INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)

SUGGESTED ANSWERS
Chapter 3: Concept of Income

CHAPTTotal agreed capital (75,000/20%) P 375,000

Total contributed capital (280,000+75,000) ( 355,000)
Goodwill to old partners, 5:3:2 P 20,000

 Equalize *3-19
Capital balances before
admission P360,000 P225,000 P135,000 – P720,000
Capital transfer
to WW (1/6) ( 60,000) ( 37,500) ( 22,500) _120,000 –
Balances P300,000 P187,500 P112,500 P120,000 P720,000
Equalization of capital ( 100,000) 12,500 87,500 – –
Balances P200,000 P200,000 P200,000 P120,000 P720,000
Net profit, equally 3,150 3,150 3,150 3,150 12,600
Drawings (2 months) _( 1,500) _( 2,000) _( 1,500) _( 2,000) _( 7,000)
Capital balances before
WWs Investment P201,650 P201,150 P201,650 P121,150 P725,600

Total agreed capital (201,650+201,150+201,650)/2/3 P906,675

WW's interest 1/3
Agreed capital of WW P302,225
Contributed capital (see above) _121,150
 Goodwill to new partner
*3-15

Total agreed capital (P41,600/2/3) P 62,400

Total contributed capital (P23,000+18,600+16,000) ( 57,600)
Goodwill to new partner, Ang P 4,800

LIM ONG ANG

Capital balances before admission P23,000 P 18,600 –
Investment by Ang – – 16,000
Goodwill to August – – 4,800
Capital balances after admission P23,000 P 18,600 P20,800

 Bonus Method

AQUINO LOCSIN DAVID HIZON

Capital balances before admission P252,000 P126,000 P42,000 –
Purchase by Hizon (20%) ( 50,400) ( 25,200) ( 8,400) _84,000
Capital balances after admission P201,600 P100,800 P33,600 P 84,000

 Bonus Method

AQUINO LOCSIN DAVID HIZON

Capital balances before admission P252,000 P126,000 P42,000 –
Purchase by Hizon (20%) ( 50,400) ( 25,200) ( 8,400) _84,000
Capital balances after admission P201,600 P100,800 P33,600 P 84,000
INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Chapter 3: Concept of Income

Total agreed capital (75,000/20%) P 375,000

Total contributed capital (280,000+75,000) ( 355,000)
Goodwill to old partners, 5:3:2 P 20,000

 Equalize *3-19
Capital balances before
admission P360,000 P225,000 P135,000 – P720,000
Capital transfer
to WW (1/6) ( 60,000) ( 37,500) ( 22,500) _120,000 –
Balances P300,000 P187,500 P112,500 P120,000 P720,000
Equalization of capital ( 100,000) 12,500 87,500 – –
Balances P200,000 P200,000 P200,000 P120,000 P720,000
Net profit, equally 3,150 3,150 3,150 3,150 12,600
Drawings (2 months) _( 1,500) _( 2,000) _( 1,500) _( 2,000) _( 7,000)
Capital balances before
WWs Investment P201,650 P201,150 P201,650 P121,150 P725,600

Total agreed capital (201,650+201,150+201,650)/2/3 P906,675

WW's interest 1/3
Agreed capital of WW P302,225
Contributed capital (see above) _121,150
 Goodwill to new partner
*3-15

Total agreed capital (P41,600/2/3) P 62,400

Total contributed capital (P23,000+18,600+16,000) ( 57,600)
Goodwill to new partner, Ang P 4,800

LIM ONG ANG

Capital balances before admission P23,000 P 18,600 –
Investment by Ang – – 16,000
Goodwill to August – – 4,800
Capital balances after admission P23,000 P 18,600 P20,800

 Bonus Method

AQUINO LOCSIN DAVID HIZON

Capital balances before admission P252,000 P126,000 P42,000 –
Purchase by Hizon (20%) ( 50,400) ( 25,200) ( 8,400) _84,000
Capital balances after admission P201,600 P100,800 P33,600 P 84,000

 Bonus Method

AQUINO LOCSIN DAVID HIZON

Capital balances before admission P252,000 P126,000 P42,000 –
Purchase by Hizon (20%) ( 50,400) ( 25,200) ( 8,400) _84,000
INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Chapter 3: Concept of Income

Capital balances after admission P201,600 P100,800 P33,600 P 84,000

Total agreed capital (75,000/20%) P 375,000

Total contributed capital (280,000+75,000) ( 355,000)
Goodwill to old partners, 5:3:2 P 20,000

 Equalize *3-19
Capital balances before
admission P360,000 P225,000 P135,000 – P720,000
Capital transfer
to WW (1/6) ( 60,000) ( 37,500) ( 22,500) _120,000 –
Balances P300,000 P187,500 P112,500 P120,000 P720,000
Equalization of capital ( 100,000) 12,500 87,500 – –
Balances P200,000 P200,000 P200,000 P120,000 P720,000
Net profit, equally 3,150 3,150 3,150 3,150 12,600
Drawings (2 months) _( 1,500) _( 2,000) _( 1,500) _( 2,000) _( 7,000)
Capital balances before
WWs Investment P201,650 P201,150 P201,650 P121,150 P725,600

Total agreed capital (201,650+201,150+201,650)/2/3 P906,675

WW's interest 1/3
Agreed capital of WW P302,225
Contributed capital (see above) _121,150
 Goodwill to new partner
*3-15

Total agreed capital (P41,600/2/3) P 62,400

Total contributed capital (P23,000+18,600+16,000) ( 57,600)
Goodwill to new partner, Ang P 4,800

LIM ONG ANG

Capital balances before admission P23,000 P 18,600 –
Investment by Ang – – 16,000
Goodwill to August – – 4,800
Capital balances after admission P23,000 P 18,600 P20,800

 Bonus Method

AQUINO LOCSIN DAVID HIZON

Capital balances before admission P252,000 P126,000 P42,000 –
Purchase by Hizon (20%) ( 50,400) ( 25,200) ( 8,400) _84,000
Capital balances after admission P201,600 P100,800 P33,600 P 84,000

 Bonus Method

AQUINO LOCSIN DAVID HIZON

Capital balances before admission P252,000 P126,000 P42,000 –
INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Chapter 3: Concept of Income

Purchase by Hizon (20%) ( 50,400) ( 25,200) ( 8,400) _84,000

Capital balances after admission P201,600 P100,800 P33,600 P 84,000

ER 3
P 24,380 P 50,860 P 75,240
( 5,570) ( 13,240) (18,810) (1/4)
Capital balances after admission 1:2 P 18,810 P 37,620 P 56,430

Capital transfer P 5,570 P 13,240 P18,810

Excess, 1:2 3,730 7,460 _11,190
Cash P 9,300 P 20,700 P30,000

 Comprehensive bonus and goodwill

 3-16: a

ANG BENG CHING DONG TOTAL

Capital balances before
admission P600,000 P 400,000 P 300,000 – P1,300,000
Admission by Dong:
By Purchase (1/2) ( 300,000) – – 300,000 –
By Investment – – – _300,000 300,000
Capital balances before
Goodwill and Bonus P300,000 P 400,000 P 300,000 P600,000 P1,600,000
Goodwill to Old Partners (sch. 1) 150,000 150,000 100,000 – 400,000
Bonus to Old Partners (sch. 1) 37,500 37,500 25,000 ( 100,000) –
Capital balances after
admission P487,500 P 587,500 P 425,000 P500,000 P2,000,000

Schedule 1: CC AC Inc. (Dec.)

Old Partners P 1,000,000 P1,500,000 P500,000
New Partner 600,000 (25%) 500,000 ( 100,000) Bonus
Total P 1,600,000 P2,000,000 P400,000 GW

 Double Goodwill double admission

*3-17
Capital balances before
admission of Alma P150,000 P 50,000 – – P 200,000
Admission of Alma:
Investment – – 80,000 – 80,000
Goodwill to old partner,
70:30 (sch. 1) 28,000 12,000 – – 40,000
Capital balances before
admission of Lorna P178,000 P 62,000 P 80,000 – P 320,000
Admission of Lorna:
Goodwill Written off, 5:3:2 (P 20,000) (P 12,000) ( P8,000) – ( P40,000)
Investment – – – 75,000 75,000
Goodwill to old partners,
5:3:2 (sch. 2) 10,000 6,000 4,000 – 20,000
Capital balances after
admission P168,000 P 56,000 P 76,000 P 75,000 P 375,000

Schedule 1
Total agreed capital (80,000/25%) P 320,000
INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Chapter 3: Concept of Income

Total capital contributed (200,000+80,000) ( 280,000)

Goodwill to old partners, 70:30 P40,000

Schedule 2:
Total agreed capital (75,000/20%) P 375,000
Total contributed capital (280,000+75,000) ( 355,000)
Goodwill to old partners, 5:3:2 P 20,000

 Equalize *3-19
Capital balances before
admission P360,000 P225,000 P135,000 – P720,000
Capital transfer
to WW (1/6) ( 60,000) ( 37,500) ( 22,500) _120,000 –
Balances P300,000 P187,500 P112,500 P120,000 P720,000
Equalization of capital ( 100,000) 12,500 87,500 – –
Balances P200,000 P200,000 P200,000 P120,000 P720,000
Net profit, equally 3,150 3,150 3,150 3,150 12,600
Drawings (2 months) _( 1,500) _( 2,000) _( 1,500) _( 2,000) _( 7,000)
Capital balances before
WWs Investment P201,650 P201,150 P201,650 P121,150 P725,600

Total agreed capital (201,650+201,150+201,650)/2/3 P906,675

WW's interest 1/3
Agreed capital of WW P302,225
Contributed capital (see above) _121,150
 Goodwill to new partner
*3-15

Total agreed capital (P41,600/2/3) P 62,400

Total contributed capital (P23,000+18,600+16,000) ( 57,600)
Goodwill to new partner, Ang P 4,800

LIM ONG ANG

Capital balances before admission P23,000 P 18,600 –
Investment by Ang – – 16,000
Goodwill to August – – 4,800
Capital balances after admission P23,000 P 18,600 P20,800

 Bonus Method

AQUINO LOCSIN DAVID HIZON

Capital balances before admission P252,000 P126,000 P42,000 –
Purchase by Hizon (20%) ( 50,400) ( 25,200) ( 8,400) _84,000
Capital balances after admission P201,600 P100,800 P33,600 P 84,000

Drawings (2 months) _( 1,500) _( 2,000) _( 1,500) _( 2,000) _( 7,000)

Capital balances before
WWs Investment P201,650 P201,150 P201,650 P121,150 P725,600

Total agreed capital (201,650+201,150+201,650)/2/3 P906,675

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Chapter 3: Concept of Income

1/3
WW's interest
Agreed capital of WW P302,225
Contributed capital (see above) _121,150
 will to new partner
*3-15

Total agreed capital (P41,600/2/3) P 62,400

Total contributed capital (P23,000+18,600+16,000) ( 57,600)
Goodwill to new partner, Ang P 4,800

LIM ONG ANG

Capital balances before admission P23,000 P 18,600 –
Investment by Ang – – 16,000
Goodwill to August – – 4,800
Capital balances after admission P23,000 P 18,600 P20,800

 Bonus Method

AQUINO LOCSIN DAVID HIZON

Capital balances before admission P252,000 P126,000 P42,000 –
Purchase by Hizon (20%) ( 50,400) ( 25,200) ( 8,400) _84,000
Capital balances after admission P201,600 P100,800 P33,600 P 84,000

 Cash Distribution

AQUINO LOCSIN DAVID TOTAL

Capital transferred P 50,400 P P 8,400 P 84,000
25,200 Excess divided using profit and loss ratio 3,600 600 6,000
1,800
Cash distribution P 54,000 P 27,000 P 9,000 P 90,000

*3-7Capital balances beginning P 24,000 P 48,000 P 72,000

Net profit, 1:2 5,430 10,860 16,290
Drawings ( 5,050) ( 8,000) ( 13,050)
Capital balances before admission P 24,380 P 50,860 P 75,240
Capital transfer (squeeze) ( 5,570) ( 13,240) (18,810) (1/4)
Capital balances after admission 1:2 P 18,810 P 37,620 P 56,430

Capital transfer P 5,570 P 13,240 P18,810

Excess, 1:2 3,730 7,460 _11,190
Cash P 9,300 P 20,700 P30,000

Comprehensive bonus and goodwill

*3-7Capital balances beginning P 24,000 P 48,000 P 72,000
INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Chapter 3: Concept of Income

Net profit, 1:2 5,430 10,860 16,290

Drawings ( 5,050) ( 8,000) ( 13,050)
Capital balances before admission P 24,380 P 50,860 P 75,240
Capital transfer (squeeze) ( 5,570) ( 13,240) (18,810) (1/4)
Capital balances after admission 1:2 P 18,810 P 37,620 P 56,430

Capital transfer P 5,570 P 13,240 P18,810

Excess, 1:2 3,730 7,460 _11,190
Cash P 9,300 P 20,700 P30,000

 Comprehensive bonus and goodwill

 3-16: a

ANG BENG CHING DONG TOTAL

Capital balances before
admission P600,000 P 400,000 P 300,000 – P1,300,000
Admission by Dong:
By Purchase (1/2) ( 300,000) – – 300,000 –
By Investment – – – _300,000 300,000
Capital balances before
Goodwill and Bonus P300,000 P 400,000 P 300,000 P600,000 P1,600,000
Goodwill to Old Partners (sch. 1) 150,000 150,000 100,000 – 400,000
Bonus to Old Partners (sch. 1) 37,500 37,500 25,000 ( 100,000) –
Capital balances after
admission P487,500 P 587,500 P 425,000 P500,000 P2,000,000

Schedule 1: CC AC Inc. (Dec.)

Old Partners P 1,000,000 P1,500,000 P500,000
New Partner 600,000 (25%) 500,000 ( 100,000) Bonus
Total P 1,600,000 P2,000,000 P400,000 GW

 Double Goodwill double admission

*3-17
Capital balances before
admission of Alma P150,000 P 50,000 – – P 200,000
Admission of Alma:
Investment – – 80,000 – 80,000
Goodwill to old partner,
70:30 (sch. 1) 28,000 12,000 – – 40,000
Capital balances before
admission of Lorna P178,000 P 62,000 P 80,000 – P 320,000
Admission of Lorna:
Goodwill Written off, 5:3:2 (P 20,000) (P 12,000) ( P8,000) – ( P40,000)
Investment – – – 75,000 75,000
Goodwill to old partners,
5:3:2 (sch. 2) 10,000 6,000 4,000 – 20,000
Capital balances after
admission P168,000 P 56,000 P 76,000 P 75,000 P 375,000

Schedule 1
Total agreed capital (80,000/25%) P 320,000
Total capital contributed (200,000+80,000) ( 280,000)
Goodwill to old partners, 70:30 P40,000
INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Chapter 3: Concept of Income

Schedule 2:
Total agreed capital (75,000/20%) P 375,000
Total contributed capital (280,000+75,000) ( 355,000)
Goodwill to old partners, 5:3:2 P 20,000

 Equalize *3-19
Capital balances before
admission P360,000 P225,000 P135,000 – P720,000
Capital balances before admission P 24,380 P 50,860 P 75,240
Capital transfer (squeeze) ( 5,570) ( 13,240) (18,810) (1/4)
Capital balances after admission 1:2 P 18,810 P 37,620 P 56,430

Capital transfer P 5,570 P 13,240 P18,810

Excess, 1:2 3,730 7,460 _11,190
Cash P 9,300 P 20,700 P30,000

 Comprehensive bonus and goodwill

 3-16: a

ANG BENG CHING DONG TOTAL

Capital balances before
admission P600,000 P 400,000 P 300,000 – P1,300,000
Admission by Dong:
By Purchase (1/2) ( 300,000) – – 300,000 –
By Investment – – – _300,000 300,000
Capital balances before
Goodwill and Bonus P300,000 P 400,000 P 300,000 P600,000 P1,600,000
Goodwill to Old Partners (sch. 1) 150,000 150,000 100,000 – 400,000
Bonus to Old Partners (sch. 1) 37,500 37,500 25,000 ( 100,000) –
Capital balances after
admission P487,500 P 587,500 P 425,000 P500,000 P2,000,000

Schedule 1: CC AC Inc. (Dec.)

Old Partners P 1,000,000 P1,500,000 P500,000
New Partner 600,000 (25%) 500,000 ( 100,000) Bonus
Total P 1,600,000 P2,000,000 P400,000 GW

 Double Goodwill double admission

*3-17
Capital balances before
admission of Alma P150,000 P 50,000 – – P 200,000
Admission of Alma:
Investment – – 80,000 – 80,000
Goodwill to old partner,
70:30 (sch. 1) 28,000 12,000 – – 40,000
Capital balances before
admission of Lorna P178,000 P 62,000 P 80,000 – P 320,000
Admission of Lorna:
Goodwill Written off, 5:3:2 (P 20,000) (P 12,000) ( P8,000) – ( P40,000)
Investment – – – 75,000 75,000
Goodwill to old partners,
5:3:2 (sch. 2) 10,000 6,000 4,000 – 20,000
Capital balances after
INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Chapter 3: Concept of Income

admission P168,000 P 56,000 P 76,000 P 75,000 P 375,000

Schedule 1
Total agreed capital (80,000/25%) P 320,000
Total capital contributed (200,000+80,000) ( 280,000)
Goodwill to old partners, 70:30 P40,000

Schedule 2:
Total agreed capital (75,000/20%) P 375,000
Total contributed capital (280,000+75,000) ( 355,000)
Goodwill to old partners, 5:3:2 P 20,000

 Equalize *3-19
Capital balances before
admission P360,000 P225,000 P135,000 – P720,000
Capital transfer
to WW (1/6) ( 60,000) ( 37,500) ( 22,500) _120,000 –
Balances P300,000 P187,500 P112,500 P120,000 P720,000
Equalization of capital ( 100,000) 12,500 87,500 – –
Balances P200,000 P200,000 P200,000 P120,000 P720,000
Net profit, equally 3,150 3,150 3,150 3,150 12,600
Drawings (2 months) _( 1,500) _( 2,000) _( 1,500) _( 2,000) _( 7,000)
Capital balances before
WWs Investment P201,650 P201,150 P201,650 P121,150 P725,600

Total agreed capital (201,650+201,150+201,650)/2/3 P906,675

WW's interest 1/3
Agreed capital of WW P302,225
Contributed capital (see above) _121,150
 Goodwill to new partner
*3-15

Total agreed capital (P41,600/2/3) P 62,400

Total contributed capital (P23,000+18,600+16,000) ( 57,600)
Goodwill to new partner, Ang P 4,800

LIM ONG ANG

Capital balances before admission P23,000 P 18,600 –
Investment by Ang – – 16,000
Goodwill to August – – 4,800
Capital balances after admission P23,000 P 18,600 P20,800

 Bonus Method

AQUINO LOCSIN DAVID HIZON

Capital balances before admission P252,000 P126,000 P42,000 –
Purchase by Hizon (20%) ( 50,400) ( 25,200) ( 8,400) _84,000
Capital balances after admission P201,600 P100,800 P33,600 P 84,000

Drawings (2 months) _( 1,500) _( 2,000) _( 1,500) _( 2,000) _( 7,000)

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Chapter 3: Concept of Income

Capital balances before

WWs Investment P201,650 P201,150 P201,650 P121,150 P725,600
Total agreed capital (201,650+201,150+201,650)/2/3 P906,675
WW's interest 1/3
Agreed capital of WW P302,225
Contributed capital (see above) _121,150
 will to new partner
*3-15

Total agreed capital (P41,600/2/3) P 62,400

Total contributed capital (P23,000+18,600+16,000) ( 57,600)
Goodwill to new partner, Ang P 4,800

LIM ONG ANG

Capital balances before admission P23,000 P 18,600 –
Investment by Ang – – 16,000
Goodwill to August – – 4,800
Capital balances after admission P23,000 P 18,600 P20,800

 Bonus Method

AQUINO LOCSIN DAVID HIZON

Capital balances before admission P252,000 P126,000 P42,000 –
Purchase by Hizon (20%) ( 50,400) ( 25,200) ( 8,400) _84,000
Capital balances after admission P201,600 P100,800 P33,600 P 84,000

 Cash Distribution

AQUINO LOCSIN DAVID TOTAL

Capital transferred P 50,400 P P 8,400 P 84,000
25,200 Excess divided using profit and loss ratio 3,600 600 6,000
1,800
Cash distribution P 54,000 P 27,000 P 9,000 P 90,000

*3-7Capital balances beginning P 24,000 P 48,000 P 72,000

Net profit, 1:2 5,430 10,860 16,290
Drawings ( 5,050) ( 8,000) ( 13,050)
Capital balances before admission P 24,380 P 50,860 P 75,240
Capital transfer (squeeze) ( 5,570) ( 13,240) (18,810) (1/4)
Capital balances after admission 1:2 P 18,810 P 37,620 P 56,430

Capital transfer P 5,570 P 13,240 P18,810

Excess, 1:2 3,730 7,460 _11,190
Cash P 9,300 P 20,700 P30,000
INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Chapter 3: Concept of Income

Comprehensive bonus and goodwill

*3-7Capital balances beginning P 24,000 P 48,000 P 72,000
Net profit, 1:2 5,430 10,860 16,290
Drawings ( 5,050) ( 8,000) ( 13,050)
Capital balances before admission P 24,380 P 50,860 P 75,240
Capital transfer (squeeze) ( 5,570) ( 13,240) (18,810) (1/4)
Capital balances after admission 1:2 P 18,810 P 37,620 P 56,430

Capital transfer P 5,570 P 13,240 P18,810

Excess, 1:2 3,730 7,460 _11,190
Cash P 9,300 P 20,700 P30,000

 Comprehensive bonus and goodwill

 3-16: a

ANG BENG CHING DONG TOTAL

Capital balances before
admission P600,000 P 400,000 P 300,000 – P1,300,000
Admission by Dong:
By Purchase (1/2) ( 300,000) – – 300,000 –
By Investment – – – _300,000 300,000
Capital balances before
Goodwill and Bonus P300,000 P 400,000 P 300,000 P600,000 P1,600,000
Goodwill to Old Partners (sch. 1) 150,000 150,000 100,000 – 400,000
Bonus to Old Partners (sch. 1) 37,500 37,500 25,000 ( 100,000) –
Capital balances after
admission P487,500 P 587,500 P 425,000 P500,000 P2,000,000

Schedule 1: CC AC Inc. (Dec.)

Old Partners P 1,000,000 P1,500,000 P500,000
New Partner 600,000 (25%) 500,000 ( 100,000) Bonus
Total P 1,600,000 P2,000,000 P400,000 GW

 Double Goodwill double admission

*3-17
Capital balances before
admission of Alma P150,000 P 50,000 – – P 200,000
Admission of Alma:
Investment – – 80,000 – 80,000
Goodwill to old partner,
70:30 (sch. 1) 28,000 12,000 – – 40,000
Capital balances before
admission of Lorna P178,000 P 62,000 P 80,000 – P 320,000
Admission of Lorna:
Goodwill Written off, 5:3:2 (P 20,000) (P 12,000) ( P8,000) – ( P40,000)
Investment – – – 75,000 75,000
Goodwill to old partners,
5:3:2 (sch. 2) 10,000 6,000 4,000 – 20,000
Capital balances after
admission P168,000 P 56,000 P 76,000 P 75,000 P 375,000

Schedule 1
Total agreed capital (80,000/25%) P 320,000
INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Chapter 3: Concept of Income

Total capital contributed (200,000+80,000) ( 280,000)

Goodwill to old partners, 70:30 P40,000

Schedule 2:
Total agreed capital (75,000/20%) P 375,000
Total contributed capital (280,000+75,000) ( 355,000)
Goodwill to old partners, 5:3:2 P 20,000

 Equalize *3-19
Capital balances before
admission P360,000 P225,000 P135,000 – P720,000
Capital balances before admission P 24,380 P 50,860 P 75,240
Capital transfer (squeeze) ( 5,570) ( 13,240) (18,810) (1/4)
Capital balances after admission 1:2 P 18,810 P 37,620 P 56,430

Capital transfer P 5,570 P 13,240 P18,810

Excess, 1:2 3,730 7,460 _11,190
Cash P 9,300 P 20,700 P30,000

 Comprehensive bonus and goodwill

 3-16: a

ANG BENG CHING DONG TOTAL

Capital balances before
admission P600,000 P 400,000 P 300,000 – P1,300,000
Admission by Dong:
By Purchase (1/2) ( 300,000) – – 300,000 –
By Investment – – – _300,000 300,000
Capital balances before
Goodwill and Bonus P300,000 P 400,000 P 300,000 P600,000 P1,600,000
Goodwill to Old Partners (sch. 1) 150,000 150,000 100,000 – 400,000
Bonus to Old Partners (sch. 1) 37,500 37,500 25,000 ( 100,000) –
Capital balances after
admission P487,500 P 587,500 P 425,000 P500,000 P2,000,000

Schedule 1: CC AC Inc. (Dec.)

Old Partners P 1,000,000 P1,500,000 P500,000
New Partner 600,000 (25%) 500,000 ( 100,000) Bonus
Total P 1,600,000 P2,000,000 P400,000 GW

 Double Goodwill double admission

*3-17
Capital balances before
admission of Alma P150,000 P 50,000 – – P 200,000
Admission of Alma:
Investment – – 80,000 – 80,000
Goodwill to old partner,
70:30 (sch. 1) 28,000 12,000 – – 40,000
Capital balances before
admission of Lorna P178,000 P 62,000 P 80,000 – P 320,000
Admission of Lorna:
Goodwill Written off, 5:3:2 (P 20,000) (P 12,000) ( P8,000) – ( P40,000)
Investment – – – 75,000 75,000
INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
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Chapter 3: Concept of Income

Goodwill to old partners,

5:3:2 (sch. 2) 10,000 6,000 4,000 – 20,000
Capital balances after
Goodwill to Old Partners (sch. 1) 150,000 150,000 100,000 – 400,000
Bonus to Old Partners (sch. 1) 37,500 37,500 25,000 ( 100,000) –
Capital balances after
admission P487,500 P 587,500 P 425,000 P500,000 P2,000,000

Schedule 1: CC AC Inc. (Dec.)

Old Partners P 1,000,000 P1,500,000 P500,000
New Partner 600,000 (25%) 500,000 ( 100,000) Bonus
Total P 1,600,000 P2,000,000 P400,000 GW

 Double Goodwill double admission

*3-17
Capital balances before
admission of Alma P150,000 P 50,000 – – P 200,000
Admission of Alma:
Investment – – 80,000 – 80,000
Goodwill to old partner,
70:30 (sch. 1) 28,000 12,000 – – 40,000
Capital balances before
admission of Lorna P178,000 P 62,000 P 80,000 – P 320,000
Admission of Lorna:
Goodwill Written off, 5:3:2 (P 20,000) (P 12,000) ( P8,000) – ( P40,000)
Investment – – – 75,000 75,000
Goodwill to old partners,
5:3:2 (sch. 2) 10,000 6,000 4,000 – 20,000
Capital balances after
admission P168,000 P 56,000 P 76,000 P 75,000 P 375,000

Schedule 1
Total agreed capital (80,000/25%) P 320,000
Total capital contributed (200,000+80,000) ( 280,000)
Goodwill to old partners, 70:30 P40,000

Schedule 2:
Total agreed capital (75,000/20%) P 375,000
Total contributed capital (280,000+75,000) ( 355,000)
Goodwill to old partners, 5:3:2 P 20,000

 Equalize *3-19
Capital balances before
admission P360,000 P225,000 P135,000 – P720,000
CONCEPT OF INCOME
Problem 3 – 1 TRUE OR FALSE
1. True
2. False – All properties of a delinquent taxpayer may be subject to tax lien.
3. True
4. False – Seizure
5. False – Forfeiture
6. True
7. False – Criminal violations already filed in court are not subject to compromise.
Collection of taxes is not a criminal violation.
8. True
INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
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Chapter 3: Concept of Income

Problem 2 – 4 TRUE OR FALSE

1. True
2. False – Without letter of
authority, the taxpayer
could refuse access to
his books.
3. False – Civil action
could also be judiciary
pursued.
4. True
5. False – the appeal must
first be made to Court
of Tax Appeals.
6. False – It could also be
done if no tax return is
filed.
7. False – Ten years
prescription period
starts at date of
discovery that tax
return was not filed.
8. False – It should be 5
years.
9. False – Levy could also
be done before or
simultaneous with
distraint.
10. False – Residual value
should be returned to
taxpayer.
11. True
12. False – It is also
applicable to
importation.
13. True

Problem 2 – 5 Problem 2 – 6
1. B 1. D
2. A 2. A
3. B 3. A
4. D 4. A
5. A 5. C
6. C 6. C
7. C 7. D
8. D 8. B
9. B 9. C
10. B 10. C
11. D
12. C
13. B

Problem 2 – 7

Situation 1 – No need to appeal. The prescribed period of filing for the refund is already
expired. The filing of refund should have been made within two years after the payment of tax or
penalty. It was filed within 2 years, one month, and 5 days after the date of erroneous payment,
hence, not appealable anymore.

Situation 2 – May 5, 2010. The filing of refund was appropriately made within the 2 year
prescribed period. The denial was received on April 5, 2010. The filing of appeal to CTA should
be made within 30 days from the receipt of denial from the BIR.

Situation 3 – August 2, 2014. The date of grant for refund was received on August 1, 2009.
The refund check (dated July 15, 2009) should be encashed within 5 years from the date the
grant for refund was received (August 1, 2009). The check should be encashed from August 1,
2009 to August 1, 2014. It will be forfeited on August 2, 2014.
INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
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Chapter 3: Concept of Income

Situation 4 – August 22, 2014. The date of grant for refund was received on August 21, 2009.
The refund check (dated July 30, 2009) should be utilized within 5 years from the date the grant
for refund was received (August 21, 2009). The tax credit certificate should be utilized from
August 21, 2009 to August 21, 2014. It will be forfeited on August 22, 2014, unless otherwise
revalidated.

Situation 5 – August 20, 2009. If the BIR has no response after the submission of supporting
documents to serve as evidence for the protest, the last day to appeal to the CTA should be
made within 30 days from the lapse of the 180 day period from the submission of the
supporting documents.
Computation of days:
After January 22, 2009 Days
January 9
February 28
March 31
April 30
May 31
June 30
July 21
Total number of days as of July 21 180
Plus 30 days after the 180 days
July 10
August 20
Total day on August 20 30

Situation 6 – May 4, 2009. The last day to appeal to the CTA should be made within 30 days
from the receipt of the denial of the BIR. The 30 days is determined as follows:

Days
First denial of the BIR – March 22, 2009
to 2nd request for reconsideration – March 30, 2009 8
2 denial of the BIR – April 12, 2009
nd

to May 4, 2009 to complete the 30 day period 22

Total days as of May 4, 2009 30

Situation 7 – June 25, 2009. The appeal to CA should be made within 15 days from date of
unfavorable decision from CTA was received (June 10 plus 15 days).

9. Situation 9 – July 10, 2009. The appeal to SC should be made within True
10. False – All properties of a delinquent taxpayer may be subject to tax lien.
11. True
12. False – Seizure
13. False – Forfeiture
14. True
15. False – Criminal violations already filed in court are not subject to compromise.
Collection of taxes is not a criminal violation.
16. True

Problem 2 – 4 TRUE OR FALSE

14. True
15. False – Without letter of
authority, the taxpayer
could refuse access to
his books.
16. False – Civil action
could also be judiciary
pursued.
17. True
18. False – the appeal must
first be made to Court
of Tax Appeals.
19. False – It could also be
done if no tax return is
filed.
20. False – Ten years
prescription period
INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
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Chapter 3: Concept of Income

starts at date of
discovery that tax
return was not filed.
21. False – It should be 5
years.
22. False – Levy could also
be done before or
simultaneous with
distraint.
23. False – Residual value
should be returned to
taxpayer.
24. True
25. False – It is also
applicable to
importation.
26. True

Problem 2 – 5 Problem 2 – 6
1. B 1. D
2. A 2. A
3. B 3. A
4. D 4. A
5. A 5. C
6. C 6. C
7. C 7. D
8. D 8. B
9. B 9. C
10. B 10. C
11. D
12. C
13. B

Problem 2 – 7

Situation 1 – No need to appeal. The prescribed period of filing for the refund is already
expired. The filing of refund should have been made within two years after the payment of tax or
penalty. It was filed within 2 years, one month, and 5 days after the date of erroneous payment,
hence, not appealable anymore.

Situation 2 – May 5, 2010. The filing of refund was appropriately made within the 2 year
prescribed period. The denial was received on April 5, 2010. The filing of appeal to CTA should
be made within 30 days from the receipt of denial from the BIR.

Situation 3 – August 2, 2014. The date of grant for refund was received on August 1, 2009.
The refund check (dated July 15, 2009) should be encashed within 5 years from the date the
grant for refund was received (August 1, 2009). The check should be encashed from August 1,
2009 to August 1, 2014. It will be forfeited on August 2, 2014.

Situation 4 – August 22, 2014. The date of grant for refund was received on August 21, 2009.
The refund check (dated July 30, 2009) should be utilized within 5 years from the date the grant
for refund was received (August 21, 2009). The tax credit certificate should be utilized from
August 21, 2009 to August 21, 2014. It will be forfeited on August 22, 2014, unless otherwise
revalidated.

Situation 5 – August 20, 2009. If the BIR has no response after the submission of supporting
documents to serve as evidence for the protest, the last day to appeal to the CTA should be
made within 30 days from the lapse of the 180 day period from the submission of the
supporting documents.
Computation of days:
After January 22, 2009 Days
January 9
February 28
March 31
April 30
May 31
June 30
INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
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Chapter 3: Concept of Income

July 21
Total number of days as of July 21 180
Plus 30 days after the 180 days
July 10
August 20
Total day on August 20 30

Situation 6 – May 4, 2009. The last day to appeal to the CTA should be made within 30 days
from the receipt of the denial of the BIR. The 30 days is determined as follows:

Days
First denial of the BIR – March 22, 2009
to 2nd request for reconsideration – March 30, 2009 8
2 denial of the BIR – April 12, 2009
nd

to May 4, 2009 to complete the 30 day period 22

Total days as of May 4, 2009 30

Situation 7 – June 25, 2009. The appeal to CA should be made within 15 days from date of
unfavorable decision from CTA was received (June 10 plus 15 days).

17. Situation 9 – July 10, 2009. The appeal to SC should be made within True
18. False – All properties of a delinquent taxpayer may be subject to tax lien.
19. True
20. False – Seizure
21. False – Forfeiture
22. True
23. False – Criminal violations already filed in court are not subject to compromise.
Collection of taxes is not a criminal violation.
24. True

Problem 2 – 4 TRUE OR FALSE

27. True
28. False – Without letter of
authority, the taxpayer
could refuse access to
his books.
29. False – Civil action
could also be judiciary
pursued.
30. True
31. False – the appeal must
first be made to Court
of Tax Appeals.
32. False – It could also be
done if no tax return is
filed.
33. False – Ten years
prescription period
starts at date of
discovery that tax
return was not filed.
34. False – It should be 5
years.
35. False – Levy could also
be done before or
simultaneous with
distraint.
36. False – Residual value
should be returned to
taxpayer.
37. True
38. False – It is also
applicable to
importation.
39. True

Problem 2 – 5 Problem 2 – 6
INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Chapter 3: Concept of Income

1. B 1. D
2. A 2. A
3. B 3. A
4. D 4. A
5. A 5. C
6. C 6. C
7. C 7. D
8. D 8. B
9. B 9. C
10. B 10. C
11. D
12. C
13. B

Problem 2 – 7

Situation 1 – No need to appeal. The prescribed period of filing for the refund is already
expired. The filing of refund should have been made within two years after the payment of tax or
penalty. It was filed within 2 years, one month, and 5 days after the date of erroneous payment,
hence, not appealable anymore.

Situation 2 – May 5, 2010. The filing of refund was appropriately made within the 2 year
prescribed period. The denial was received on April 5, 2010. The filing of appeal to CTA should
be made within 30 days from the receipt of denial from the BIR.

Situation 3 – August 2, 2014. The date of grant for refund was received on August 1, 2009.
The refund check (dated July 15, 2009) should be encashed within 5 years from the date the
grant for refund was received (August 1, 2009). The check should be encashed from August 1,
2009 to August 1, 2014. It will be forfeited on August 2, 2014.

Situation 4 – August 22, 2014. The date of grant for refund was received on August 21, 2009.
The refund check (dated July 30, 2009) should be utilized within 5 years from the date the grant
for refund was received (August 21, 2009). The tax credit certificate should be utilized from
August 21, 2009 to August 21, 2014. It will be forfeited on August 22, 2014, unless otherwise
revalidated.

Situation 5 – August 20, 2009. If the BIR has no response after the submission of supporting
documents to serve as evidence for the protest, the last day to appeal to the CTA should be
made within 30 days from the lapse of the 180 day period from the submission of the
supporting documents.
Computation of days:
After January 22, 2009 Days
January 9
February 28
March 31
April 30
May 31
June 30
July 21
Total number of days as of July 21 180
Plus 30 days after the 180 days
July 10
August 20
Total day on August 20 30

Situation 6 – May 4, 2009. The last day to appeal to the CTA should be made within 30 days
from the receipt of the denial of the BIR. The 30 days is determined as follows:

Days
First denial of the BIR – March 22, 2009
to 2nd request for reconsideration – March 30, 2009 8
2nd denial of the BIR – April 12, 2009
to May 4, 2009 to complete the 30 day period 22
Total days as of May 4, 2009 30

Situation 7 – June 25, 2009. The appeal to CA should be made within 15 days from date of
unfavorable decision from CTA was received (June 10 plus 15 days).
INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Chapter 3: Concept of Income

25. Situation 9 – July 10, 2009. The appeal to SC should be made within True
26. False – All properties of a delinquent taxpayer may be subject to tax lien.
27. True
28. False – Seizure
29. False – Forfeiture
30. True
31. False – Criminal violations already filed in court are not subject to compromise.
Collection of taxes is not a criminal violation.
32. True

Problem 2 – 4 TRUE OR FALSE

40. True
41. False – Without letter of
authority, the taxpayer
could refuse access to
his books.
42. False – Civil action
could also be judiciary
pursued.
43. True
44. False – the appeal must
first be made to Court
of Tax Appeals.
45. False – It could also be
done if no tax return is
filed.
46. False – Ten years
prescription period
starts at date of
discovery that tax
return was not filed.
47. False – It should be 5
years.
48. False – Levy could also
be done before or
simultaneous with
distraint.
49. False – Residual value
should be returned to
taxpayer.
50. True
51. False – It is also
Problem 3 – 6
B
Increase in total assets P 250,000
Decrease in total liabilities 160,000
Drawings 20,000
Additional investments ( 50,000)
Total income P 380,000

Problem 3 – 7 D
Return of Capital Return on Capital
Time deposit balance P250,000 P30,000

Problem 3 – 8 C
Year 1 Year 2 Year 3
Sales 0 0 P1,800,000
Cost of sale 0 0 ( 1,000,000)
Disposal cost 0 0 ( 50,000)
Income for each year 0 0 P 750,000

Problem 3 – 9 A
Taxable Income Nontaxable
Income
Salary (P260,000/13) x 12 P240,000
INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
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Chapter 3: Concept of Income

Raffle winnings 70,000

13th month pay (P260,000/13) x 1 P 20,000
Lotto winnings . 500,000
P310,000 P520,000
Problem 3 – 10 D
Within: Taxable Income
Compensation income P180,000
Income from grocery store 50,000
Outside:
Compensation income 120,000
Lotto winnings 100,000
Total income taxable in the Philippines P450,000

Note: Lotto winnings earned outside the Philippines by a resident Filipino citizen are taxable in
the Philippines.

Problem 3 – 11 C
Subject to ITR Subject to Final Tax
Consultancy fee P 80,000
Salary 300,000
Prizes in raffle ticket P 20,000
Gain on sale of principal residence . 400,000
Totals P380,000 P420,000

Problem 3 – 12 D
Salary for the first 4 months (P12,000 x 4) P 48,000
Remaining months (P15,000 x 8) 120,000
Gross compensation income P168,000

Problem 3 – 13 B
Reportable income is the market value of the car received P120,000

Problem 3 – 14 A
Market value of the service received P6,000

Problem 3 – 15 C
Face value of the non-interest bearing note P30,000
Multiplied by the present value factor of 10% annuity 0.909
Compensation income – present value of the note P27,270
Note: Upon receipt of the note, no interest income yet is to be reported.

Problem 3 – 16 A
Compensation income P50,000
Interest income (P50,000 x 12% x 6/12) P3,000

Problem 3 – 17 B
Collections during the year P490,000
Expenses actually incurred (150,000)
Net income before personal exemption – cash basis P340,000

Problem 3 – 18 A
Gross income (P1,000,000 – P600,000) P400,000
Actual operating expenses (P200,000 x 80%) (160,000)
Net income before other income P240,000
Add: Gain from sale of old furniture 20,000
Taxable income P260,000

Problem 3 – 19
1. A
Reportable income 2006 - casual sale (P12,000 – P3,000) P9,000

The sale is considered cash sales because the 2006 initial payments (P1,000 + P1,000 + 2,000)
exceeds 25% of the selling price; P4,000/P12,000 = 33%

2. B
INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
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Chapter 3: Concept of Income

Reportable income 2006 – regular sale (P9,000 x P4,000/P12,000) P3,000

Since the personal property is sold in regular basis, installment reporting of income is allowed.

Problem 3 – 20
1. P37,500 = Not in the choices
Net income (P2,000,000 – P1,400,000 – P100,000) P500,000
Income tax (P500,000 x 5/20) x 30% P 37,500

2. B
Income tax (P2,000,000 x 6%) P120,000

Problem 3 – 21 B
Total revenue P1,000,000
Cost of sale ( 500,000)
Income to be reported P 500,000

Problem 3 – 22 D
Contract price P 1,000,000
Less: Cost (P90,000/20%) 450,000
Gross profit P 550,000
Multiplied by percent of completion 20%
Reportable income under percent of completion P 110,000

Problem 3 – 23 D
Contract price P1,200,000
Less: Total costs (P432,000 + P184,250 + P103,750) 720,000
Total profit P 480,000
Less: Previous years’ reported income:
Accomplished contract price for 2008 and 2009 (P1,200,000 x P1,020,000
85%)
Previous years’ actual costs:
2008 ( 432,000)
2009 ( 184,250) 403,750
Percent of completion – 2010 Reportable income P 76,250

Problem 3 – 24 A
Year 3 sales P 500,000
Less: Cost incurred as of year 3:
Year 1 P 100,000
Year 2 200,000
Year 3 50,000 350,000
Year 3 – reportable income P 150,000

Problem 3 – 25 C
Harvested crops sold P 2,000,000
Less: Total direct costs:
Year 1 P 300,000
Year 2 100,000
Year 3 100,000
Year 4 100,000
Year 5 400,000 1,000,000
Reportable income – year 5 P 1,000,000

Problem 3 – 26
Year 1 Year 2
Total harvest for the year
at selling price P50,000 P100,000
INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Chapter 3: Concept of Income

Cash Accrual Cash Accrual

Harvests sold:
(80 cavans x P500) P40,000 P40,000
(190 cavans x P500) P95,000 P95,000
Ending inventory:
(20 cavans x P500) 10,000
(30 cavans x P500) 15,000
Beginning inventory:
(20 cavans x P500) . . . ( 10,000)
Gross income for the year P40,000 P50,000 P95,000 P100,000

Problem 3 – 27
1. Cash Method Farming Trading Rent Total
Revenue P 50,000 P150,000 P100,000
Equipment sold 25,000
Costs:
Cost of products purchased ( 90,000)
Carrying value of farm . ( 25,000) .
equipment
Gross income P 50,000 P 60,000 P100,000 P210,000

2. Accrual Method Farming Trading Rent Total

Revenue P 50,000 P150,000 P100,000
Equipment sold 25,000
Inventory, ending 9,000
Inventory, beginning ( 6,000)
Costs:
Cost of products purchased ( 90,000)
Carrying value of farm . ( 25,000) .
equipment
Gross income P 53,000 P 60,000 P100,000 P213,000