Income taxation by valencia chapter 9 (losses)

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS 62 Chapter 9: Losses CHAPTER LOSSES Problem – TRUE OR FALSE False – Capital loss False – not deductible False – lower amount of the replacement cost or book value True True False – Deductible from gambling gains only True True True 10 False – Not deductible because the property has been sold 11 True 12 True 13 True 14 False – deductible only to either income or estate 15 False – NOLCO is not applicable when OSD is used 16 False – NOLCO is not applicable under MCIT Problem – C C D C Problem – D A D, P10,000 only A A 10 C 11 B 12 C B Loss from sale of business equipment P100,000 Problem – A Loss on sale of capital assets is not deductible from business income Problem – C Deductible loss – Book value (P100,000 x 10% x 4) Problem – D Problem – D Deductible loss – book value lower than replacement cost Net operating loss per GAAP Less: Bad debts estimate NOLCO in the succeeding years P 40,000 P 50,000 P 50,000 10,000 P 40,000 Problem – D Zero An individual who claims the 10% optional standard deduction shall not simultaneously claim deduction of the NOLCO Problem – P25,000 The lower between the carrying value and replacement cost 63 INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS Chapter 9: Losses Problem – 10 Book value (P1,200,000) x10/20 Less: Insurance recovery Scrap recovered Deductible loss P600,000 P200,000 20,000 220,000 P380,000 Problem – 11 None, because the demolition cost, net of amount realized from scrap should be capitalized as part of the factory building cost Problem – 12 No deductible loss at balance sheet date On June 30, the reportable gain would be P10,000, (110,000 – 100,000) Problem – 13 Net loss reported Estimated bad debts Warranty expense Net loss carry-over P 50,000 ( 20,000) ( 10,000) P 20,000 Problem – 14 Gross profit – year Less: Other operating expenses NOLCO for year P500,000 580,000 P 80,000 Problem – 15 Year Sale Less: Cost – Notes receivable Gain Year P1,800,000 1,500,000 P 300,000 No gain or loss on year because there was no actual sale of foreclosed property Problem – 16 None, because the floss should be recognized only upon actual sale of the property foreclosed Problem – 17 None Gambling losses can only be deducted from the gambling winnings Gambling transactions is not an ordinary business transactions, but a capital asset transaction Accordingly, gambling losses is not an allowable deduction from ordinary gross income Problem – 18 Compensatory liquidated damages Loss on robbery (construction supplies) Loss on pilferage of business supplies Replacement cost of damaged portion of machine Deductible loss P 50,000 50,000 10,000 150,000 P260,000 Problem – 19 OSD (P2,000,000 x 40%) P800,000 OSD (P2,000,000 – P500,000) x 40% P600,000 64 INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS Chapter 9: Losses Problem – 20 Gross income (P2,000,000 – P1,000,000) Multiplied by MCIT rate Income tax due – MCIT NOLCO for year 200E P1,000,000 2% P 20,000 P - - Note: The year reglamentary period for NOLCO shall not be suspended even if MCIT has been used NOLCO has expired effectively on 200E Problem – 21 Pilferage loss Capital loss on sale of capital asset Casualty loss Total deductible loss Ordinary P5,000 P5,000 Capital P10,000 15,000 P25,000 Note: It would be more appropriate to classify casualty loss as capital loss because such loss is not an ordinary or regular loss, unless the problem stated that the loss is an ordinary asset Problem – 25 Cost of the building Less: Accumulated depreciation (P10,000,000/30) x Book value before additions and improvements Add: Additions and improvements Total Less: Accum depn (P8,833,333/25) x Book value Less: Insurance collected Salvage value Deductible loss Problem – 26 Death of livestock previously purchased Cost of property expropriated by the government (P30,000 – P10,000) Total deductible farm loss P10,000,000 1,666,667 P 8,333,333 500,000 P 8,833,333 1,060,000 P 7,773,333 P5,800,000 300,000 6,100,000 P 1,673,333 P10,000 20,000 P30,000 ... – 19 OSD (P2,000,000 x 40%) P800,000 OSD (P2,000,000 – P500,000) x 40% P600,000 64 INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS Chapter 9: Losses Problem – 20 Gross income. ..63 INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS Chapter 9: Losses Problem – 10 Book value (P1,200,000) x10/20 Less:... ANSWERS Chapter 9: Losses Problem – 20 Gross income (P2,000,000 – P1,000,000) Multiplied by MCIT rate Income tax due – MCIT NOLCO for year 200E P1,000,000 2% P 20,000 P - - Note: The year reglamentary