Post Test Regular Income Taxation For Partnerships

LAZARO, CKHYLE-RINE ERICKA V.
BSA 4A
Regular Income Taxation for Partnerships
Problem Solving:
1. LJ, married, has two dependent minor brothers. He is a partner of a general professional
partnership. He is also engaged in trading business of his own. The following data were provided by LJ
in 2018:
LJ’s gross income from his trading business P1,000,000

LJ’s expenses from his trading business 600,000
Interest income, BDO-Manila 20,000
Share from the net income of a general professional 400,000
partnership
Royalty, books published in the USA 150,000
Salaries as part time accounting professor (gross) 450,000
Required: Determine the correct amount of the following:

1. Income tax due of the partnership
2. Income tax due of LJ
ANSWER:
1. Income tax due of the partnership = P0- Tax excempt
2. Income tax due of LJ = P397,000
SOLUTION:
LJ’s gross income from his trading business P1,000,000
LJ’s expenses from his trading business (600,000)
Share from the net income of a General Professional Partnership 400,000
Royalty,books published in USA 150,000
Salaries, gross of withhoding tax 450,000
Basic Exemption (50,000)
Taxable Income P1,350,000
Tax Due P397,000
2. Data for 2018 taxable year of Rivera & Reyes (RR) Partnership including the partners’ own income
are as follows:
Partnership Rivera Reyes
Gross income 2,000,000 800,000 1,000,000
Allowed
1,200,000 400,000 500,000
deductions
Drawing
Accounts:
Rivera 150,000 30,000 0
Reyes 120,000 0 20,000
Civil Status Single Married
Profit and Loss

40%; 60%
Ratio
Case A: Assume the partnership is an ordinary partnership, compute the following:

a. Tax due of the partnership
b. Tax due of Rivera
c. Tax due of Reyes
Case B: Assume the partnership in Case A is a general professional partnership, Compute the
following:
a. Tax due of the partnership
b. Tax due of Rivera
c. Tax due of Reyes
ANSWER:
CASE A: a. Tax due of the partnership = P240,000
b. Tax due of Rivera = P0
c.Tax due of Reyes = P50,000
SOLUTION:
RR Partnership Rivera Reyes

Gross Income P2,000,000 P800,000 P1,000,000
Allowed Deductions (1,200,000) (900,000) (700,000)
Basic exemption - (50,000) (50,000)
Taxable income P800,000 (P150,000) P250,000
Tax Rate 30% Tax Table Tax Table
Tax Due P240,000 P0 P50,000
Note: The partners’ share in the net income of the partnership is treated as dividend
income subject to a final tax rate of 10%.
Case B : a. Tax due of the partnership = P0
b. Tax due of Rivera = P14,500
c. Tax due of Reyes = P198,600
SOLUTION:
RR
Rivera Reyes
Partnership
Gross Income P2,000,000 P800,000 P1,000,000
Allowed Deductions (1,200,000) (900,000) (700,000)
Basic exemption - (50,000) (50,000)
Share in partnership income - 320,000 480,000
Taxable income P800,000 P170,000 P730,000
Tax Rate EXEMPT Tax Table Tax Table
Tax Due P0 P14,500 P198,600
3. Villamin and Francis are partners in a commercial partnership. Their profit and loss ratios were 3:6.
During 2018, the following data were provided:
Data of the partnership:
Gross profit from sale of services P3,500,000
Direct cost of services 1,500,000
Business Expenses 700,000
Rental Income in business assets (net of tax) 142,500
Interest Income on peso bank deposits 20,000
Interest income on U.S. $ deposits under the expanded foreign

50,000
currency deposit system
Capital gain on sale of real property classified as capital asset

located in QC 300,000
Selling price-P2M; FMV-2.5M; Cost-1.7M
Quarterly tax payments 75,000

Data of partners:
Dividend Income from a resident foreign corporation earned by

P120,500
Villamin
Dividend Income from a domestic corporation earned by Francis 85,000
Royalty Income from Philippines earned by Francis 35,000
Capital gain by Francis on sale of shares of stock of a domestic

corporation
Selling Price – P300,000; 120,000
FMV – 300,000;
Cost – 180,000
Gross income from a sole-proprietorship business of Villamin 925,000
Allowable business expenses of Villamin 670,000
Quarterly tax payments 12,500
Required: Determine the following:
1. Income tax payable of the partnership
2. Income tax payable of Villamin
3. Income tax payable of Francis
4. Final tax on passive income of the partnership
5. Final tax on passive income of Villamin
6. Final tax on passive income of Francis
ANSWER:
1. Income tax payable/(refundable) of the partnership = P352,500

2. Income tax payable/(refundable) of Villamin = P40,150
3.Income tax payable/(refundable) of Francis = P0
4. Final tax on passive income of the partnership = P7,750
5. Final tax on passive income of Villamin = P40,908
6. Final tax on passive income of Francis = P97,317
SOLUTION :
Gross profit from sale of services P3,500,000

Direct cost of services (1,500,000)
Business Expenses (700,000)
Rental Income in business assets (gross)
150,000
(P142,500/95%)
Taxable income P1,450,000
X tax rate 30%
Tax due P435,000
Quarterly tax payments (75,000)
Withholding tax on rent (7,500)
Income tax payable P352,500
Interest Income on peso bank deposits @ 20% P4,000

Interest income-FCDS @ 7.5% 3,750
Final Tax on passive income of the partnership P7,750
Capital gains tax on real property (2.5M x 6%) 150,000
DISTRIBUTABLE INCOME:
Taxable income P1,450,000
Total income subject to final tax 70,000
Capital gain 300,000
Less:
Basic tax due (435,000)
Final tax due (7,750)
Capital gains tax (150,000)
DISTRIBUTABLE INCOME P1,227,250
Villamin:
Gross income from sole-proprietorship business 925,000
Allowable business expenses (670,000)
Dividend Income-resident foreign corp. 120,500
Basic exemption (50,000)
Taxable income P325,500
Tax due (tax table) P72,650
Quarterly tax payments (32,500)
Income tax payable P40,150
Final Tax – (P1,227,250/3 X 10%) P40,908
Capital gains tax - Villamin P0
Francis:
Income Tax payable
P0
(No income subject to basic tax)
Dividend Income @ 10% P8,500

Royalty Income @ 20% 7,000
Share in the distributive share of the partnership income
(P1,227,250/3 X 2 x 10%) 81,817
Total final tax on passive income P97,317
Capital gains tax on shares of stock

7,000
[(P100,000 x 5%) + (20,000 x 10%)]

Post Test Regular Income Taxation For Partnerships

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What are the income tax obligations of partners in a partnership?

What are the income tax obligations of partners in a partnership?

How is income from a partnership treated for tax purposes?

How is income from a partnership treated for tax purposes?

LAZARO, CKHYLE-RINE ERICKA V.

LJ’s gross income from his trading business P1,000,000

Required: Determine the correct amount of the following:

Partnership Rivera Reyes

Gross income 2,000,000 800,000 1,000,000

Rivera 150,000 30,000 0

Reyes 120,000 0 20,000

Civil Status Single Married

Profit and Loss

Case A: Assume the partnership is an ordinary partnership, compute the following:

RR Partnership Rivera Reyes

Gross profit from sale of services P3,500,000

Direct cost of services 1,500,000

Business Expenses 700,000

Rental Income in business assets (net of tax) 142,500

Interest Income on peso bank deposits 20,000

Interest income on U.S. $ deposits under the expanded foreign

Capital gain on sale of real property classified as capital asset

Quarterly tax payments 75,000

Dividend Income from a resident foreign corporation earned by

Dividend Income from a domestic corporation earned by Francis 85,000

Royalty Income from Philippines earned by Francis 35,000

Capital gain by Francis on sale of shares of stock of a domestic

Gross income from a sole-proprietorship business of Villamin 925,000

Allowable business expenses of Villamin 670,000

Quarterly tax payments 12,500

Required: Determine the following:

1. Income tax payable of the partnership

2. Income tax payable of Villamin

3. Income tax payable of Francis

4. Final tax on passive income of the partnership

5. Final tax on passive income of Villamin

6. Final tax on passive income of Francis

1. Income tax payable/(refundable) of the partnership = P352,500

Gross profit from sale of services P3,500,000

Interest Income on peso bank deposits @ 20% P4,000

Dividend Income @ 10% P8,500

Capital gains tax on shares of stock

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