1. Installment Sales method

2. Formulas:
 Selling price
Cash received by the seller xx
Add: Fair market value of the property received xx
Installment obligation of the buyer xx
Mortgage assumed by the buyer xx xx
Selling price xx

3.  Contract price
Selling price xx
Less: Mortgage assumed by the buyer xx xx
Add: Excess of mortgage over cost xx
Contract price xx
Formulas:

4.  Initial payment
Down payment xx
Add:Installment received xx
Excess of mortgage over cost xx xx
Initial payment xx
Formulas:

5.  Gross profit and income determination
a. The property is personal and a capital asset
Selling price xx
Less: Cost xx
Gross profit xx
Divide by: Contract price xx
Gross profit rate xx
Multiply by: Initial payment / Collection xx
Income xx
Formulas:

6.  Gross profit and income determination
b. The property is real or personal and an ordinary asset
Selling price xx
Less: Book Value xx
Gross profit xx
Divided by: Contract price xx
Gross profit rate xx
Multiply by: Initial payment / Collection xx
Income to be reported xx
Formulas:

7. c. The real property is sold by an individual
Selling price / Fair market value xx
Multiply by: rate of tax 6%
Final withholding tax xx
Multiply by:
Initial payment / Collection xx
Divided by: Contract price xx xx
TAX DUE XX
Formulas:

8. Illustration 13-2
2009
(bought for
P110,000)
Oct. 1, 2011
(Sold for P160,000
on INSTALLMENT)
*monthly
installment of
P10,000 effective
on November 1
Oct. 1, 2011
(received down
payment of P10,000)

9. Questions:
1. Can the income be reported installment?
Yes.
Computation:
Down payment P 10,000
Add: Monthly instalments (Nov. & Dec.) 20,000
Initial payment 30,000
Divided by: Contract price 160,000
18.75%

10. 2. How much income should be reported in 2011, 2012 and
2013?
Solution:
Selling price P 160,000
Less: Cost 110,000
Long-term capital gain 50,000
Divided by: Contract price 160,000
31.25%
Questions:

11. Computation of Yearly
Taxable Collections Gross Profit Capital Long-term
Year Rate Gain Gain
2011 30,000 31.25% 9,375 4,687.50
2012 120,000 31.25% 37,50o 18,750.00
2013 10,000 31.25% 3,125 1,562.50

12. Illustration 13-2
2011
(purchased at
P 200,000)
2011
(Sold for
P 300,000)
The terms of payments are as follows:
Down Payment, 2011 P 50,000
Installment payments:
2012 125,000
2013 125,000
2011
(the property
is mortgage
for P 20,000)

13. If the property is a capital asset, how much income
is to be reported by Freda in 2011, 2012 and
2013?
* Computation of Selling Price
Down Payment, 2011 P 50,000
Installment, 2012 125,000
Installment, 2013 125,000
Mortgage assumed by buyer 20,000
Selling price 320,000

14. * Computation of Contract Price
Selling Price P 320,000
Less: Cost 20,000
Contract price 300,000

15. * Gain on sale
Selling Price P 320,000
Less: Cost 200,000
Capital gain (short-term) 120,000

16. * Gross Profit Rate (GPR)
Gross profit P 120,000
Divided by: Contract Price 300,000
GPR 40%

17. •Initial Payment Rate (IPR)
Initial Payment P 50,000
Divided by: Selling Price 320,000
IPR 15.625%

18. • Computation of Yearly Returnable Income
Year Collections Gross Profit Rate Taxable Gain
2011 P 50,000 40% P 20,000
2012 125,000 40% 50,000
2013 125,000 40% 50,000
Total 300,000 120,000

19. Sale on real property
1. By an individual
*installment = Does not exceed 25% of the selling price
* asset sold=ordinary asset tax return
* asset=capital 6% of gross selling price
fair market value or highest
zonal value

20. Year of sale = Initial payment
Contract price
Subsequent years = Installment paid
Contract price
Final tax
Formulas:
Final tax

21. 2. By a corporation
capital gains gross income
final tax
NOTED: Capital gains = capital asset 6% of
gross selling price
fair market value or highest
zonal value
Sale on real property

22. Problem 13-4
July 30, 2011
(acquired for
P400,000)
Dec. 31, 2011
(Sold for P600,000
on INSTALLMENT)
*will receive the
balance of
P250,00, payable
each year
Dec. 31, 2011
(received a down
payment of P100,000)

23. Q1. Can the tax be paid on installment?
• Yes
Initial payment 100,000
Selling price 600,000
16.67%

24. Q2. How much is payable in 2011, 2012 and
2013?
• Solution:
Selling price P 600,000
Rate 6%
Final Tax 36,000
• Computation of Annual Capital Gains Tax:
2011 100,000
600,000
2012 250,000
600,000
2013 250,000
600,000
36,000
36,000
36,000
6,000
15,000
15,000

25. Problem 13-5
Cost P 160,000
Mortgage assumed by buyer 40,000
Cash payment in 2011 80,000
Due on:
January 1, 2012 40,000
January 1, 2013 40,000

26. Can the tax reported on installment?
• No.
Computation:
Initial payment P 80,000
Divided by: Down payment 80,000
Mortgage assumed by buyer40,000
Installment, 2012 40,000
Installment, 2013 40,000 200,000
Initial payment Rate 40%

27. Problem 13-6
Cost P2,000,000
Accumulated 500,000
Depreciation
Dec. 30, 2011
(Sold for P3,000,000)
Balance (payable P250,000
each month)
Commission and 200,000
Other selling expenses
Dec. 30, 2011
(received a down
payment of P500,000)

28. How much income should be reported in 2011?
Selling price P 3,000,000
Less: Cost 2,000,000
Commissions 200,000 2,200,000
Gross profit 800,000
Multiply by IPR(500,000/ 3,000,000) 16.67%
Income to be reported in 2011 133,360

29. Sale of shares of stock of a
domestic company
•5% on the first P100,000
•10% in excess of P100,000 of
net capital gain

30. Problem 13-7
Acquired for P120,000
(Sold for P400,000)
Payable each installment:
2011 P 140,000
2012 160,000
2013 50,000
2014 50,000

31. Compute the final taxes payable on 2011, 2012,
2013 and 2014.
• Solution:
Selling price P 400,000
Less: Cost 120,000
Net capital gain 280,000
Tax on P100,000 x 5% P 5,000
180,000 x 10% 18,000
Final withholding tax 23,000

32. •Final taxes payable:
2011 140,000
400,000
2012 160,000
400,000
2013 50,000
400,000
2014 50,000
400,000
TOTAL
P 23,000
23,000
23,000
23,000
P 8,050
9,200
2,875
2,875
23,000