INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS
62 Chapter 9: Losses
CHAPTER 9
LOSSES Problem 9 – 1 TRUE OR FALSE 1. False – Capital loss 2. False – not deductible 3. False – lower amount of the replacement cost or book value 4. True 5. True 6. False – Deductible from gambling gains only. 7. True 8. True 9. 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 9 – 2 1. C 2. C 3. D 4. C
5. 6. 7. 8.
D A D, P10,000 only A
9. A 10. C 11. B 12. C
Problem 9 – 3 B Loss from sale of business equipment
P100,000
Problem 9 – 4 A Loss on sale of capital assets is not deductible from business income. Problem 9 – 5 C Deductible loss – Book value (P100,000 x 10% x 4)
P 40,000
Problem 9 – 6 D Deductible loss – book value lower than replacement cost
P 50,000
Problem 9 – 7 D Net operating loss per GAAP Less: Bad debts estimate NOLCO in the succeeding years
P 50,000 10,000 P 40,000
Problem 9 – 8 D Zero. An individual who claims the 10% optional standard deduction shall not simultaneously claim deduction of the NOLCO.
Problem 9 – 9 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 9 – 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 9 – 11 None, because the demolition cost, net of amount realized from scrap should be capitalized as part of the factory building cost. Problem 9 – 12 No deductible loss at balance sheet date. On June 30, the reportable gain would be P10,000, (110,000 – 100,000). Problem 9 – 13 Net loss reported Estimated bad debts Warranty expense Net loss carry-over
P 50,000 ( 20,000) ( 10,000) P 20,000
Problem 9 – 14 Gross profit – year 1 Less: Other operating expenses NOLCO for year 2
P500,000 580,000 P 80,000
Problem 9 – 15 Year 1 Sale Less: Cost – Notes receivable Gain
Year 2 P1,800,000 1,500,000 P 300,000
No gain or loss on year 1 because there was no actual sale of foreclosed property. Problem 9 – 16 None, because the floss should be recognized only upon actual sale of the property foreclosed. Problem 9 – 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 9 – 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 9 – 19 1. OSD (P2,000,000 x 40%)
P800,000
2.
P600,000
OSD (P2,000,000 – P500,000) x 40%
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INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS
Chapter 9: Losses
Problem 9 – 20 1. Gross income (P2,000,000 – P1,000,000) Multiplied by MCIT rate Income tax due – MCIT 2.
P1,000,000 2% P 20,000
NOLCO for year 200E
P - 0 -
Note: The 3 year reglamentary period for NOLCO shall not be suspended even if MCIT has been used. NOLCO has expired effectively on 200E. Problem 9 – 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 9 – 25 Cost of the building Less: Accumulated depreciation (P10,000,000/30) x 5 Book value before additions and improvements Add: Additions and improvements Total Less: Accum depn (P8,833,333/25) x 3 Book value Less: Insurance collected Salvage value Deductible loss Problem 9 – 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
