BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 97

SUGGESTED ANSWERS
Chapter 13: MIXED BUSINESS TRANSACTIONS

CHAPTER 13

MIXED BUSINESS TRANSACTIONS

Problem 131

True or False

1.
2.

True
True

3.

False only those supported with VAT invoice or VAT receipts are allowed to claim input VAT
credit.
True

4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.

False zero-rated transaction refers to output VAT and not input VAT. Zero-rated VAT
transactions have input VAT.
False for the input VAT of zero-rated transaction, the treatment is either VAT credit, refund
or TCC issuance.
True
False the basis of allocation is sales volume.
True
True
False costs of sales or operating expense.
False zero-rated VAT transaction.
True
False transport of passengers by land is subject to 3% OPT regardless of amount.

Problem 132
1.
2.
3.
4.
5.
6.

False
True
False
True
False
False

7.

False not anymore subject to OPT tax because such amount is deducted from the gross
receipts.
True
True

8.
9.

zero-rated transactions.
12% VAT.
subject to OPT regardless of amount.
life insurance premium is subject to 5% VAT.

10. False if the monthly rent income is P12,800 and below, not subject to business tax
regardless of amount.
11. True
12. False subject to income tax but not subject to VAT.
13. False some are subject to OPT. Only those specified by law such as sale of food agricultural
products in their original state are exempt both from VAT and OPT.
14. False only the allocated amount of input VAT related to VAT transactions and zero-rated
VAT transactions is allowed as deduction from output VAT.

Problem 133
1.
2.
3.
4.
5.
6.
7.
8.
9.

B
C
A
C&D
C
D
B
C
A

10. B

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 98
SUGGESTED ANSWERS
Chapter 13: MIXED BUSINESS TRANSACTIONS

Problem 13 4
A
Output VAT on taxable transaction
Less: Creditable input VAT (P8,640 + P2,880 )
Net VAT payable

Output VAT (P120,000 x 12%)

Input VAT Credited
Amount to be remitted (refunded or credited)

P14,400
11,520
P 2,880
Subject
to 12%
P14,400
8,640
P 5,760

ZeroRated
P
0
2,880
(P 2,880)

Allocation of Input VAT

Regular sales (P14,400 x 60%)
Zero-VAT rate (P14,400 x 20%)
VAT-exempt (P14,400 x 20)
Input VAT (P134,400/9.333)

VATExempt
P
0
None
None
P 8,640
2,880
2,880
P14,400

Notes:
1.

The amount of Input VAT allocated to regular sales and zero-VAT sales are creditable VAT,
while the Input VAT allocated to the VAT-exempt sales are not creditable VAT which should
become part of the cost of sales.

2.

Computation of percent of sales:

Regular VAT sales
Zero-rated sales ($800 x P50)
VAT-exempt
Total sales

Problem 13 5
B
Standard input VAT (P15,000 x 7%)
Add: Final withholding VAT (P15,000 x 5%)
Amount of VAT deductible from sales to government

Percent
60%
20%
20%
100%

Amount
P120,000
40,000
40,000
P200,000
P1,050
750
P1,800

Problem 13 6
C
Total domestic cash sales (P110,000 + P55,000)
Sales to government
Total sales subject to VAT
Multiplied by VAT rate
Total Output VAT

P165,000
15,000
P180,000
12%
P 21,600

Problem 13 7
D
Input VAT export sales (zero-rated)
Add: Allocated input VAT export sales (P250,000 x 8/20)
Tax refund or tax credit certificate applicable to zero-rated VAT only

P 60,000
100,000
P160,000

Problem 13 8
A
Zero, the business is nonVAT; hence, no input VAT is allowed.
Problem 13 9
C
Output VAT (P2,000,000 x 12%)
Less: Input VAT
Net VAT payable

P240,000
60,000
P180,000

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 99
SUGGESTED ANSWERS
Chapter 13: MIXED BUSINESS TRANSACTIONS

Problem 13 10
B
Increase in cost of service is the input VAT (P1,120,000/9.333)

P120,000

Problem 13 11
C
Percentage tax - passengers (P2,000,000 x 3%)
VAT taxable transactions - cargoes (P2,000,000 x 12%)
Total business tax

P 60,000
240,000
P300,0000

Notes:
Additional amount charged in ordinary bus fare tickets issued by common carrier for passengers
excess baggage is subject to VAT. (BIR Ruling 094-99)
Although there is actual Input VAT paid, this could not be claimed as tax credit because the
business is non-VAT registered.
Problem 13 12
B
Common carriers tax (P1,400,000 x 3%)
Output VAT (P1,792,000/9.333)
Total business tax
Less: Creditable Input VAT (P560,000/9.333) x P1,600,000/P3,000,000
Net business tax payable

P 42,000
192,000
P234,000
32,000
P202,000

Notes:
Additional amount charged in ordinary bus fare tickets issued by common carrier for passengers
excess baggage is subject to VAT. (BIR Ruling 094-99)
The creditable Input VAT is prorated between the Vatable and VAT-exempt gross receipts.
Problem 13 13
D
Output VAT [(P30,000/3%) + P3,000,000] x 12%
Less: OPT paid
Output VAT balance
Less: Input VAT
Transitional input VAT (P500,000 x 2%)
Actual input VAT (P2,240,000/9.333)
Net VAT payable

P480,000
30,000
P450,000
P 10,000
240,000

Problem 1314
1. Letter A
Input tax on regular VAT taxable sales
Input tax on zero-rated sales
Input tax allocated to regular and zero-rated VAT sales (P60,000 x 3/5)
Creditable input tax against regular sales output VAT
2.

Letter D
Input tax on sales to government
Input tax allocated to sales to government (P60,000 x 1/5)
Actual input VAT of sales to government

3.

Letter C
Input VAT on VAT-exempt sales
Excess of actual input VAT over standard input VAT of sales to govt.
Actual input VAT
Less: Std. input VAT (P100,000 x 7%)
Input VAT to cost of sales or operating expense

250,000
P200,000

P10,000
4,000
36,000
P50,000
P 3,000
12,000
P15,000
P 4,000
P15,000
7,000

8,000
P12,000

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 100
SUGGESTED ANSWERS
Chapter 13: MIXED BUSINESS TRANSACTIONS

4.

Letter B
Gross income (P500,000 x 40%)
Less: OSD (P200,000 x 40%)
Net taxable income
Multiplied by corporate tax rate
Income tax due operating expense approached
Total sales
Less: Cost of sales (P500,000 x 60%)
Input VAT of VAT-exempt sales
Gross income
Less: OSD (P188,000 x 40%)
Net taxable income
Multiplied by corporate tax rate
Income tax due cost of sale approach
Tax advantage

P500,000

P300,000
12,000

Problem 1315
1. Letter B
Output VAT from:
Regular VAT sales (P1,120,000/9.333)
Sale of defective products (P168,000/9.333)
Less: Allocation of input VAT from:
Packaging materials (P60,000 x 85%)
Presumptive input VAT [(P800,000 P100,000) x 4%] x 85%
Net VAT payable

P200,000
80,000
P120,000
30%
P 36,000

312,000
P188,000
75,200
P112,800
30%

33,840
P 2,160

P120,000
18,000

P138,000

P 51,000
23,800

74,800
P 63,200

Note: The presumptive input VAT is based on the primary raw materials
used in the production.
2.

Letter A
Total sales, net of VAT (P1,000,000 + P1,400,000 + P450,000 + P150,000)
Less: Cost of sales
P1,786,800
Input VAT traced to VATexempt sales (P60,000 x 15%)
9,000
Presumptive input VAT to VAT-exempt (P700k x 4%) x 15%
4,200
Gross income
Less: Itemized deductions
Net taxable income
Multiplied by corporate tax rate
Income tax due

Problem 1316
1. Letter D
Other percentage tax land passengers, within
(P20,000,000 x 3%)
Add: Net VAT payable
Output VAT - transport within from:
Air (P40,000,000 x 12%)
Sea (P20,000,000 x 12%)
Land cargoes (P10,000,000 x 12%)
Total output VAT
Less: Actual input VAT air and sea - within
Input VAT [(P6,000,000 x 75%)/60 months] x 3
Total business taxes due

P3,000,000
1,800,000
P1,200,000
700,000
P 500,000
30%
P 150,000

P775,000
225,000

600,000

P4,800,000
2,400,000
1,200,000
P8,400,000
1,000,000

7,400,000
P8,000,000

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 101
SUGGESTED ANSWERS
Chapter 13: MIXED BUSINESS TRANSACTIONS

Computation of percent of allocation:

Allowed with input VAT
VAT-exempt land passengers
Total gross receipts

P 90M
30M
P120M

Input VAT on Jet purchased (P50,000,000 x 12%)

2. Letter A
Total gross receipts
Less: Cost of service (P120,000,000 x 40%)
Applicable input VAT for VAT-exempt
[(P6M x 25%)/60 months] x 3
Gross income
Less: OSD (P72,000,000 x 40%)
Net taxable income OSD
Less: Net taxable income itemized
Gross income
Less: Itemized deductions (P5M + P3.8M)
Difference
Multiplied by corporate income tax rate
Tax advantage using OSD

P6,000,000

P47,925,000
75,000

P72,000,000
8,800,000

Problem 1317
1. NOT IN THE CHOICES
Other percentage tax life insurance premium (P76,000,000 x 5%)
Add: Net VAT payable
Output VAT nonlife insurance premium
(P24,000,000 x 12%)
P2,880,000
Less: Input VAT (P300,000 x 24%)
72,000
Total business taxes due
Percent of gross receipts:
Nonlife (P26,000,000 P2,000,000)
Life (P82,000,000 P6,000,000)
2.

Letter B
Total gross receipts (P24M + P76M)
Less: Cost of service
Life (P76,000,000 x 40%)
Nonlife (P24,000,000 x 30%)
Amount of input VAT life (P300,000 x 76%)
Gross income
Add: Rent income
Total gross income
Less: OSD (P63,000,000 x 40%)
Net taxable income
Multiplied by corporate tax rate
Income tax due

Problem 1318
1. Letter B
Output VAT (P2,000,000 + P1,500,000) x 12%
Less: Amortization of input VAT
[(P33,600,000/9.333)/60] x 10 months x 3.5/6
Total business tax payable

75%
25%
100%

24%
76%
100%

P120,000,000
48,000,000
P 72,000,000
28,800,000
P43,200,000
63,200,000
P20,000,000
30%
P 6,000,000

P3,800,000

2,808,000
P6,608,000
P 24,000,000
76,000,000
P100,000,000
P100,000,000

30,400,000
7,200,000
228,000

37,828,000
P 62,172,000
828,000
P 63,000,000
25,200,000
P 37,800,000
30%
P 11,340,000

P420,000
350,000
P 70,000

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 102
SUGGESTED ANSWERS
Chapter 13: MIXED BUSINESS TRANSACTIONS

2. NOT IN THE CHOICES

Total gross receipts
Less: Costs of service:
Depreciation direct cost [(P33,600,000/1.12)/30]
Input VAT traced to VAT-exempt transactions
Class C (P3,600,000/60) x 10 mos. x 2.5/6
Gross income
Less: OSD (P4,750,000 x 40%)
Net taxable income
Multiplied by corporate tax rate
Income tax due

P6,000,000
P1,000,000
250,000

Problem 1319
1. Output VAT vacation house (P9M x 12%)
Less: Input VAT (P360,000) + (P240,000 x 75%)
Net VAT payable

1,250,000
P4,750,000
1,900,000
P2,850,000
30%
P 855,000
P1,080,000
540,000
P 540,000

The installment sale of real property is subject to 25% rule of initial

payment. If the initial payment exceeds 25% of the selling price, the sale
is considered as cash sales.
The sale of house and lot with a selling price of P3,199,200 and below is
exempt from VAT.
2.

Cash sales vacation house

Installment sales
Total sales
Less: Cost of sales of:
Cash sales vacation house
Installment sales bungalow (P2,100,000 x 6/30)
Input VAT traced to VAT-exempt sales related to:
Cost of sale (P120,000 x 6/30%)
Operating expense (P240,000 x 3/12)
Gross income
Less: Operating expenses
Net income
Multiplied by corporate normal income tax rate
Income tax due

Problem 13 20
Output VAT from:
Cash sales to VAT persons (P300,000 x 12%)
Cash sales to Non-VAT persons (P100,000 x 12%)
Cash sales to government units (P200,000 x 12%)
Credit sales to VAT persons (P400,000 x 12%)
Sales return (P10,000 x 12%)
Less: Input VAT from:
Purchases from VAT person per invoice (P324,800/9.333)
Payment of services for business purposes, gross of VAT
(P72,800/9.333)
Standard input VAT government (P200,000 x 7%)
VAT payable
Less: Final withholding VAT government (P200,000 x 5%)
Net VAT payable

P9,000,000
600,000
P9,600,000
P6,000,000
420,000
24,000
60,000

P 36,000
12,000
24,000
48,000
( 1,200)

6,504,000
P3,096,000
2,000,000
P1,096,000
30%
P 328,800

P118,800

P 34,800
7,800
14,000

56,600
P 62,200
10,000
P 52,200

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 103
SUGGESTED ANSWERS
Chapter 13: MIXED BUSINESS TRANSACTIONS

Notes:
1.
2.

The sales discount is generally a cash discount that depends on the happening of future
events which is the prompt payment of customers. This sales discount is not allowed to
be deducted for VAT purposes. (Sec. 4.106-9, R.R. 14-2005)
The 5% final withholding VAT is deductible from output VAT on sales to the government.

Problem 13 21
1. Input tax on taxable goods
Input tax on zero-rated sales
Standard input tax government sales (P100,000 x 7%)
Input tax on depreciable capital goods
not attributable to any specific activity
(monthly amortization for 60 months) = (P20,000 x P200,000/P400,000)
Creditable input tax for the month
2. Input tax on sale to the government
Input tax on depreciable goods allocated to sales to the government
(P20,000 x 100,000/400,000)
Input tax attributable to sales to government for the month

P 5,000
3,000
7,000
10,000
P25,000
P4,000
5,000
P9,000

Note: This actual input tax is deductible only to the extent of standard input
VAT amounting to P7,000. The excess of actual input VAT over standard
input VAT is to be treated as additional cost of sales or operating expense.
3. Input tax on sale of exempt goods
Input tax attributable to VAT-exempt goods (P20,000 x 1/4)
Input tax attributable to VAT-exempt goods

P2,000
5,000
P7,000

Note: This input VAT is not deductible from output VAT. Its entire
amount is to be treated as additional cost of sales or operating
expense.
Problem 13 22
Gross sales/receipts for the month (VAT taxable)
Multiplied by VAT rate
Output VAT
Less: Input taxes:
Goods (P392,000/9.333) x 675/750
Service (P84,000/9.333) x 675/750
Std input VAT on sales to government (P75,000 x 7%)
VAT Payable before final VAT
Less: Final withholding VAT (P75,000 x 5%)
Net VAT payable
Notes:
1. Composition of sales:
Cash sales to VAT persons
Cash sales to Non-VAT persons
Credit sales to VAT persons
Gross sales
Less: Sales returns
Sales discounts
VAT taxable sales subject to VAT
Add: Sales to the government-subject to final VAT
Total sales

P750,000
12%
P 90,000
P37,800
8,100
5,250

P20,000
5,000

51,150
P 38,850
3,750
P 35,100

P450,000
50,000
200,000
P700,000
25,000
P675,000
75,000
P750,000

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 104
SUGGESTED ANSWERS
Chapter 13: MIXED BUSINESS TRANSACTIONS

2.

All sales, whether sold to VAT or non-VAT person, cash and on credit are included.

3.

Sales return and discounts were deducted to arrive at the amount of net sales. In this
particular case, the sales discounts is deductible to determine the taxable based because the
it does not depend on the happening of future event and its related total sales are recorded.

4.

VAT on expenses that are not related in the conduct of business is not allowed as creditable
Input VAT.

5.

Sale to government unit is subject to final VAT withholding tax. (Sec. 4.114-2, R.R. 14-2005)

Problem 13 23
Output VAT from:
Regular sales (P216,000 + P576,000) x 12%
Deemed sales (P90,000 + P180,000) x 12%
Government sales (P160,000 x 12%)
Less: Input VAT allocation to:
Regular VAT transactions
Zero-VAT transactions
Standard VAT from sales to government
(P160,000 x 7%)
VAT payable before final VAT
Less: Creditable withholding final VAT from sales
to government (P160,000 x 5%)
Net VAT payable

P95,040
32,400
19,200

P146,640

P88,888
27,123
11,200

127,211
P 19,429
8,000
11,429

Supporting computations:
Sales:
To VAT
To non-VAT
To government (P169,600/106%)
Export
Personal use, at cost
Consignment (P241,920/9.333) x 83.33%*
Totals
Percentage
Input VAT from:
Creditable input VAT balance
VAT business (P571,760/9.333)
Office supplies (P28,000/9.333)
Payments VAT persons
(P110,000 x 12%)
Importation (P298,144/9.333)
Input VAT allocations

Notes:
1.
2.

Regular VAT
Taxable
P576,000
216,000
90,000
180,000
P1,062,000
68.69%

Zero-VAT

.
P324,000

.
P160,000

Total
P576,000
216,000
160,000
324,000
90,000
180,000
P1,546,000

20.96%

10.35%

100%

P324,000

With Govt.
P160,000

P 20,000
61,260
3,000

P88,888

P27,123

P13,394

13,200
31,945
P129,405

The goods consumed for personal use can be price at cost being transaction deemed sale.
The deemed sale consigned goods is also price at cost, computed as follows:
Consignment price excluding VAT (P241,920/1.12)
P216,000
Multiplied by percent of cost based on the goods consumed for
personal use (P90,000/P108,000)
83.33%
*Cost of consigned goods
P180,000