TAXATION MACMOD

Installment Method

The installment method is an accounting method wherein a 4. To report income under installment basis:
taxpayer is allowed to report income in any taxable year in
proportion to the installment payments actually received in Gross Profit Installment Income
that year, which the gross profit (realized or to be realized to be
when payment is completed), bears to the total contract Contract Price x payments = reported (YR.)
price. received
The following sales may be reported on installment basis:
1. Sales of Dealers in Personal Property - These include Exercises
sales by persons who regularly sell or otherwise 1. Karen, a real estate dealer sold a house and lot for
dispose of personal property on the installment plan. P600,000 on November 20, 200A. The cost of the
2. Casual Sales of Personal Property - These include property is P375,000. Terms are:
casual sales or other casual disposition of personal
property (other than property of a kind which are Downpayment: P100,000
ordinarily included in the inventory of the taxpayer), Balance : Payable in monthly installments of
provided: P25,000 beginning Dec. 20, 2005.
a. The selling price exceeds P1,000; and a. The income to be reported in 200A is
b. The initial payments do not exceed 25% of selling .
price. b. The income to be reported in 200B is
3. Sales of Real Property - These include sales of real .
property on the installment plan, provided: The initial c. Assuming the asset above is a capital asset, the
payments do not exceed 25% of the selling price. capital gains tax payable is 200A is ,
and in 200B is .
Sales of Real Property Considered as Capital Assets
by individuals - An individual taxpayer who sells 2. Cyclops Boy provided the following transactions on his
real property considered as capital assets and the personal property sold in 2005 held by him as capital
I.P. do not exceed 25% of the selling price may asset for 15 months:
pay the capital gains tax in installments. Selling Price P ?
Cost 225,000
Formats of Computation: Mortgage assumed 270,000
1. For Selling Price: Payments were: 2005 - P67,500; 2006 - P67,500
Cash received P xxx 2007 - P45,000
FMV of the property received
(if any) xxx REQUIRED: Compute for the following:
Installments payable a. Selling price
Mortgage on the property bought b. Contract price
assumed by the buyer xxx c. Gross profit
P xxx d. Initial payment for 2005
2. For contract price: e. Taxable income in 2005, 200, 2007.
Selling price P xxx
Less: Mortgage assumed by the 3. Mr. Magneto sold the following capital assets as
buyer (if any) xxx follows: (RP - Philippines)
Balance xxx Lot 1 Lot 2 Lot 3
Add: Excess of mortgage over Selling Price P 225,000 P 750,000 P 1,200,000
cost of the property xxx Cost 95,000 900,000 300,000
P xxx Terms of Sale:
Downpayment - 2/05 P 15,000 P 75,000 P 150,000
3. Initial Payments:
1st payment - 4/05 15,000 75,000 75,000
Downpayment P xxx
2nd payment - 9/05 15,000 - 120,000
Add: Installment payments in the
Still due 180,000 P 600,000 P 855,000
year of sale xxx
Excess of mortgage over cost the
Compute the Final Taxes Payable in 2005 and 2006.
Property xxx
P xxx
4. Wolverine, Filipino, married, provided the following transactions in 2005.
Gross Profit P300,000
Operating 110,000
Expenses

Assets sold: (RP - Phil) (Long-term) (Direct Buyer)

Capital Capital Equipment Equipment Shares
Asset 1 Asset 2 not used in used in of D. Corp..
Bus.
Business Business ( O. A. )
Selling Price P300,000 P750,000 P210,000 P300,000 P225,000
Cost 75,000 300,000 105,000 180,000 15,000
Depreciation
Term of Sale:
Cash Paid - 2005 220,000 150,000 45,000 75,000 45,000
Payments - 2006 - 225,000 75,000 112,000 45,000
Payments - 2007 - 375,000 40,000 112,000 105,000

REQUIRED: The term of sale are as follows:

a. Final taxes, if any, in 2005. Downpayment P50,000
b. Taxable income in 2005. Instalment payments:
2005 50,000
5. In 2005, Jennifer sold shares of stocks of a domestic 2007 100,000
Co. directly to a buyer for P400,000. The shares were 2006 100,000
acquired in 2003 for P150,000. 2008 100,000

REQUIRED: Final taxes payable in 2005, 2006, 2007,

and 2008.

“ Because of our unique human endowments, we can write new programs for ourselves totally apart from our instincts and training. This is why an
animals capacity is relatively limited and man’s is unlimited.”
- end –

- From the book Seven Habits of

Highly Effective People.