The document discusses the installment sales method for calculating taxes on property sold using a payment plan. It provides formulas for calculating selling price, contract price, initial payment, gross profit, income to report, and taxes due. Examples are given of applying the formulas to different property sale scenarios, such as residential property, inventory, and stock, to determine the taxable income and taxes owed each year based on payments received.

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