COMPREHENSIVE TAX REVIEWER: 66 SITUATIONAL CASES ON
INCOME, BUSINESS, & LOCAL TAXATION
P.S. Wag maniniwala sa chismis (BOA yern). Always believe in your preparation and your efforts will never betray you. ^^
SITUATION 1: (PREFERENTIAL TAXATION): Gelato, PEZA registered enterprise, operating in the Philippines for the year
2018 was given anincome tax holiday for 4 years, presented the following financial data:
Sales to registered activities P5,000,000
Sales to unregistered activities P1,000,000
Cost of sales outside customs territory P3,000,000 Administrative expenses
P1,200,000
1. How much is due to National Government, after the income tax holiday period?
A. P75,000
B. P90,000
C. P165,000
D. P180,000
2. How much is due to Local Government, after the income tax holiday period?
A. P50,000
B. P60,000
C. P120,000
D. P42,000
SITUATION 2 (INCOME TAXATION): Kumadrona signified her intention to be taxed at 8% income tax rate on gross sales in
her first quarter return. However, her gross sales during taxable year has exceeded the VAT threshhold.
First Quarter Second Quarter Third Quarter Fourth Quarter
Sales 500,000 1,000,000 1,500,000 4,000,000
Cost of Sales 300,000 500,000 700,000 1,500,000
Operating 100,000 200,000 250,000 500,000
Expenses
3. How much is the income tax payable for the final return?
A. P574,000
B. P560,000
C. P340,000
D. None of the above
4. How much is the percentage tax under Section 116 for the third quarter?
A. P210,000
B. P45,000
C. Not subject to Section 116
D. None of the above
5. How much is the output VAT for the fourth quarter, if any?
A. P840,000
B. P480,000
C. P120,000
D. None of the choices
Page 1 of 170
,SITUATION 3 (INCOME TAXATION): Mr. Mark Tang is a partner of Tang Dayag Caiga Company, a business partnership. He owns
25% interest. The gross sales of Tang Dayag Caiga Company amounted to P10,000,000 for taxable year 2018. The recorded
cost of sales and operating expenses of the partnership were P2,150,000 and P1,500,000, respectively. It had also incurred
an interest expense of P200,000 in connection with asset acquisition and interest income from bank deposit amounting to
P100,000.
Page 2 of 170
,6. How much is the taxable income of the partnership? Php6,191,250
A. P5,750,000
B. P5,583,000
C. P5,550,000
D. None of the choices
7. How much is the income tax liability of the partnership?Php1,857,375
A. P1,725,000
B. P1,674,000
C. P1,665,000
D. None of the choices
8. How much is the share in the partnership income of partner Mark Tang?Php1,108,468.75
A. P1,068,750
B. P1,018,775
C. P978,775
D. P1,017,025
9. Assuming the partnership avails of the OSD, how much is the tax liability of the partnership?Php1,413,000
A. P1,725,000
B. P1,305,000
C. P0
D. None of the choices
SITUATION 4 (INCOME TAXATION): The following data were provided by an international air carrier:
Freight and cargo fees (cargo originating from the Philippines in a continuous and
uninterrupted flight to Japan, passage
documents sold in Japan) P5,000,000
Mail fees (mail originating from Japan in a continuous and uninterrupted flight to the
Philippines, passage documents sold
in the Philippines) 4,000,000
Advance payments for cargo originating from the Philippines in a continuous and uninterrupted flight to
Singapore (passage
documents sold in Singapore) 3,000,000
Receipts from sales of tickets to passengers originating from the Philippines in a continuous
and uninterrupted flight to
Hong kong (tickets sold in the Philippines) 2,000,000
Expenses, Philippines 1,500,000
10. How much is the income tax due from the international air carrier doing business in the Philippines?
A. P250,000
B. P240,000
C. P200,000
D. None of the above
11. How much is the common carriers tax due from the international air carrier?
A. P250,000
B. P240,000
C. P200,000
D. None of the above
SITUATION 5 (INCOME TAXATION): In 2018, Mr. Kenneth Lim, owns a nightclub and videoke bar, with gross sales/receipts of
P2,500,000. His cost of sales and operating expenses are P1,000,000 and P600,000, respectively, and with non-operating
income of P100,000.
12. Can Mr. Lim have an option to avail of the 8% income tax rate?
A. Yes, because his gross sales/receipts do not exceed the VAT threshhold.
B. No, because his business income is subject to Other Percentage Tax under Section
125 of the Tax Code, as amended.
C. Yes, because individual taxpayers are always given the option to be taxed at 8% income tax rate.
D. No, because he is not VAT – registered.
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, 13. How much is the income tax due?
A. P200,000
B. P190,000
C. P120,000
D. None of the above
14. How much is the Other Percentage tax?
A. P450,000 18% of gross receipts
B. P250,000
C. P75,000
D. None of the above
SITUATION 6 (INCOME TAXATION): In 2018, Ms. Boa Hancock, a financial controller of EB Company, earns annual
compensation of P1,500,000, inclusive of 13th month and other benefits in the amount of P80,000 and mandatory SSS
contribution of P3,500 and Philhealth contribution of P2,000. Aside from her employment income, she owns a convenience
store, VAT-Registered, with gross sales of P3,000,000. Sales discount amounts to P300,000, sales returns and allowances
amount to P150,000. Her cost of sales and operating expenses are P1,000,000 and P600,000, respectively and with non-
operating income of P100,000. Payments for the first three quarters amount to P300,000.
15. Can she avail of the 8% income tax rate?
A. Yes, because her gross sales do not exceed the VAT threshhold.
B. No, because she is VAT-registered.
C. Yes, because she is a mixed income earner.
D. No, because her total income including compensation income exceed the VAT threshhold.
16. How much is her total taxable income?
A. P2,913,500
B. P2,550,000
C. P2,463,500
D. P2,464,500
17. How much is her tax due when she files her final tax return?
A. P338,320
B. P366,000
C. P482,320
D. P338,640
18. How much is the output VAT, if any
A. P306,000
B. P342,000
C. P360,000
D. None of the above
SITUATION 7 (BUSINESS TAXATION): JJ Company, service provider, presented to you the following income statement in line
with the same Company’s audit of the financial statements:
JJ COMPANY INCOME
STATEMENT
For the year ended December 31, 2021
Sales P10,350,000
Cost of Goods Sold 7,050,000
Gross Profit P 3,300,000
Operating expenses:
Selling P 675,000
Administrative 1,050,000 1,725,000
Net income P 1,575,000
Your audit disclosed the following information:
• Accounts receivable decreased P540,000 during the year.
• Prepaid expenses increased P255,000 during the year.
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INCOME, BUSINESS, & LOCAL TAXATION
P.S. Wag maniniwala sa chismis (BOA yern). Always believe in your preparation and your efforts will never betray you. ^^
SITUATION 1: (PREFERENTIAL TAXATION): Gelato, PEZA registered enterprise, operating in the Philippines for the year
2018 was given anincome tax holiday for 4 years, presented the following financial data:
Sales to registered activities P5,000,000
Sales to unregistered activities P1,000,000
Cost of sales outside customs territory P3,000,000 Administrative expenses
P1,200,000
1. How much is due to National Government, after the income tax holiday period?
A. P75,000
B. P90,000
C. P165,000
D. P180,000
2. How much is due to Local Government, after the income tax holiday period?
A. P50,000
B. P60,000
C. P120,000
D. P42,000
SITUATION 2 (INCOME TAXATION): Kumadrona signified her intention to be taxed at 8% income tax rate on gross sales in
her first quarter return. However, her gross sales during taxable year has exceeded the VAT threshhold.
First Quarter Second Quarter Third Quarter Fourth Quarter
Sales 500,000 1,000,000 1,500,000 4,000,000
Cost of Sales 300,000 500,000 700,000 1,500,000
Operating 100,000 200,000 250,000 500,000
Expenses
3. How much is the income tax payable for the final return?
A. P574,000
B. P560,000
C. P340,000
D. None of the above
4. How much is the percentage tax under Section 116 for the third quarter?
A. P210,000
B. P45,000
C. Not subject to Section 116
D. None of the above
5. How much is the output VAT for the fourth quarter, if any?
A. P840,000
B. P480,000
C. P120,000
D. None of the choices
Page 1 of 170
,SITUATION 3 (INCOME TAXATION): Mr. Mark Tang is a partner of Tang Dayag Caiga Company, a business partnership. He owns
25% interest. The gross sales of Tang Dayag Caiga Company amounted to P10,000,000 for taxable year 2018. The recorded
cost of sales and operating expenses of the partnership were P2,150,000 and P1,500,000, respectively. It had also incurred
an interest expense of P200,000 in connection with asset acquisition and interest income from bank deposit amounting to
P100,000.
Page 2 of 170
,6. How much is the taxable income of the partnership? Php6,191,250
A. P5,750,000
B. P5,583,000
C. P5,550,000
D. None of the choices
7. How much is the income tax liability of the partnership?Php1,857,375
A. P1,725,000
B. P1,674,000
C. P1,665,000
D. None of the choices
8. How much is the share in the partnership income of partner Mark Tang?Php1,108,468.75
A. P1,068,750
B. P1,018,775
C. P978,775
D. P1,017,025
9. Assuming the partnership avails of the OSD, how much is the tax liability of the partnership?Php1,413,000
A. P1,725,000
B. P1,305,000
C. P0
D. None of the choices
SITUATION 4 (INCOME TAXATION): The following data were provided by an international air carrier:
Freight and cargo fees (cargo originating from the Philippines in a continuous and
uninterrupted flight to Japan, passage
documents sold in Japan) P5,000,000
Mail fees (mail originating from Japan in a continuous and uninterrupted flight to the
Philippines, passage documents sold
in the Philippines) 4,000,000
Advance payments for cargo originating from the Philippines in a continuous and uninterrupted flight to
Singapore (passage
documents sold in Singapore) 3,000,000
Receipts from sales of tickets to passengers originating from the Philippines in a continuous
and uninterrupted flight to
Hong kong (tickets sold in the Philippines) 2,000,000
Expenses, Philippines 1,500,000
10. How much is the income tax due from the international air carrier doing business in the Philippines?
A. P250,000
B. P240,000
C. P200,000
D. None of the above
11. How much is the common carriers tax due from the international air carrier?
A. P250,000
B. P240,000
C. P200,000
D. None of the above
SITUATION 5 (INCOME TAXATION): In 2018, Mr. Kenneth Lim, owns a nightclub and videoke bar, with gross sales/receipts of
P2,500,000. His cost of sales and operating expenses are P1,000,000 and P600,000, respectively, and with non-operating
income of P100,000.
12. Can Mr. Lim have an option to avail of the 8% income tax rate?
A. Yes, because his gross sales/receipts do not exceed the VAT threshhold.
B. No, because his business income is subject to Other Percentage Tax under Section
125 of the Tax Code, as amended.
C. Yes, because individual taxpayers are always given the option to be taxed at 8% income tax rate.
D. No, because he is not VAT – registered.
Page 3 of 170
, 13. How much is the income tax due?
A. P200,000
B. P190,000
C. P120,000
D. None of the above
14. How much is the Other Percentage tax?
A. P450,000 18% of gross receipts
B. P250,000
C. P75,000
D. None of the above
SITUATION 6 (INCOME TAXATION): In 2018, Ms. Boa Hancock, a financial controller of EB Company, earns annual
compensation of P1,500,000, inclusive of 13th month and other benefits in the amount of P80,000 and mandatory SSS
contribution of P3,500 and Philhealth contribution of P2,000. Aside from her employment income, she owns a convenience
store, VAT-Registered, with gross sales of P3,000,000. Sales discount amounts to P300,000, sales returns and allowances
amount to P150,000. Her cost of sales and operating expenses are P1,000,000 and P600,000, respectively and with non-
operating income of P100,000. Payments for the first three quarters amount to P300,000.
15. Can she avail of the 8% income tax rate?
A. Yes, because her gross sales do not exceed the VAT threshhold.
B. No, because she is VAT-registered.
C. Yes, because she is a mixed income earner.
D. No, because her total income including compensation income exceed the VAT threshhold.
16. How much is her total taxable income?
A. P2,913,500
B. P2,550,000
C. P2,463,500
D. P2,464,500
17. How much is her tax due when she files her final tax return?
A. P338,320
B. P366,000
C. P482,320
D. P338,640
18. How much is the output VAT, if any
A. P306,000
B. P342,000
C. P360,000
D. None of the above
SITUATION 7 (BUSINESS TAXATION): JJ Company, service provider, presented to you the following income statement in line
with the same Company’s audit of the financial statements:
JJ COMPANY INCOME
STATEMENT
For the year ended December 31, 2021
Sales P10,350,000
Cost of Goods Sold 7,050,000
Gross Profit P 3,300,000
Operating expenses:
Selling P 675,000
Administrative 1,050,000 1,725,000
Net income P 1,575,000
Your audit disclosed the following information:
• Accounts receivable decreased P540,000 during the year.
• Prepaid expenses increased P255,000 during the year.
Page 4 of 170
