Module 2: Income Tax Solutions
INCOME TAX - ANS-tax on a person's income, emoluments, profits arising from
property, practice of profession, conduct of trade or business or on the pertinent items
of gross income specified in the Tax Code of 1997 (Tax Code), as amended, less the
deductions and/or personal and additional exemptions, if any, authorized for such types
of income, by the Tax Code, as amended, or other special laws.
TRUE OR FALSE
Income does not include increases in the value of the property unless the property is
subsequently sold, and such increase is realized. - ANS-TRUE
Income does not include increases in the value of the property unless the property is
subsequently sold, and such increase is realized.
Realization Test - ANS-All items of gross income shall be included in the gross income
for the taxable year in which they are received by the taxpayer and deductions taken
accordingly, unless in order clearly to reflect income such amounts are to be properly
accounted for as of a different period.
Characteristics of Income Tax - ANS-1. National tax as to taxing authority
2. General tax as to purpose
3. Excise as to subject matter
4. Progressive as to rate
5. Direct tax as to incidence
Income - ANS-pertains to a flow of services rendered by that capital by the payment of
money from it or any other benefit rendered by a fund in relation to such fund through a
period of time.
When is revenue recognized in the realization test? - ANS-a. the earning process is
complete or virtually complete
b. an exchange has taken place.
Deposits are treated as part of income. True or False? - ANS-FALSE if "deposits"
are payment for future services it cannot be treated as part of its gross income until
the earning process is complete.
Advance Payment - ANS-prepaid rental is taxable to the lessor in the year when
, received, even though the lessor is on the accrual or cash method of
accounting.
TRUE OR FALSE
On the part of the lessee, such prepaid rental is treated as capital expenditure, and he
cannot deduct in the year of payment the full amount of the prepaid rent as business
expense but must spread them over the entire remaining term of the lease. -
ANS-TRUE
On the part of the lessee, such prepaid rental is treated as capital expenditure, and he
cannot deduct in the year of payment the full amount of the prepaid rent as business
expense but must spread them over the entire remaining term of the lease.
Security Deposit - ANS-an advance payment received by the lessor from the lessee, as
security for the lessee's performance of his obligations under the lease. Not an income
to the lessor when received because he is required to return it at the end
Claim of Right Doctrine - ANS-doctrine provides that if a taxpayer receives earnings
under a claim of right and without restriction as to its disposition, he has received
income even though one may claim he is not entitled to the money
All Events Test - ANS-accrual of income and expense is permitted when: a. Fixing of a
right to income or liability to pay; and b. The availability of the reasonable accurate
determination of such income or liability has been met.
The test does not demand that the amount of income or liability be known absolutely,
only that a taxpayer has at his disposal the information necessary to compute the
amount with reasonable accuracy.
Individuals' Accounting Period - ANS-- the accounting period shall be calendar year or
that which is a 12-month period that ends in December 31.
Corporations' Accounting Period - ANS-the accounting period can either be calendar or
fiscal year, the latter being an accounting period of 12 months ending on the last day of
the month other than December.
General Rule in Computation of Taxable Income - ANS-The taxable income shall be
computed based on the taxpayer's annual accounting period.
Exception Computation of Taxable Income - ANS-if no such method is employed or the
method does not clearly reflect the income, the computation shall be made in
accordance with such method as in the opinion of the Commissioner clearly reflects the
income. (Sec. 43, NIRC)
INCOME TAX - ANS-tax on a person's income, emoluments, profits arising from
property, practice of profession, conduct of trade or business or on the pertinent items
of gross income specified in the Tax Code of 1997 (Tax Code), as amended, less the
deductions and/or personal and additional exemptions, if any, authorized for such types
of income, by the Tax Code, as amended, or other special laws.
TRUE OR FALSE
Income does not include increases in the value of the property unless the property is
subsequently sold, and such increase is realized. - ANS-TRUE
Income does not include increases in the value of the property unless the property is
subsequently sold, and such increase is realized.
Realization Test - ANS-All items of gross income shall be included in the gross income
for the taxable year in which they are received by the taxpayer and deductions taken
accordingly, unless in order clearly to reflect income such amounts are to be properly
accounted for as of a different period.
Characteristics of Income Tax - ANS-1. National tax as to taxing authority
2. General tax as to purpose
3. Excise as to subject matter
4. Progressive as to rate
5. Direct tax as to incidence
Income - ANS-pertains to a flow of services rendered by that capital by the payment of
money from it or any other benefit rendered by a fund in relation to such fund through a
period of time.
When is revenue recognized in the realization test? - ANS-a. the earning process is
complete or virtually complete
b. an exchange has taken place.
Deposits are treated as part of income. True or False? - ANS-FALSE if "deposits"
are payment for future services it cannot be treated as part of its gross income until
the earning process is complete.
Advance Payment - ANS-prepaid rental is taxable to the lessor in the year when
, received, even though the lessor is on the accrual or cash method of
accounting.
TRUE OR FALSE
On the part of the lessee, such prepaid rental is treated as capital expenditure, and he
cannot deduct in the year of payment the full amount of the prepaid rent as business
expense but must spread them over the entire remaining term of the lease. -
ANS-TRUE
On the part of the lessee, such prepaid rental is treated as capital expenditure, and he
cannot deduct in the year of payment the full amount of the prepaid rent as business
expense but must spread them over the entire remaining term of the lease.
Security Deposit - ANS-an advance payment received by the lessor from the lessee, as
security for the lessee's performance of his obligations under the lease. Not an income
to the lessor when received because he is required to return it at the end
Claim of Right Doctrine - ANS-doctrine provides that if a taxpayer receives earnings
under a claim of right and without restriction as to its disposition, he has received
income even though one may claim he is not entitled to the money
All Events Test - ANS-accrual of income and expense is permitted when: a. Fixing of a
right to income or liability to pay; and b. The availability of the reasonable accurate
determination of such income or liability has been met.
The test does not demand that the amount of income or liability be known absolutely,
only that a taxpayer has at his disposal the information necessary to compute the
amount with reasonable accuracy.
Individuals' Accounting Period - ANS-- the accounting period shall be calendar year or
that which is a 12-month period that ends in December 31.
Corporations' Accounting Period - ANS-the accounting period can either be calendar or
fiscal year, the latter being an accounting period of 12 months ending on the last day of
the month other than December.
General Rule in Computation of Taxable Income - ANS-The taxable income shall be
computed based on the taxpayer's annual accounting period.
Exception Computation of Taxable Income - ANS-if no such method is employed or the
method does not clearly reflect the income, the computation shall be made in
accordance with such method as in the opinion of the Commissioner clearly reflects the
income. (Sec. 43, NIRC)
