chapter 4 - deductions from gross estate

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Problem 2-1

PAGE 17BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS)

SUGGESTED ANSWERS

Chapter 4: DEDUCTIONS FROM GROSS ESTATE

CHAPTER 4

DEDUCTION FROM GROSS ESTATE

Problem 41

1. True

2. True

3. True

4. False not deductible. Only those expenses actually taken from the gross estate.

5. False actual or 5% of the gross not exceeding P200,000

6. False funeral expense

7. False Only those expenses actually taken from the gross estate.

8. True brokerage fee is part of judicial expense if necessary for the administration of the estate.

9. True

10. False not terminated upon death but shall be paid by the remaining estate.

Problem 42

1. True

2. True

3. False deductible only if included in the gross estate.

4. False either against the gross estate or against income

5. False included after death

6. True

7. False not deductible because not yet accrued expense.

8. True

9. False only those related to gathering, preservation and settlement of the estate.

10. True

Problem 43

1. True

2. False of net, after ordinary deductions and exemptions

3. True

4. True

5. True

6. False whether paid or unpaid, the maximum deductible medical expense is P500,000.

7. False not allowed as deduction is in excess of P500,000

8. False this is in addition to other allowable deductions.

9. False no receipt is necessary for standard deduction.

10. True

Problem 44 Problem 45 Problem 46

1. A1. A & B1. A

2. A2. C2. A

3. C3. A3. B

4. D4. D4. A

5. A5. D5. D

6. B6. D6. D

7. A7. C7. C

8. C8. A8. D

9. B9. A

10. A10. D

Problem 47 A

Allowable deductions against Philippine gross estate (P500,000 x 3/5)P 300,000

Problem 48 D

None, because the decedent is a nonresident alien and the amount of gross estate located in the Philippines is not defined.

Problem 49C

Funeral expense (P3,000,000 x 5%)P150,000

Judicial expense (P250,000 x 60%)150,000

Bad debts (P150,000/3) 50,000

Ordinary deductionsP350,000

Problem 410D

Standard deductionP1,000,000

Family home 1,000,000

Special deductionsP2,000,000

Problem 411B

Gross estate (P3,150,000 + P175,000)P3,325,000

Multiplied by funeral rate 5%

Deductible funeral expenseP 166,250

Problem 412B

Gross estate P3,500,000

Multiplied by funeral rate 5%

Deductible funeral expenseP 175,000

Problem 413C

Real propertiesP1,560,000

Claims against insolvent persons 100,000

Gross estateP1,660,000

Multiplied by funeral expense rate 5%

Funeral expenseP 83,000

Problem 414C

Judicial expense (P1,900,000/95%) P1,900,000P100,000

Problem 415C

Deductible loss (P48,000/40%)P120,000

Problem 416 A

Unpaid mortgage on the real property included in the gross estateP500,000

Problem 417C

Loans from Metro Bank (not notarized per banks policy)P500,000

Problem 418D

Accounts receivableP500,000

Multiplied by percent of uncollectible (100% - 66.67%) 33.33%

Bad debts deductibleP166,667

Percent of collectible is computed as follows:

Assets, net of unpaid taxes (P1,500,000 P500,000)P1,000,000

Divided by liabilities, net of taxes payable (P2,000,000 P500,000)P1,500,00066.67%

Problem 419C

Collectible from a debtorP160,000

Problem 420B

ExclusiveConjugal

PropertiesP2,800,000P3,500,000

Ordinary deductions:

Unpaid mortgage loan used to finance family business( 800,000)

Funeral expense .( 180,000)

Properties after ordinary deductionsP2,800,000P2,520,000

Problem 421B

Unpaid real property tax incurred prior to date of deathP100,000

Problem 422D

Deductible transfer for public use (P2,000,000/1,000) x 200P400,000

Problem 423A

Value taken (lower)P1,000,000

Proportionate ordinary deduction (P1,000,000/P3,000,000) x P150,000 50,000

Final basisP 950,000

Multiplied by percent of vanishing deduction 60%

Amount of vanishing deductionP 570,000

Problem 424 D

Value taken (lower)P2,100,000

Less: Mortgage paid 400,000

Initial basisP1,700,000

Less: Proportionate deduction (P1,700,000/P5,000,000) x P400,000 136,000

Final basisP1,564,000

Multiplied by percent of vanishing deduction 40%

Amount of vanishing deductionP 625,600

Computation of ELIT:

Funeral expense, limitP200,000

Judicial expense100,000

Unpaid mortgage 100,000

Total ELITP400,000

Problem 425A

ExclusiveConjugal

PropertiesP1,000,000P2,000,000

Transfer for public use( 500,000)

Share of surviving spouse (P2,000,000 x 50%) .(1,000,000)

Net estateP 500,000P1,000,000

Problem 426B

Conjugal estateP5,000,000

Deductible funeral expense( 200,000)

Net estate before share of surviving spouseP4,800,000

Multiplied by share of surviving spouse 50%

Share of surviving spouseP2,400,000

Problem 427C

Standard deduction to Filipino and resident alienP1,000,000

Problem 428D

Nonresident alien does not have standard deduction

Problem 429C

Deductible medical expense (paid or unpaid) within one year prior to deathP300,000

Problem 430A

The unpaid medical expense in excess of the maximum P500,000 is nondeductible as

claims against the estate.

Problem 431D

Medical expenses incurred from October 2004 to December 2004P100,000

Problem 432 D

Maximum amount of family home deductibleP1,000,000

The family home is an exclusive property of the decedent.

Problem 433C

Building conjugal (P1,000,000/2)P500,000

Land exclusive 400,000

Family home - deductibleP900,000

Problem 434

1. D

Donation to the governmentP1,000,000

Benefits received under RA 4917500,000

Funeral expense 100,000

Total ordinary deductionsP1,600,000

2. C

Standard deductionP1,000,000

Family home 1,000,000

Medical expense 400,000

Total special deductionsP2,400,000

Problem 435

Burial lot (P50,000 x 80%)P40,000

Expenses for wake before burial20,000

Telegrams and cable to relatives1,000

Mourning apparel of the surviving spouse and children3,000

Entertainment expenses during the rites and burial ceremonies 2,500

Allowable funeral expensesP66,500

Problem 436

ExclusiveConjugal

Real estate propertyP700,000P2,200,000

Personal property . 400,000

Total P700,000P2,600,000

Funeral expense (P700,000 + P2,600,000) x 5%( 165,000)

Judicial expenses( 50,000)

Mortgage payable to the bank( 400,000)

Net estate before share of surviving spouseP1,985,000

Multiplied by percent share of surviving spouse 50%

Share of surviving spouseP 992,500

Problem 437

October 1 to 20, 2005 from Saint Lukes Hospital:

Diagnostic feeP 60,000

Doctors fee120,000

Hospital rooms80,000

Operating costs50,000

Medicines 90,000

Total medical expense deductibleP400,000

Problem 438

Funeral expense, actual

Judicial expense

Medical expense, maximum allowed

Standard deductions

Total deductionsP 150,000

50,000

500,000

1,000,000

P1,700,000

Problem 439

1.Gross estateP3,000,000

2.Actual deductions (P200,000 + 500,000)P700,000

3.Deductible allowance standard deductionP1,000,000

4.Net taxable estate (P3,000,000 P700,000 P1,000,000)P1,300,000

Note: Since the funeral and judicial expense are combined, it is assumed that the limit for funeral expense amounting to P150,000 or 5% of gross estate is complied and the remaining balance of P50,000 is for the judicial expense.

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