Gross Income and Deductions

1. The records of ABC Corporation, organized in 2007 showed the following data for 2017.
Gross Income P2,000,000
Less: Allowable business expenses
(other than bad debts) P1,850,000
Bad debts written off 100,000 1,950,000
Taxable net income 50,000
In 2018, 80% of the bad debts written off in 2017 was collected
• The income tax due in 2017 is
• How much is taxable recovery in 2018

2. Bobby, lessor, leased a lot to Christina, lessee, for 15 years beginning January 1, 2016, subject to the following
terms of and conditions:
Monthly rental ₱ 20,000
Advance rental for 2 years 480,000
Security deposit 240,000
Annual RPT to be paid by lessee 10,000
Cost of building constructed by
lessee (to be owned by lessor upon
termination of lease) 2,800,000
Building completed on July 1,2018
Estimated life of building (in years) 20 years
• Determine the taxable income of lessor Bobby for 2016, 2017, 2018, and 2019; under outright method and spread-
out method
• Determine the deductible expense of Cristina, lessee, for 2016, 2017, 2018, and 2019.

3. A domestic corporation organized in 2006 provided the following information:

2017 2018 2019 2020 2021

Net Sales 3,950,000 4,910,000 5,965,000 6,980,000 8,900,000
Cost of sales (2,000,000) (3,500,000) (4,200,000) (5,000,000) (5,200,000)
Business expenses (1,900,000) (1,550,000) (1,820,000) (2,100,000) (2,300,000)
Other taxable income 50,000 45,000 35,000 20,000 100,000
Total assets 50,000,000 55,000,000 60,000,000 65,000,000 70,000,000

• Income tax still due at 2017

• Income tax still due at 2021

4. A, not happy with her present job, resigned and started her own business. The business requires her to travel so
she used her car for the purpose. Assume that A started her business on April 1 and that she uses the car for
business 70% of the time. Assuming total expenses for the year for the use of the car is P300,000, the deductible
expense is

5. A acquired a machine at a cost of P500,000. Scrap value is P40,000 and the estimated useful life was 25 years.
After depreciating the asset for 20 years using the straight-line method, it was determined that the remaining life
is not five years. The annual depreciation from the 21st year assuming a remaining life of 10 years without scrap
is

6. A taxpayer engaged in business incurred a partial loss of business property as follows:

Asset 1 Asset 2
 Book value of the asset at the asset at the time of loss P 200,000 P 200,000
Cost to restore the property back to its normal operating condition 120,000 300,000
Insurance recovery 50,000 None
Salvage None 40,000
• Deductible loss for asset 1
• Deductible loss for asset 2

7. ABC put up a qualified retirement plan approved by the BIR. It appointed B Corp. to administer the
plan, which called for the payment of P200,000 to cover the retirement of employees for past services
rendered and a yearly contribution of P50,000. The following amounts were paid for the first three years
of the plan’s operation:
Contribution for Services
Past Years Current Years
First year………………… P 100,000 P 50,000
Second year……………… 60,000 50,000
Third year………………… 40,000 50,000
• Pension expense for the first year
• Pension expense for the second year
• Pensions expense for the third year

8. Mr. Santos, a retailer of goods, uses the accrual method in reporting his income and expenses. His
transactions show:
Jan. 1 to June 30 July 1 to Sept. 30 Oct. 1 to Dec. 31
Gross Sales P 1,000,000 P 700,000 P 900,000
Cost of Sales 600,000 200,000 300,000
Business expenses 100,000 50,000 70,000
Non-operating income
In the ITR 50,000 40,000 10,000
• If he avails OSD, what is taxable income
• If he avails ID, what is taxable income

9. KLM Corporation, a domestic corporation, had the following financial information for CY 2021:
gross sales of ₱50 Million; cost of sales of ₱35 Million; and operating expenses of ₱12.6 Million,
broken down as follows:

Cost of Sales
Direct materials ₱20,000,000
Direct labor 10,000,000
Manufacturing overhead 5,000,000
Total ₱35,000,000

Operating Expenses
Salaries and wages ₱5,000,000
Taxes 200,000
Depreciation 300,000
Professional fees 200,000
Advertising expenses 3,000,000
Training expenses 3,000,000
Office supplies 500,000
Interest expense 400,000
Total ₱12,600,000
 The training expenses of ₱3,000,000 was incurred for its trainees enrolled in a specific skills development
program of TESDA. Moreover, the corporation earned interest income, net of the 20% FT, in the amount
of ₱100,000.

Assuming the corporation is subject to a 25% regular corporate income tax rate, and has complied with the withholding
tax requirements on all its costs and expenses subject to withholding tax, compute its net taxable income for taxable
year 2021

10. Healthy Drugs Corporation had the following data during the year:
Customer
Transactions Regular Senior Citizen Totals
Sales (net) Php 8,000,000 Php 3,200,000 Php 11,200,000
Cost of Sales 5,000,000 2,000,000 7,000,000
Other Deductible expenses 2,000,000

Healthy adopts a policy of giving senior citizens a 20% discount. As a result, it granted Php 800,000 total senior citizen’s
discount during the year. The taxable net income is

Dick Tracy Corporation paid the following expenses during the year:
Interest for late payment (delinquent) income tax 5,000
Surcharge and compromise for late payment of income tax 30,000
Interest on bonds issued 40,000
Interest on money borrowed by the Company from a stockholder
who owns 80% of the outstanding stock of the Company 20,000
What is Dick Tracy Corporation’s deductible expense?

11. ABC is a domestic corporation engaged in the merchandising business. For the calendar year 2021, it
had a net income per books of P500,000, after considering, among others, the following:
a) Dividend received from a domestic corporation 30,000
b) Provision for doubtful accounts 10,000
c) Dividend received from a foreign corporation 20,000
d) Portion of P150,000 advance rental already earned 100,000
e) Recovery of receivables previously written off:
i)Previously allowed by the BIR as deduction 10,000
ii) Previously disallowed by the BIR as deduction 30,000
f) Refund of deductible taxes
i) Previously allowed by the BIR as deduction 25,000
ii) Previously disallowed by the BIR as deduction 15,000
g) Bank interest income:
i) Philippine Bank 80,000
ii) USA Bank 100,000
(h) Amounts for lactation station expensed in current year 50,000

The taxable net income is