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PreRev and Correlation Course

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Session 6 & 7: Value Added Tax

Exercise Drill
October 30, 2020

GENERAL INSTRUCTION: Place your answers on a clean paper and summarize your answers especially for the problem
solving. Make sure that your answers are readable when you upload your work in the LMS. Show
your solutions if necessary. Deadline for submission will be at 11:59PM on Saturday, October 31,
2020.

MULTIPLE CHOICE QUESTIONS: Write the letter of the correct answer.

1. One of the following is not a transaction deemed sale

a. Transfer, use or consumption not in the ordinary course of business of goods or properties originally
intended for sale or for use in the course of business
b. Distribution or transfer to shareholders or investors of goods or properties as share in the profits of a vat –
registered person or to creditors in payment of debt
c. Retirement from or cessation of business, with respect to inventories of taxable goods on hand as of the
date of such retirement or cessation
d. Consignment of goods if actual sale is made within 60 days following the date such goods were consigned

2. Who is the one statutorily liable for the payment of VAT?

a. Buyer b. Seller c. Consumer d. None of the choices

3. In the case of sale of real properties on the installment plan, the real estate dealer shall be subject to VAT on the:
a. Selling price
b. Selling price or fair market value whichever is lower
c. Selling price of fair market value whichever is higher
d. Installment payments, including interest and penalties, actually or constructively received by the seller

4. Mr. Andres, VAT-registered real estate dealer, transferred a parcel of land held for sale to his son as gift on account
on his graduation. For VAT purposes, the transfer is:
a. not subject to VAT because it is a gift
b. subject to VAT because it is a deemed sale transaction
c. not subject to VAT because it is subject to gift tax
d. subject to VAT because it is considered an actual sale

5. In case of sale, barter or exchange or real property subject to VAT, the term “fair market value” shall mean:
a. the fair market value as determined by the Commissioner of Internal Revenue (zonal value)
b. the fair market value as shown in the schedule of values of the Provincial and City Assessor (real property
tax declaration)
c. whichever is lower between the zonal value and the value per real property tax declaration
d. whichever is higher between the zonal value and the value per real property tax declaration

6. First Statement: If the gross selling price is based on the zonal value or market value of the property, the zonal or
market value shall be deemed inclusive of VAT.
Second Statement: If the VAT is not billed separately, the selling price stated in the sales document shall be deemed
to be inclusive of VAT
a. Both statements are correct c. Only the first statement is correct
b. Both statements are incorrect d. Only the second statement is correct

7. First statement: “VAT-exempt transactions” refer to the sale of goods or properties and/or services and the use or
lease of properties that is not subject to VAT (output tax) and the seller is not allowed any tax credit of VAT (input
tax) on purchases.
Second statement: The person making the exempt sale of goods, properties or services shall not bill any output tax
to his customers because the said transaction is not subject to VAT.
a. Both statements are correct c. Only the first statement is correct
b. Both statements are incorrect d. Only the second statement is correct

8. Which of the following goods when sold or imported shall not be exempt from VAT?
a. agricultural and marine foods products in their original state

Session 6 and 7: Value Added Tax October 30, 2020 Page 1

 b. livestock and poultry of a kind generally used as, or yielding or producing foods for human consumption
c. breeding stock and genetic materials therefore
d. processed or manufactured agricultural and marine food products

9. Which of the following shall not be considered as poultry for VAT-exempt transactions purposes?
a. Fowls b. ducks and geese c. fighting cocks d. turkey

10. One of the following is not an activity subject to VAT

a. Sale in retail of goods by a dealer c. Sublease of real property in the course of business
b. Sale of bamboo poles by a dealer d. Importation of ordinary feeds for poultry chicken

11. Taxpayer operates a Grocery Store and is not VAT registered. His annual gross sales amounted to P3,000,000 for the
year although his operations resulted to net loss for the year 2019. He is subject to
a. 3% OPT b. VAT c. MCIT - 2% d. None, operation is a loss

12. Which statement is correct?

a. Zero rated sales is exempt from the VAT
b. A person whose sales or receipts do not exceed P250,000 is exempt from VAT and OPT
c. A person who issues a VAT invoice on a VAT exempt transaction is nevertheless subject to VAT on
the said transactions
d. Entities which are exempt from income tax are also exempt from VAT

13. Which of the following importation is subject to VAT?

a. Importation of frozen meat c. Importation of apples for personal consumption
b. Importation of bamboo poles d. Importation of grapes for sale

14. First statement: Services subject to (other) percentage taxes shall not be subject to VAT.
Second statement: Services by agricultural contract growers and milling for others of palay into rice, corn into grits,
and sugar cane into raw sugar are exempt from VAT
a. both I and II are correct c. Only I is correct
b. neither I nor II is correct d. Only II is correct

15. First statement: Medical, dental, hospital and veterinary services, including laboratory services, except those
rendered by professionals are exempt from VAT
Second statement: If the hospital or clinic operates a pharmacy or drug store, the sale of drugs and medicine is
subject to VAT
a. both I and II are correct c. Only I is correct
b. neither I nor II is correct d. Only II is correct

16. Which of the following shall not be exempt from VAT?

a. services rendered by individual pursuant to an employer-employee relationship
b. services rendered by regional or area headquarters established in the Philippines by multinational
corporations which act as supervisory communications and coordinating centers for their affiliates,
subsidiaries or branches in the Asia pacific region and do not earn or derive income from the Philippines
c. Transactions which are exempt under international agreements to which the Philippines is a signatory or
under special laws
d. Services rendered by professionals such as CPAs, engineers, lawyers, etc.

17. Which of the following statements is INCORRECT?

a. A zero-rated sale of goods or properties (by a VAT-registered person) is a taxable transaction for VAT
purposes, but shall not result in any output tax
b. the input tax on purchases of goods, properties or services, related to zero-rated sales, shall be available as
tax credit only in accordance with the Regulations
c. For purposes of zero-rating, the export sales of registered export traders shall include commission income
d. The exportation of goods on consignment shall not be deemed export sales until the export products are in
fact sold by the consignee

18. Which of the following local sales of goods or property will not be effectively subject to VAT at zero-rate?
a. Sales to enterprises duly registered and accredited with the Subic Bay Metropolitan Authority (SBMA)
b. Sales to enterprises duly registered and accredited with the Philippine Economic Zone Authority (PEZA)
c. Sales to Development Bank of the Philippines (DBP)
d. Sales to International Rice Research Institute (IRRI)

19. For transactions deemed sale, other than retirement or cessation of business, the output tax shall be based on the:
a. Selling price of the goods deemed sold as of the time of occurrence of the transaction
b. Market value of the goods deemed sold as of the time of the occurrence of the transaction

Session 6 and 7: Value Added Tax October 30, 2020 Page 2

 c. Acquisition cost of the goods deemed sold
d. Acquisition cost or the current market price of the goods whichever is lower

20. Which of the following is not deductible from Gross Selling Price?
a. Discounts determined and granted at the time of sale, which are expressly indicated in the invoice, the
amount thereof forming part of the gross sales duly recorded in the books of accounts
b. Discount determined and granted after the agreed sales quota is met by the buyer
c. Sales discount indicated in the invoice at the time of sale, the grant of which is not dependent upon the
happening of a future event, deductible within the same month or quarter given
d. Sales returns and allowances for which a proper credit or refund was made during the month or quarter to
the buyer for sales previously recorded as taxable sales

21. Any input tax on the purchases or importation of goods shall be creditable against the output tax if:
I – evidenced by a Vat invoice or official receipt
II – issued by a VAT-registered person
III – in the course of trade of business
a. I, II and III are correct c. Only I is correct
b. Only I and II are correct d. Only III is correct

22. Where a VAT-registered person purchases or imports capital goods, which are depreciable assets for income tax
purposes, the aggregate acquisition costs of which (exclusive of VAT) in a calendar month exceeds 1,000,000
regardless of the acquisition cost of each capital good, shall claimed as credit:
a. over a period of 60 months in all cases
b. over a period of 60 months unless the estimated life is not less than 5 years in which case over the actual
number of months comprising the estimated life
c. in full in the month acquired
d. in full in the quarter acquired

23. If the depreciable capital good is sold or transferred within a period of 5 years or prior to the exhaustion of the
amortizable input tax thereon the unamortized input tax on the capital goods sold or transferred can be
a. claimed as input tax credit in its entirety during the month or quarter when the sale or transfer was made
b. amortized over the remaining life of the capital good
c. claimed as input tax credit in its entirety or amortized over the remaining life of the capital good at the
option of the taxpayer
d. expensed outright in the month or quarter the sale or transfer was made

24. Which of the following input taxes shall not be credited against output taxes arising from sales to non-Government
entities?
a. Input tax on purchase or real properties for which VAT has actually been paid
b. Input tax on purchase of service in which VAT has actually been paid
c. Transitional and presumptive input taxes
d. Input taxes that can be directly attributable to VAT taxable sales of goods and services to the Government
or any of its political subdivisions, instrumentalities or agencies including GOCCs

25. First Statement – The input tax attributable to VAT-exempt sales shall not be allowed as credit against the output tax
but should be treated as part of cost or expense
Second Statement – For persons engaged in both zero-rated sales under the Tax Code and non-zero rated sales, the
aggregate input taxes shall be allocated ratably between the zero-rated sale and non-zero rated sale
a. Both statements are correct c. Only the first statement is correct
b. Both statements are incorrect d. Only the second statement is correct

26. Which of the following shall be entitled to transitional input tax credits on beginning inventories?
I – taxpayers who became VAT-registered persons upon exceeding the minimum turnover of 3,000,000 in any 12-
month period
II – Taxpayers who voluntarily register even if their turnover does not exceed 3,000,000 (except franchise grantees
of radio and television broadcasting whose threshold is 10,000,000)
a. Both I and II c. I only
b. Neither I nor II d. II only

27. Which of the following shall be allowed presumptive input tax?

I – Persons or firms engaged the processing of sardines, mackerel and milk
II – Persons or firms manufacturing refined sugar, cooking oil and packed noodle-based instant meals
a. Both I and II c. I only
b. Neither I nor I d. II only

Session 6 and 7: Value Added Tax October 30, 2020 Page 3

 28. First Statement: Presumptive input tax is equivalent to 4% of the gross value in money of the purchases of primary
agricultural products used as inputs to the production.
Second Statement: The term processing shall mean pasteurization, canning and activities which through physical or
chemical process alter the exterior texture or form of inner substance of a product in such a manner as to prepare it
for special use to which it could not have been put it its original form or condition
a. Both statements are correct c. Only the first statement is correct
b. Both statements are incorrect d. Only the second statement is correct

29. First Statement: The transitional input tax shall be 2% of the value of the beginning inventory on hand or actual VAT
paid on such goods, materials and supplies, whichever is higher, which amount shall be creditable against the output
tax of VAT-registered person
Second Statement: The value allowed for income tax purposes on inventories shall be basis for computation of the
2% transitional input tax, excluding goods that are exempt from VAT under Sec 109 of the tax code
a. Both statements are correct c. Only the first statement is correct
b. Both statements are incorrect d. Only the second statement is correct

30. The allowable transitional input tax is

a. The lower between 2% of the value of beginning inventory or actual VAT paid on such inventory
b. The higher between 2% of the value of the beginning inventory or actual vat paid on such inventory
c. The actual vat paid on the beginning inventory
d. 2% of the value of beginning inventory

31. First Statement: The government or any of its political subdivisions, instrumentalities or agencies, including
government owned or controlled corporations (GOCCs) shall, before making payment on account of each purchase
of goods and/or services subject to VAT, deduct and withhold a final VAT due at the rate of 5% of the gross payment
thereof.
Second Statement: The 5% final VAT withholding rate shall represent the net VAT payable of the seller
a. Both statements are correct c. Only the first statement is correct
b. Both statements are incorrect d. Only the second statement is correct

32. First Statement: Standard input VAT is allowed for sales of goods or services to government or any of its political
subdivisions, instrumentalities or agencies including GOCC.
Second Statement Standard input VAT is in lieu of the actual input VAT directly attributable or ratably apportioned to
sales to government or any of its political subdivisions, instrumentalities or agencies including GOCCs.
a. Both statements are correct c. Only the first statement is correct
b. Both statements are incorrect d. Only the second statement is correct

33. In case of sales to government or its political subdivisions, instrumentalities or agencies including GOCCs which of
the following is correct?
I – Should actual input VAT exceed five percent of gross payments, the excess may form part of the seller’s expenses
or cost
II – If the actual input VAT is less than five percent of the gross payment, the difference must be closed to expensive
or cost
a. Both statements are correct c. Only the first statement is correct
b. Both statements are incorrect d. Only the second statement is correct

34. Monthly VAT declarations is filed on or before the

a. 10th day from the end of each month c. 25th day from the end of each month
b. 20th day from the end of each month d. 30th day from the end of each month

35. Quarterly VAT return shall be filed on or before the

a. The 10th day from the end of each quarter
b. The 20th day from the end of each quarter
c. The 15th day from the end of each quarter
d. The 25th day from the end of each quarter

PROBLEM SOLVING: Answer what is being asked in each problem and provide solutions to support your answer. Round
off your answers to two decimal places.

1. Ex Vatallion, a VAT taxpayer, showed the following records for the fourth quarter of 2020:
October November December
Output Tax P 90,000 P 160,000 P 70,000
Input Tax 102,000 94,000 38,000

There was an excess of input taxes over output taxes of P40,000 for the quarter ending September 2020. Determine
the VAT due for October, November and for the quarter.

Session 6 and 7: Value Added Tax October 30, 2020 Page 4

 2. ACCTG507, a VAT – registered taxpayer, had the following cumulative date for the 1st quarter of 2019. (VAT
exclusive)
January February March
Sales P 1,000,000 P 2,400,000 P 3,800,000
Purchase from VAT suppliers 400,000 900,000 1,400,000
Purchase from nonVAT suppliers 300,000 500,000 900,000
Purchase of machinery from vat suppliers (3years life) 1,200,000

Determine the VAT payable for the monthly and quarterly returns.

3. Simple Plan Corporation is a VAT registered dealer of appliances. The following data are for the last quarter of 2018:
Sales, total invoice value P 6,921,600
Purchases, net of input taxes 5,000,000
Sales returns (based on total invoice value) 224,000
Purchase returns (net of input tax) 300,000
Deferred input taxes (carried over from the third quarter of 2018) 13,500

How much is the value-added tax due for the last quarter of 2018?

4. A VAT subject real estate dealer sold a residential lot on January 15, 2019. The following information made available
on the terms of the sale:
Gross selling price 3,000,000
Initial payments in 2019 (consisting of down payments
and installments in the year of sales) 900,000
Balance to be paid in equal annual installments starting Feb 15, 2020 2,100,000

The zonal value of the residential lot was 2,800,000.

Required:
a. How much was the output tax on January 15, 2019?
b. How much is the output tax on February 15, 2020?

5. Sweet Corporation sold a parcel of land to Bitter Company on July 2, 2019 for 1,000,000 plus the output VAT, with a
monthly installment payments of 10,000, plus the output VAT. The zonal value of the subject property at the time of
sale amounted to 1,500,000. How much is the output tax on the installment payment?

6. The following information taken from the books of a VAT-registered enterprise was provided to you:
Domestic sales of goods P 3,000,000
Sales of packaging materials to an export oriented enterprise whose
export sales exceeds 70% of the total annual production 2,000,000
Local sales of goods to Asian Development Bank (ADB) 500,000
Consignment of goods (not returned within 60 days
following the date of consignment) 200,000
Goods transferred for the personal use of the owner 100,000

Required:
a. How much was the total taxable sales?
b. How much was the output tax?

7. The records of Mayariver, a building contractor, for April shows (VAT not included)
Five Storey Building
Contract Price P 20,000,000
Cash Receipts (for work done):
Labor 4,000,000
Materials 6,000,000
Four Storey Building
Contract Price 16,000,000
Cash Receipts (no work done yet):
Advances 2,000,000
Cash payments to (for five storey building)
Sub – contractors 1,200,000
Materials 2,400,000
Supplier of equipment (8 years life) 1,000,000

Determine the VAT due for April

Session 6 and 7: Value Added Tax October 30, 2020 Page 5

 8. The following are the data of South City Appliances Marketing (SCAM) Co. for the last quarter of 2018:

Sales up to December 15, total invoice value 319,200

Purchases for November up to December 15, net of input taxes 215,000

Additional information: On December 16, 2018, SCAM Co. retires from its business and the inventory valued at
190,000 (acquisition cost, 200,000) is taken and transferred to New City Appliances Co. There is a deferred input tax
from the third quarter of 3,500.

How much is the total value-added tax due by SCAM Co. in its operations in the last quarter and its retirement form
business?

9. A taxpayer registered under the VAT system on January 2, 2020 after his sales exceeded 3,000,000 in the previous
year. He became subject to VAT for the first time. The following selected data were taken from his books:
Inventory, December 31, 2019 purchased from VAT-registered seller:
Cost P 60,000
Net realizable value 50,000
VAT paid on December 31, 2019 inventory 6,000
Inventory, December 31, 2019 purchased from VAT-exempt seller 80,000
Sales, net of VAT 181,000
Purchases, net of VAT 70,000

How much was the VAT payable?

10. Sweet Tooth, Inc. manufactures refined sugar. The following selected data are taken from its books:
Sale of refined sugar, net of VAT P 2,000,000
Purchase of sugar cane from farmers 500,000
Purchases of packaging materials, gross of VAT 784,000
Purchases of labels, gross of VAT 112,000
Advance payment of VAT before release from refinery 60,000

How much is the VAT payable?

11. A VAT-registered trader had the following transactions:

Sales of goods to private entities, net of VAT P 2,500,000
Purchases of goods sold to private entities, gross of VAT 896,000
Sales to a government owned corporation (GOCC), net of VAT 1,000,000
Purchases of goods sold to GOCC, net of VAT 700,000

Required:
a. How much is the withholding VAT?
b. How much is the standard input tax?
c. What is the treatment of the excess actual input VAT attributable so sales to GOCC?
d. How much is the creditable input tax on sale to private entities?
e. How much is the VAT payable?

12. A VAT-registered public works contractor has the following data on services rendered in the Philippines for the
second quarter of 2019 (VAT-exclusive):
Contract price (foreign clients doing business outside
the Philippines) ($1:P50) $ 100,000
Contract price (private sector clients) P 5,000,000
Contract price (government) 3,000,000
Collections from foreign clients $ 100,000
Collections from government contracts 1,000,000
Collections from private sector clients 2,000,000
Purchases during the quarter
(used in private sector clients contracts) 800,000
Payments for services of a VAT-registered subcontractor
(used in government contracts) 400,000
Purchases during the quarter (used in private sector clients
and government contracts only) 300,000

How much is the VAT payable for the quarter?

Session 6 and 7: Value Added Tax October 30, 2020 Page 6

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