P1,800,000
Sale of woods and charcoal 400,000
Total P2,200,000
Multiplied by VAT rate 12%

VAT payable P 264,000
Problem 10 26
Cost of goods manufactured (P200,000 + P100,000 + P100,000) P400,000
Less: Unsold goods manufactured 15,000
Total cost of goods sold P385,000
Add: Excise tax (P385,000 x 20%) P 77,000
Mark-up (P385,000 x 50%) 192,500 269,500
Total sales P654,500
Multiplied by VAT rate 12%
Output VAT P 78,540
Less: Input VAT from:
Raw materials purchase per invoice (P336,000/9.333) P 36,000
Repair of store office 450
Supplies purchase per invoice (P28,000/9.333) 3,000 39,450
VAT payable 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 P 800,000
Add: Credit sales P200,000
Installment sales collected 100,000
Deemed sales (P20,000 + P180,000) x 60% 120,000 420,000
Total sales including deemed sales P1,220,000
Multiplied by VAT rate 12%
Output VAT P 146,400
Less: Input VAT:
Purchases including VAT (P448,000/9.333) P 48,000
Input VAT credit from previous month 36,400 84,400
Net VAT payable P 62,000
Problem 10 28
Total domestic sales P1,000,000
Inventory consumed for personal use 100,000
Total sales subject to 12% VAT P1,100,000
Multiplied by VAT rate 12%
Output VAT P 132,000
Problem 10 29
Output VAT (P500,000 P100,000) x 12% P48,000
Less: Input VAT per record P25,000
Business tax paid 10,000 35,000
Remaining unpaid VAT P13,000
Problem 10 30
1. Sales P5,000,000
Less: Sales returns 100,000
Vatable sales P4,900,000
Output VAT (P4,900,000 x 12%) P 588,000
Less: Input VAT from:
Purchases/services (P1,120,000/9.333) P120,000
Importation (P600,000 x 12%) 72,000
Capital goods (P1,344,000/9.333)/ 5 years 28,800 220,800
Net VAT payable P367,200
2. Sales P5,000,000
Less: Sales returns P100,000
Sales discounts 200,000 300,000
Net sales P4,700,000
Less: Cost of sales (P1,000,000 + P600,000) 1,600,000
Gross income P3,100,000
Less: OSD (P3,100,000 x 40%) 1,240,000
Net taxable income P1,860,000
Multiplied by corporate income tax rate 30%
Net taxable income 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 P5,000,000
Consigned goods to Victorias (65 days) 500,000
Vatable sales 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%) P1,128,000
Increase in inventory raw materials 360,000
Total purchases P1,488,000
Output VAT (P5,500,000 x 12%) P660,000
Less: Input VAT from expenses P36,000
Presumptive input VAT (P1,488,000 x 4%) 59,520 95,520
Net VAT payable P564,480
2. Actual sales P5,000,000
Less: Cost of sales 1,880,000
Gross income P3,120,000
Less: OSD (P3,120,000 x 40%) higher better 1,248,000
Net taxable income P1,872,000
Multiplied by corporate income tax rate 30%
Income tax due 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% P60,000
2. Output VAT P60,000
Less: Input VAT 20,000
VAT payable P40,000
Problem 10 33
Output VAT (P11,200,000/1.12) x 12% P1,200,000
Less: Input VAT from:
Purchases (P7,840,000/1.12) x 12% P840,000
Unutilized input VAT of M Corporation 300,000 1,140,000
Net VAT payable P 60,000
Problem 10 34
1. Total Output VAT
First year: (P2,500,000 x 20%) = P500,000 x 12% P 60,000
Second year: (P2,000,000 x ) x 12% 120,000
(P2,000,000 x 6% x 12%) 14,400
Third year: (P1,000,000 x 12%) 120,000
(P1,000,000 x 6% x 12%) 7,200
Total Output VAT P321,600
2. Additional Output VAT
Required VAT (P3,000,000 x 12%) P360,000
Less: Previously paid VAT from first to third year 321,600
Additional Output VAT 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%) P 12,000
2. Second year
Output VAT (P200,000 x 12%) P 24,000
(P400,000 x 6% x 12%) 2,880
Total Output VAT 2
nd
year P 26,880
3. Third year
Output VAT (P200,000 x 12%) P 24,000
(P200,000 x 6% x 12%) 1,440
Total Output VAT 3
rd
year P 25,440
Problem 10 36
1. VAT (P10M x 12%) P1,200,000
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) P10,000,000
Installment sales 400,000

Total sales P10,400,000
Less: Cost of sales of:
Cash sales P6,000,000
Installment sales (P1,500,000 x 4/20) 300,000 6,300,000
Gross income P4,100,000
Less: Operating expenses 2,000,000
Net income P2,100,000
Multiplied by corporate normal income tax rate 30%
Income tax due P 630,000
Problem 10 37
1. Net income (P570,000/30%) P1,900,000
Less: Gain on sale of capital asset 50,000
Net operating income P1,850,000
Add: Cost of sales (P120,000/12%) P1,000,000
Sales discounts 150,000
Operating expense before taxes 990,000
Community tax 10,000 2,150,000
Amount subject to VAT P4,000,000
2. Output VAT (P4,000,000 x 12%) P 480,000
3. Output VAT P 480,000
Less: Input VAT 120,000
VAT payable P 360,000
Problem 10 38
1. Gross income P12,300,000
Add: Cost of sales (P10,000,000 + P150,000 P850,000) 9,300,000
Net sales (P12,300,000 + P9,000,000) P21,600,000
Add: Sales discounts due to prompt payments 200,000
Vatable base P21,800,000
Multiplied by VAT rate 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. 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:
Owners 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 P48,000
Input VAT credit from previous month 36,000
Input VAT from imported machines used in business
(P200,000 x 150%) x 12% 36,000
Net VAT payable

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%) P392,000
Inventory used to pay dividends (P400,000 x 70%) 280,000
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

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

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



120,000
P 60,600




P10,000,000


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.