Sec.

43 – (Accounting Period) Calendar year or

fiscal year;
 Prerogative of taxpayer;
 Calendar when -
 accounting period is other than fiscal year; or
 No annual accounting period; or
 Does not keep books of accounts; or
 Individual

 RR # 03-2011 as amended by RR 09-2011.

Sec. 44 – (Accounting Method) Period in which items
of gross income included;
 For the taxable year when received (Cash
basis);
 Unlessunder methods of accounting permitted
(Accrual basis or other methods);
 Incase of the death, income up to date of his
death;
Sec. 45 – (Accounting Method) Period for which
deductions and credits taken;
 For
taxable year in which “paid or accrued” or
“paid or incurred”, depending on accounting
method used in computing net income;
 In
case of death, deductions up to date of
death;
Sec. 46 – Change of accounting period;
 Other than individual;
 Need the approval of BIR;
 Be made any time not less than 30 days prior to
the date of filing the return;
 Subject to Sec. 47 (short period of return)
 Subject to doc stamps.
 RR 3-2011 as amended by RR 9-2011
 Final or adjustment returns for a period of less than 12 months;

Sec. 47A – Returns of short period resulting from a change in

accounting period;
 Fiscal year to calendar year, short period return between
the close of the fiscal year for which return was made and
the following December 31. (Ex. June 1 to Dec. 31)
 Calendar year to fiscal year, short period return between
the close of the last calendar year for which the return was
made and the date designated as the close of the fiscal
year. (Ex. Jan 1 to May 31)
 Final or adjustment returns for a period of less than 12 months;

 Fiscal
year to fiscal year, short period return between the
close of the former fiscal year and the date designated as
the close of the new fiscal year. (Ex. June 1 to July 31)

Sec. 47B – Income computed on basis of short period;

 Fractional part of the year.
Other instances of short period return
• Newly commenced business
• Date of the start of the business until designated year end
of the business.
• Dissolution of the business
• Start of the current year up to date of dissolution.
• Death of the taxpayer
• Start of the calendar year until the death of the taxpayer.
• Accounting period terminated by BIR Commissioner
• Start of the current year until the termination of the
accounting period.
Filing of the ITR –

• It should be filed on the fifteenth (15th) day of the

fourth month following the close of the taxable year
of the taxpayer.
• Calendar period (December 31) – on or before
April 15
• Fiscal period (ex. End period is June 30) – on or
before October 15
Advanced income and payments –

• Advanced income is taxable upon receipt. This is

applicable only to the rendering of services but not
on the sale of goods.

• Prepaid expenses is non – deductible unless used or

consumed. Applicable to sale of goods or rendering
of services.
Sec. 48 – Accounting for long – term contracts –

 Covering a period in excess of 1 year;

 Percentage of completion method;
 Certificate of Architects or Engineers;
 Expenditures be deducted from gross income are only
those made during the taxable year on account of the
contract. The same can be determined on the basis of
remaining inventory of materials and supplies.
 Summary – Installment Sales
Sec. 49A to C
Personal Property – (subject to basic tax)
(A) Ordinary sale (ordinary asset - inventories)
 RGP = collection x GPR
 GPR = gross profit / contract price
 Regardless of the 25% limit

(B) Casual sale (capital asset)

 SP exceeds P 1,000
 IP do not exceed 25% of the SP, otherwise deferred method.
 Observance of holding period (more than a year – 50%, if
not 100%)
 Summary – Installment Sales
Sec. 49A to C
(C) Real Property – either basic tax or capital gains
tax
 Ordinary asset – IP not exceeding 25% of SP, otherwise
deferred; subject to basic tax;
 Capital asset – IP not exceeding 25% of SP, otherwise
deferred; subject to Capital gains tax.
 RMC 35 - 2017
Formats of Computation - Installment
1. Selling Price (SP) (amount realized)
Cash received P xxx
FMV of the property received xxx
Receivables xxx
Unpaid mortgage assumed by the buyer xxx
Selling Price (SP) P xxx

2. Contract Price (CP) (agreed to pay)

Selling Price P xxx
Less: Mortgage assumed by the buyer xxx
Balance P xxx
Add: Excess unpaid mortgage over cost xxx
Contract price P xxx
3. Initial Payments (IP)
Down payment P xxx
Expected installment collection in the year of sale xxx
Excess of unpaid mortgage over cost xxx
Initial Payments P xxx

4. Installment capital gain tax = Total CGT x collection/ CP

5. Realized Gross Profit (RGP) (if subject to basic tax)

RGP = Collections x GPR
GPR = Gross Profit/ Contract Price
Sec. 49D – Change from accrual to installment –
 … the income, for the year of change or any subsequent year, amounts
actually received during any such year on account of sales or other
dispositions of property made in any prior year shall not be excluded.

Sec. 50 – Allocation of income and deductions –

 distribution, apportionment, or allocation of gross income or deductions
to two or more organizations, trade or businesses (whether incorporated
or not, organized or not organized in the Philippines) owned directly or
indirectly by the same interest is allowed upon determination of BIR
Commissioner if it is necessary to prevent the evasion by the taxpayer.
 RR 2-1940; RAMO 1-1998; RMO 61-1998; RMC 26-2008, as amended by RR 02-
2013.
In relation to sec. 50…
• Income under this section has an international aspect
termed international taxation. It has two fundamental
principles.
• Residence-based taxation
• Residents taxed on income earned within and
without the Philippines.
• Source-based taxation
• Non – residents is taxed on income within the
Philippines only.
In relation to sec. 49A…
Four (4) ways of dealers who sell on installment plan to
protect themselves in case of default are –
1. By agreement that title is to remain to the vendor until
complete performance of the vendee;
2. By agreement that title would be conveyed immediately
but subject to lien for unpaid portion;
3. By transfer of title to purchaser who at the same time
executes a reconveyance in the form of a chattel
mortgage to vendor; or
4. By reconveyance to a trustee pending performance of the
contract.
Leasehold improvement –
• Taxable is the income from leasehold improvements.
• Occurs when the life of the improvements exceeds the lease term.
• Income on the part of the lessor.
• Methods
• Outright method – income is the FMV at the time of completion.
• Spread – out method – income is based on the following
formula:
= Cost of improvement x (Excess useful life over lease term/
Useful life of the improvement)
 The answer shall be divided by the lease term.
• RR # 2.
Agricultural or Farming Income –
• Animal husbandry or short – term crops – cash or accrual;
• Long – term crops –
• Perennial crops – Initial farm development costs are
capitalized and amortized over the expected years of
harvest. The harvest is accounted under cash or accrual
method.
• One time crops – crop year basis method. Formula -
Proceeds of the harvest
(accumulated expenses of the crop harvested)
= Taxable income for the year
Use of different methods –

• Taxpayers with more than one business may

consolidate the income applying the different
methods.

• But these methods shall be applied consistently to

each business.
 End of Slide

CHRISTOPHER DE GUZMAN, C.P.A., C.A.T