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SUGGESTED ANSWERS
CHAPTER 2
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Problem 2-3
1.
A
2.
B
3.
B
4.
C
5.
D
6.
C
7.
D
8.
A
9.
C
10. B
11. A
12. B
13. D
14. C
Problem 2-6
Problem 2-4
1.
A
2.
D
3.
C
4.
D
5.
C
6.
C
7.
D
8.
B
9.
C
10. B
11. A
12. D
13. B
14. A
Problem 2-5
1.
D
2.
C
3.
B
4.
D
5.
D
6.
C
7.
A
8.
B
9.
A
10. A
11. B & D
12. A
13. D
Zero. Except for the prize for winning the tournament which is subject to final income tax of 20%,
all properties received are subject to transfer tax which will be paid by the donor or the estate of
the decedent.
Problem 2-7
1. Letter D
Business liabilities
Car first prize
Amount of mortgage assumed
Salary
Amount of onerous transfer
2. Letter B
Business, net of liabilities (P2,000,000 P500,000)
House and lot as donation, net of mortgage (P2,000,000 P1,500,000)
Farm as inheritance
Amount of gratuitous transfer
Problem 2-8
1. Letter A
Car (P800,000 P300,000)
2.
Letter D
House and lot mortis causa
500,000
1,000,000
1,500,000
300,000
P3,300,000
P1,500,000
500,000
500,000
P2,500,000
P 500,000
P1,000,000
Every donation between the spouses during the marriage shall be void. This prohibition does not
apply when the donation takes effect after the death of the donor. Neither does this prohibition
apply to moderate gifts which the spouses may give each other on the occasion of any family
rejoicing. (Art. 133, Civil Code)
Gifts in favor of an educational and/or charitable, religious, cultural or social welfare
corporation, institution, accredited nongovernment organization, trust or philanthrophic
organization or research institution or organization are tax-exempt. (Sec. 101, NIRC)
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Problem 2-9
A
Property left by the decedent
Less: Charges against the estate
Hereditary estate
Problem 2-10
D
Distributable estate
Less: Share of 3 children (P12,000,000 x 50%)
Share of surviving spouse (P6,000,000/3)
Free portion
Less: Share of illegitimate child per Will
Free portion for the church
P 5,000,000
1,000,000
P 4,000,000
P12,000,000
P6,000,000
2,000,000
8,000,000
P4,000,000
3,000,000
P1,000,000
The share of the illegitimate child must be taken from the free portion. The Will is valid because
the 50% of the hereditary estate intended to legitimate children is not impaired.
Problem 2-11
B
Increase in the share of C (P1,500,000 x 3/5)
P900,000
Problem 2-12
C
Net hereditary estate
Legitime of children (P5,000,000 x )
Portion for the surviving spouse (P5,000,000 x )
Free portion may be distributed to strangers
P5,000,000
( 2,500,000)
( 1,250,000)
P1,250,000
Problem 2-13
B
Inheritance of the spouse (P5,000,000/5)
P1,000,000
Problem 2-14
A
Share of Abu = share of Surot (P12,000,000/3)
Add: Share inheritance repudiated by Cuto (P4,000,000/2)
Share of Surot
P4,000,000
2,000,000
P6,000,000
Problem 2-15 A
Hereditary estate
Legitime of children (P3,000,000 x )
Portion for the spouse (P1,500,000/4)
Free portion
Multiplied by
Legacy to the sister-in-law
Problem 2-16 NOT IN THE CHOICES
Hereditary estate
Less: Share of parents (P3,000,000 x1/2)
Share of illegitimate child (P3,000,000 x 1/4)
Share of surviving spouse (P3,000,000 x 1/8)
Free portion
Share of the surviving spouse
Add: Share from free portion (P375,000/3)
Total share of the surviving spouse
P3,000,000
( 1,500,000)
( 375,000)
P1,125,000
20%
P 225,000
P3,000,000
P1,500,000
750,000
375,000
2,625,000
P 375,000
P375,000
125,000
P500,000
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Problem 2-17 D
Share of Anac (P12,000,000/3)
Divided by number of children of Anac
Share of Cute
P4,000,000
2
P2,000,000
Problem 2-18 A
Zero, because Lolo and Lola are excluded by Tatay and Nanay who are nearer to the testator. The
nearer excludes the farther.
Problem 2-19 D
Hereditary estate, net of charges (P7,000,000 P1,000,000)
Legitime of legitimate children (P6,000,000 x )
Portion for the acknowledge natural child (P3,000,000/3) x 50%
Portion for the surviving spouse (P3,000,000/3)
Free portion could be disposed of as legacy to the nanny
P 6,000,000
( 3,000,000)
( 500,000)
( 1,000,000)
P 1,500,000
Note: The testator is still intending to give 1/4 of the free portion to the nanny, but he can give
the entire amount of free portion to the nanny.
Problem 2-20 C
Inheritance of each child (P5,000,000/6)
P 833,333
Problem 2-21
Gross taxable value for:
1. Capital gain tax
P 300,000
2. Donors tax
P 500,000
3. Business tax
P - 0 -
P1,800,000
P 100,000
5,000,000
400,000
P5,500,000
P 200,000
100,000
100,000
100,000
500,000
P5,000,000
P 600,000
300,000
300,000
P1,200,000
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Problem 2-24
With respect to legitime:
Legitimate child (P4,200,000 P200,000) x 50%
Surviving spouse (P2,000,000 x )
Son
P2,000,000
Wife
P1,000,000
500,000
.
P2,500,000
500,000
P1,500,000
Problem 2-25
Gross estate
Less: Deduction
Net estate before share of the surviving spouse
Less: Share of the surviving spouse (P1,000,000 x 50%)
Net estate before estate tax
Less: Estate tax
Net distributable estate
P2,000,000
1,000,000
P1,000,000
500,000
P 500,000
15,000
P 485,000
Dorado (child)
1/3
P161,667
Maya (child)
1/3
P161,667
Jess (husband)
1/3
P161,667
Death of Jess
Exclusive share when Sabel died
Add: Share from distributable share
Distributable estate
Fraction of share - testate
Distribution of inheritance
Dorado (child)
P165,417
Maya (child)
P165,417
Free Portion
P333,883
Total
1
P485,000
P 500,000
161,667
P 661,667
Total
1
P 661,667
Problem 2-26
Legitimate child 1
Fraction of share
Amount of inheritance
1
P2,857,143
Legitimate child 2
Surviving spouse
Illegitimate child
1
P2,857,143
1
P2,857,143
P1,428,571
Total
3.5
P10,000,000
Note: The last will and testament is void because the presence of legitimate child eliminates the
parents from the inheritance. In all cases, the legitime must not be impaired by the disposition
through will.
Problem 2-27
1. Computation of net distributable share
Total gross estate (P10,000,000 + P20,000,000 + P30,000,000)
Less: Ordinary deductions
Net estate before share of surviving spouse
Less: Share of surviving spouse (P57,500,000 x 50%)
Net estate before standard deduction
Less: Standard deduction
Net taxable estate
Multiplied by assumed estate tax rate
Estate tax
Net estate before standard deduction
Less: Estate tax
Net distributable estate
P60,000,000
2,500,000
P57,500,000
28,750,000
P28,750,000
1,000,000
P27,750,000
15%
P 4,162,500
P28,750,000
4,162,500
P24,587,500
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
10
2.
P12,293,750
P12,293,750
Note: His mother and brother, as secondary heirs, are disqualified to share from the portion of
the legitime due to the presence of a legitimate child. Hence, the will becomes void.
Problem 2-28
1.
2.
Christopher
(son)
P4,000,000
2,957,500
P6,957,500
Cristeta
(daughter)
P1,000,000
2,957,500
P3,957,500
P13,200,000
P 300,000
1,000,000
Crisistomo
(driver)
P 200,000
.
P 200,000
1,300,000
P11,900,000
1,785,000
P10,115,000
1,000,000
P11,115,000
Total
P 5,200,000
5,915,000
P 11,115,000