12

Fundamentals of
Accountancy, Business
and Management 2
Quarter 2 – Module 4
Income and Business Tax
Due Computation
Fundamentals of Accountancy, Business and Management 2 –
12
Alternative Delivery Mode
Quarter 2 – Module 4: Income and Business Tax Due
Computation

First Edition, 2020

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Published by the Department of Education

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Management Team: Bianito A. Dagatan EdD, CESO V
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EPS, Mathematics

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Learning Competencies:
Explain the procedure in the computation of gross taxable income and tax
due.
(ABM_FABM12-IIh-j-17)

At the end of the lesson, you are expected to:

 explain the procedure in the computation of compensation income tax;
 explain the procedure in the computation of business income tax; and
 explain the procedure in the computation the mixed income tax.

Lesson 1: Compensation Income Tax

Statement
What is it

Compensation Income:

Gross compensation (salary and other bonuses)

Less: Statutory contributions (SSS or GSIS, PhilHealth and Pag-ibig Fund)
Gross compensation, net of statutory payments
Less: 13th month pay and other bonuses that are exempted from income tax
= Gross taxable compensation income
Less: Personal ( P 50,000 per tax payer) and additional deductions (P 25,000 per
qualified dependent, max of 4)
= Net taxable compensation income

Find the taxable income from the table below and compute the tax due based on
the table below.

Example: Juan Dela Cruz generated annual compensation income of P615,000.

Statutory payments are as follows: SSS – P 6,975.60; Philhealth - P 5,250; Pag-ibig
Contribution – P 1,200. Total: P 13,425.60
Tax exempt 13th month pay and other bonuses – P 50,000. (Note: Maximum tax
exempt 13th month and other bonuses is P 82,000 per Revenue Regulation 3-2015)
Scenario 1: Juan Dela Cruz is single with no qualified dependent

From tax table, tax due for P491,574.40 is computed as follows:

P50,000 + 30% of the excess over P 250,000
P 50,000 + 30% (P491,574.40 - P250,000) = P122,472.32 (Note: This is not the tax
payable by the individual. Compare this with the amount that the employer
withheld. Any difference is the tax liability payable on April 15. Generally, if the
employer correctly withheld during the year and there are no changes in the tax
status and tax base during the year, the amount withheld will be equal to the tax
due. However, there will be a difference if there are changes in the taxability of the
tax payer (single to married, changes in number of qualified dependents) and
change in tax base (i.e. increase in salary)

Scenario 2: Juan Dela Cruz is married with 3 qualified dependents

From tax table, tax due for P416,574.40 is computed as follows:

P 50,000 + 30% of the excess over P 250,000
P 50,000 + 30% (P416,574.40 - P 250,000) = P99,972.32

• What if the employer withheld a total of P95,000? Then on April 15 on the

subsequent year, the employee will pay an additional P4,972.32. But this does not
happen often. Normally, the employers compute for the annual tax due based on
the actual gross compensation income at the end of the year. Any additional tax
payment may be deducted from the December compensation.

What’s More

Directions: Write ADDED if the accounts are added and DEDUCTED if the
accounts are deducted from the Gross Compensation to get the Net Taxable
compensation income.
1. SSS Contribution
2. 13th month pay
3. Pag-Ibig Contribution
4. Personal Deductions

Lesson 2: Business Income

2 Tax

What is it

Business Income:
Total revenues (Sales, Professional Fee, etc)
Less: Total expenses (Cost of Goods Sold, Operating Expenses)
Taxable income from business
Less: Personal ( P 50,000 per tax payer) and additional deductions (P 25,000 per
qualified dependent, max of 4)
=Net taxable income
Example: Juan Dela Cruz is the owner-manager of JDC Trading Company. Total Sales
generated during the year amounted to P 1,230,000. Cost of goods sold is P
492,000 and total operating expenses is P 184,500. The company opted for
itemized deduction.

Scenario 1: Juan Dela Cruz is single with no qualified dependent

From tax table, tax due for P503,500 is computed as follows:

P 125,000 + 32% of the excess over P 500,000
P 125,000 + 32% (P 503,500 - P500,000) = P 126,120
• Is this the amount payable to the BIR on April 15? Not exactly. If during the year,
some of JDC’s issued creditable income tax withheld (meaning the clients remitted
the withheld amount to the BIR), then the amount withheld maybe deducted from P
126,120. Creditable income tax withheld is basically prepaid income tax.
• The remaining liability (after deducting creditable tax withheld), if greater than P
2,000, may be paid in installment – half on April 15 and the other half on July 15.
Scenario 2: Juan Dela Cruz is single with 1 qualified dependent; JDC received
creditable income tax withheld from its customers at P 27,655.
From tax table, tax due for P 478,500 is computed as follows:
P 50,000 + 30% of the excess over P 250,000
P 50,000 + 30% (P478,500 - P 250,000) = P118,550
P 118,550 - P27,655 = P90,895
(Note: Liability to the BIR. If paid in installment, Juan Dela Cruz will pay P 45,447.50
each on April 15 and July 15).
What’s More
3
Directions: Write the letter of the correct answer in the answer sheet provided
below:
1. What is the amount of personal deduction for the individual taxpayer?
A. 30% B. P 25,000 C. P50,000 D. P250,000
2. What is the amount of additional deduction for the individual taxpayer?
A. 30% B. P 25,000 C. P50,000 D. P250,000
3. What is the percentage rate of tax in excess of P250,000.
A. 15% B. 20% C. 30% D. 32%
4. What is the percentage rate of tax in excess of P500,000?
A. 15% B. 20% C. 30% D. 32%

Lesson 3: Mixed Income

What is it

Mixed Income
- taxpayer earns both compensation and business income.

Example: Juan Dela Cruz, a married man with two qualified dependents, generated
income from the following sources:

Compensation income:
a. Annual compensation income generated was P 555,000.
b. Statutory payments are as follows: SSS – P 6,975.60; Philhealth - P 5,250;
Pag-ibig Contribution – P 1,200. Total: P 13,425.60
c. Tax exempt 13th month pay and other bonuses – P60,000.
d. Employer withheld P 89,471.16

Professional income:
a. Consultancy services earned P 1,230,000. Clients withheld P 61,500 and
provided creditable income tax withheld tax return.
b. He has no record of the receipts of his expenses. He opted for standardized
deductions.

Computation:
Compensation income
Business Income
4

Combined

From tax table, tax due for P1,119,574.40 is computed as follows:

P 125,000 + 32% of the excess over P 500,000
P 125,000 + 32% (P1,119,574.40 - P500,000) = P323,263.81

What’s More

Directions: Compute for the taxable income of Juan Dela Cruz, a married man with
one qualified dependent. Answer the questions and choose the letter of the correct
answer provided below:

GENERATED INCOME FROM THE FOLLOWING SOURCES:

Compensation income:
a. Annual compensation income generated was P 300,000.
b. Statutory payments are P 10,500
c. Tax exempt 13th month pay and other bonuses – P30,000.
d. Employer withheld P 20,000

Professional income:
a. Consultancy services earned P 500,000. Clients withheld P 11,500 and
 provided creditable income tax withheld tax return.
b. He has no record of the receipts of his expenses. He opted for standardized
deductions
1. How much is the taxable compensation income?
A. P91,850 B. P194.500 C. P300,000 D. P494,500
2. How much is the taxable business income?
A. P91,850 B. P194.500 C. P300,000 D. P494,500
3. How much is the combined taxable income?
A. P91,850 B. P194.500 C. P300,000 D. P494,500
4. How much is the net tax payable?
A. P91,850 B. P194.500 C. P300,000 D. P494,500

Assessment
5
Directions: Write the letter of the correct answer in the answer sheet provided
below:
1. What is taxable income?
A. All of these are correct. B Net sales less cost of goods sold.
C. The amount of income tax payable supposing there is no tax credit.
D. The amount of income used to calculate an individual's or a company's income
tax due.
2. Which of the following shall be included in the computation of gross taxable
income?
A. All of these are correct B. Capital gains, not subject to final tax
C. Passive income, not subject to final tax
D. Income derived from compensation, business and profession
3. What is net taxable compensation?
A. None of these is correct
B. Gross taxable income less all kinds of costs
C. Compensation income less personal exemptions
D. Business income less business expenses allowed
4. What should be deducted in the business income in order to get the net business
income?
A. None of these is correct B. Gross taxable income less all kinds of
costs
C. Compensation income less personal exemptions
D. Business income less business expenses allowed
5. Which of the following is an example of business expense?
A. All of these are correct B. Optional standard deduction
C. Regular allowable itemized deduction D. Special allowable itemized deduction
6. What is the percentage rate of tax in excess of P500,000?
A. 15% B. 20% C. 30% D. 32%
7. Whenever there are business income aside from personal income what will be its
treatment?
A. Added to income tax due B. Deducted to income tax due
C. Added to get the total taxable income D. Deducted to get the total taxable
income
8. What is income tax due?
A. All of these are correct B. Net sales less cost of goods sold
C. The amount of income tax payable supposing there are no tax credit
D. The amount of income used to calculate individual's or company's income tax
due
9. What is a tax credit?
A. All of these are correct B. Tax that was withheld by source
C. Reduces the actual amount of tax owed
 D. An amount deducted from income tax due to get the income tax payable
10. When a taxpayer earns both compensation & business income, he must have
____.
A. All of these B. Business Income C. Compensation Income D. Mixed
Income

Answer
6
Sheet
FABM 2

Name: __________________________________________________________
Grade & Section: ________________ Score: _______

Quarter 2 – Module 4

Lesson 1 Lesson 2 Lesson 3

What’s More What’s More What’s More
1. 1. 1.
2. 2. 2.
3. 3. 3.
4. 4. 4.

Solution for Lesson 3: (Use the back of this paper if necessary)

 Assessment
1. 6.
2. 7.
3. 8.
4. 9.
5. 10
Answer Key
7

Quarter 2 - Module 4
Lesson 1 Lesson 2 Lesson 3

What’s More What’s More What’s More

1. DEDUCTED 1. C. 1. B
2. DEDUCTED 2. B 2. C
3. DEDUCTED 3. C 3. D
4. DEDUCTED 4. D 4. A

Solution for Lesson 3

Compensation income
Gross Compensation P 300.000
Less: Statutory payments 10,500
Less: Tax exempt 13th month pay and other bonuses 30,000
Gross Taxable Compensation Income P 269,500
Less: Personal Deduction 50,000
Less: Additional Deduction 25,000
Net Taxable Compensation Income P 194,500

Business Income
Revenue from Consultancy Services P 500,000
Less: 40% standard deductions 200,000
Taxable Income from Business or Profession P 300,000

Combined
Net Taxable Compensation Income P 194,500
Taxable Income from Business or Profession 300,000
Total Taxable Income P 494,500
From tax table, tax due for 494,500 is computed as follows:
P 50,000 + 30% of the excess over P 250,000
P 50,000 + 30% (P494,500 – P250,000 = 244,500) = P50,000 + 73,350 =
P123,350.00

Tax Due P123,350

Less: Income Tax Withheld by Employer 20,000
Less: Creditable Income Tax Withheld by Clients 11,500
Net Tax Payable P 91,850
Assessment
1. D 6. D

References
Teaching Guide for Senior High School FUNDAMENTALS OF ACCOUNTANCY,
BUSINESS, AND MANAGEMENT 2.

Florecer L Ong, et. al 2017. Fundamentals Of Accountancy, Business, And

Management 2 For Senior High School. Quezon City. C & E PUBLISHING, INC.