1. Cash INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
46
Chapter 6: Fringe Benefits Tax
CHAPTER 6
FRINGE BENEFITS TAX
Problem 6 – 1 TRUE OR FALSE
1. False – FBT is a final tax of the employee. However, this is the liability of the employer
to withhold the final tax of 32%
2. True
3. True
4. True
5. True
6. True
7. True
8. True
9. False – Some housing fringe benefit is not subject to income tax. Ex. Temporary
housing for three months or housing benefit under the employer’s benefit rule.
10. True, also FB is also a form of incentives to rank-in-file employees.
11. False – These are benefits other than salaries and also given to rank-in-file
employees.
12. False – Wage and salaries are not subject to reduction once given regardless of the
financial condition of the employer.
13. True
14. True
15. False – The corporate income tax rate is 30% as of 2012, while the fringe benefit tax
remains at final tax rate of 32%.
16. True, unless these are among the de minimis
Problem 6 – 2 TRUE OR FALSE
1. False – De minimis are also fringe benefits in small amount but not subject to FBT.
2. False – Fringe benefits given to rank-in-file, except those which are among the de
minimis and those given for employer’s convenience, are not subject to FBT but
subject to compensation income tax.
3. True
4. True
5. False – P750/semester is the ceiling for exempt medical allowance
6. False- the exempt meal allowance must be related in the rendering of overtime work
to be considered de minimis.
7. True
8. True
9. True
10. False – A travel required by the company to its officer is not subject to FBT because by
its nature a travelling expense.
11. true
12. False – Scholarship grants to employees not related to business is taxable.
13. False – These are among those exempted from fringe benefit tax.

2. 47
Cash INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Chapter 6: Fringe Benefits Tax
Problem 6-3
1. C
2. B
3. C
4. C
5. D
6. A
7. B
8. D
9. A
10. B
11. B
12. D
Problem 6-4
1. A – Yes, also if received by supervisor
2. C
3. A
4. D
5. D
6. A
7. B
8. B
9. A – only P5,000 is taxable the excess of
P10,000.
10. D
11. D
12. D
Problem 6 – 5
Not in the choices = P51,000
Net income (P300,000/30%)
Add: FB charged to miscellaneous expense
Taxable net income
Multiplied by corporate tax rate
Income tax due
Less: Income tax already paid
Additional tax to be paid
P1,000,000
170,000
P1,170,000
30%
P 351,000
300,000
P
51,000
The fringe benefits of rank-in-file employee are subject to regular withholding tax on wages,
[Sec. 24 (A), NIRC]. There is no grossed-up monetary value involved. If the BIR uncover the
concealment resulting to the nonpayment of withholding tax, the fringe benefits shall be
disallowed as deductible expense. [Sec. 34 (A)(1ai), NIRC]
Problem 6 – 6
C
Fringe benefit tax (P102,000/68%) x 32%
Income tax:
Net income before tax (P1,750,000/70%)
Add: Fringe benefits charge to miscellaneous expense
Total
Multiplied by corporate income tax rate
Corporate income tax
Less: Income tax already paid (P2,500,000 – P1,750,000)
Tax recovered by the government
P48,000
P2,500,000
102,000
P2,602,000
30%
P 780,600
750,000
30,600
P78,600
Note: The fringe benefit tax expense is not deductible because the related
withholding tax was not withheld and paid until the tax evasion was discovered by
the BIR.
Problem 6 – 7

3. 48
Cash INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Chapter 6: Fringe Benefits Tax
Correction: Should be - The car ownership was transferred to Mr. Alegre.
1.
2.
Letter B
Cash
House and lot – FMV, higher (ownership transferred)
Car – ownership transferred (P680,000 x 9/10)
Monetary value of fringe benefits
Letter C
Grossed-up monetary value (P1,190,000/68%)
Problem 6 – 8
1. Letter C
Monetary value of FB (P80,000/32%) x 68%
2.
Letter B
Grossed-up monetary value (P80,000/32%)
Letter D
A fringe benefit tax is not an income tax of
employer.
P
34,000
544,000
612,000
P1,190,,000
P1,750,000
P170,000
P250,000
3.
Problem 6 – 9
C
Meal benefits (P10,200 x 6 months)
Educational assistance (P13,600 x 6 months)
Fringe benefits subject to FBT
P - 0 -
P 61,200
81,600
P142,800
Salaries are subject to normal tax. The fringe benefits subject to FBT shall only start from the
time Mr. Rojas was promoted to managerial level. His fringe benefits prior to his promotion
should be subject to normal tax.
Problem 6 – 10
B
Deductible from business income (P136,000/68%)
P 200,000
Problem 6 – 11
A
None, because fringe benefit tax is a final tax and no deduction is allowed from gross
compensation income except personal exemptions and health or hospitalization insurance
actually paid if the family income does not exceed P250,000.
Problem 6 – 12
D
Zero. No Fringe benefit tax is to be imposed on fringe benefit of rank-in-file
employee. Mr. Estrada is a company messenger. His fringe benefit is subject to
withholding tax on wages.
Problem 6 – 13

4. 49
Cash INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Chapter 6: Fringe Benefits Tax
1
.
Letter A
Grossed-up monetary value (P6,000,000 x 5% x 50%)/68%
Multiplied by FBT rate
Fringe benefit tax
2
.
P220,588
32%
P 70,588
Letter B
Down payment
Present value of 4 installments (P1,000,000 x 3.037)
Total
GMV (P5,037,000 x 5% x 50%)/68%
Multiplied by FBT rate
Fringe benefit tax
Problem 6 – 14
D
FB Expense is equal to GMV (P2,000,000 x 5% x 50%)/68%
Problem 6 – 15
B
Acquisition cost = fair market value (higher than zonal
value)
Monthly fringe benefit [(P2,040,000 x 5% x 50%)/12]/68%
Problem 6 – 16
P2,000,000
3,037,000
P5,037,000
P185,183
32%
P 59,258
P73,529
P2,040,000
P 6,250
A
Zero. Jean’s used of the condominium is not for her benefit but for the benefit of B
Corporation as the former conducts investigation for inventory fraud.
Problem 6 – 17
A
Discounted price of the cars (P1,000,000 x 95% x 50)
Add: Transportation, insurance and testing cost
Total acquisition cost
Acquisition cost assigned to officers
[(P48,000,000/50) x 10]
Monetary value of 10 cars [(P9,600,000/5) x 50%]
Divided by number of officers to received the cars
Monetary value of fringe benefit of each officer
[Sec. 2.33 (B), Rev. Regs. No. 3-98]
Problem 6 – 18
1
Letter A
.
Grossed-up monetary value [(P1,000,000/5) x 50%] /68%
Multiplied by FBT rate
Fringe benefit tax
2
.
P47,500,000
500,000
P48,000,000
P9,600,000
P 960,000
10
P
96,000
P147,059
32%
P 47,059
Letter C
Grossed-up monetary value (P1,000,000/5)/68%
Multiplied by FBT rate
Fringe benefit tax
P294,117
32%
P 94,117

5. Cash INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
50
Chapter 6: Fringe Benefits Tax
Problem 6 – 19
D
Lease price per vehicle [P6,000,000/(20 + 14 + 6)]
Multiplied by number of vehicle assigned to officers
Total fringe benefits to officers
P150,000
6
P900,000
Annual value of fringe benefits of each officer
[(P900,000/6) x 50%]
P 75,000
Problem 6 – 20
C
Annual depreciation allowed (P17,000,000/20)
Divided by GMV factor
Grossed-up monetary value
Multiplied by FBT rate
Annual fringe benefit tax
Divided by number of the members of the BOD
Annual fringe benefit tax for each director
P 850,000
68%
P1,250,000
32%
P 400,000
5
P
80,000
The use of aircraft (including helicopters) owned and maintained by the employer shall be
treated as business use and not b e subject to the fringe benefit tax.
The use of yacht whether owned and maintained or leased by the employer shall be treated
as taxable fringe benefit. The value of the fringe benefit shall be measured based on the
depreciation of a yacht at an estimated useful life of 20 years. [Sec. 2.33 (B), Rev. Regs. No.
3-98]
Problem 6 – 21
B
Light and power of his residential house
Grocery items
Reimbursable expense subject to FBT
P 5,440
6,800
P12,440
Only the personal expense reimburse.
Problem 6 – 22
Grocery items
Pants and T-shirt
Total monetary value of FB
D
Fringe benefit tax (P20,400/68%) x 32%
Problem 6 – 23
B
FB expense (P476,000 x 75%)/68%
P17,000
3,400
P20,400
P 9,600
P525,000
Problem 6 – 24
D
Fringe benefit tax (P16,320/68%) x 32%
P 7,680
Problem 6 – 25
C
Fringe benefit tax (P57,800/68%) x 32%
P27,200
Problem 6 – 26

6. 51
Cash INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Chapter 6: Fringe Benefits Tax
1.
Letter D
There is no FBT for rank-in-file employee.
2.
Letter B
Benchmark interest (P88,400 x 12%)
Less: Actual interest charge (P88,400 x 3%)
Difference
P10,608
2,652
P 7,956
FBT (P7,956/68%) x 32%
P 3,744
Problem 6 – 27
Professional Tax Receipts
PICPA Lifetime membership
Goma golf club
Baguio Country Club
Total taxable fringe benefits
D
P
5,440
13,600
68,000
340,000
P427,040
FBT (P427,040/68%) x 32%
P200,960
All membership fees paid by the company in behalf of the comptroller are considered fringe
benefits; hence, subject to FBT.
Problem 6 – 28
A
Hotel accommodation [($1,600- ($300 x 4)] x P50/$1
Personal expenses ($280 x P50/$1)
Total amount of fringe benefits
P 20,000
14,000
P 34,000
Fringe benefit expense (P34,000/68%)
P 50,000
Problem 6 – 29
C
Fringe benefit tax [(P54,400 x 30%) / 68%] x 32%
Problem 6 – 30
B
Fringe benefit expense (P408,000/68%)
Problem 6 – 31
P 7,680
P600,000
A
Zero. The scholarship was obtained through competitive examination.
Problem 6 – 32
1. Letter D
None. Exempt because the educational benefit is related to work. (Employer’s benefit
rule)
2.
Letter B
P65,280 – Only the monetary value is deductible because the benefit is tax-exempt.
Problem 6 – 33
D
Grossed-up monetary value (P170,000/85%)
Multiplied by applicable FBT rate
Fringe benefit tax
Problem 6 – 34
B
P200,000
15%
P 30,000

7. Cash INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
52
Chapter 6: Fringe Benefits Tax
Fringe benefit tax:
Chan (P30,000/75%) x 25%
Lapid (P51,000/68%) x 32%
Total fringe benefit tax withheld
Problem 6 – 35
C
Annual life insurance premium
Amount of loan
Less: Present value at 12% (P1,000,000 x 0.893)
Monetary value of fringe benefit subject to FBT
P10,000
24,000
P34,000
P100,000
P1,000,000
893,000
107,000
P207,000
Problem 6 – 36
C
Insurance premium - VP for Operation (50% x P4,080)
Divided by GMV factor
Grossed-up monetary value
Multiplied by FBT rate
Fringe benefit tax
P 2,040
68%
P 3,000
32%
P 960
Problem 6 – 37
1.
Rice subsidy
Nontaxable uniform and clothing allowance
Employees achievement award
Nontaxable medical allowance to dependents (P125 x 12)
Laundry allowance
Actual medical benefits
Total nontaxable fringe benefits
P12,000
4,000
10,000
1,500
3,600
10,000
P41,100
2.
Car
Divided by grossed-up rate
Grossed-up monetary value
Multiplied by FBT rate
Fringe benefit tax
P214,000
68%
P314,705
32%
P100,705
Note: The new BIR interpretation is that the excess of the actual fringe benefit given
shall be taxable after deducting the de – minimis threshold amount. The excess
amount of fringe benefit shall be subject to withholding tax on wages whether the
recipient employee is a rank-in-file or managerial employee.
Problem 6 – 38
1.
Housing benefit (P12,240 x 110%)
Lions Club membership fee
Total
Divided by grossed-up rate
Taxable amount of FB
P13,464
20,400
P33,864
68%
P49,800
2.
Fringe benefit tax (P49,800 x 32%)
P15,936
3.
Violeta Vicente cannot deduct the FBT from her gross income.
San Miguel Corporation, however, can deduct the entire amount
of grossed-up monetary value amounting to P49,800 from the
gross income of the corporation as fringe benefit expense.

8. 53
Cash INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Chapter 6: Fringe Benefits Tax
Problem 6 – 39
A.
1. Monetary value
P68,000
2.
B.
FBT (P68,000/68%) x 32%
P32,000
1.
Down payment
Add: Present value of P180,000 installment at 18% per
year:
Yr. 1: (P180,000 x 0.8475)
Yr. 2: (P180,000 x 0.7182)
Yr. 3: (P180,000 x 0.6086)
Yr. 4: (P180,000 x 0.5158)
Yr. 5: (P180,000 x 0.4371)
Acquisition cost
Divided by
Monetary value
P200,000
152,550
129,276
109,548
92,844
78,678
562,896
P762,896
5
P152,579
2.
FBT (P1,224,000/68%) x 32%
P 576,000
1.
Annual monetary value = annual depreciation (P1,020,000/25)
P
40,800
FBT (P40,800/68%) x 32%
P
19,200
1.
Monetary value (P244,000 x 50%)
P 122,000
FBT (P122,000/68%) x 32%
1.
Monetary value (P1,360,000 x 5% x 50%)
P 34,000
2.
F.
P1,224,000
2.
E.
Monetary value (P816,000 x 150%)
2.
D.
1.
2.
C.
FBT (P152,579/68%) x 32%
P 71,802
FBT (P34,000/68%) x 32%
P 16,000
P
57,412
Problem 6 – 40
1.
2.
FBT – condominium [(P6,000,000 x 5% x 50%)/68%] x 32%
FBT – car:
Down payment
Present value of P240,000 yearly installment at 12%
(P240,000 x 3.605)
Acquisition cost
Divided by
Monetary value
FBT – car (P233,040/68%) x 32%
Journal entries:
FB expense
Cash / FBT payable
FB expense
Car
Cash / FBT payable
P
70,588
P 300,000
865,200
P1,165,200
5
P 233,040
P 109,666
70,588
70,588
342,706
233,040
109,666

9. Cash INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
54
Chapter 6: Fringe Benefits Tax
Problem 6 – 41
1.
Monetary value – assignment of condominium (P5,000,000 x 5% x
50%)
P 125,000
2.
Grossed-up monetary value of condominium (P125,000/68%)
P 183,823
3.
Fringe benefit tax on the use of condominium (P183,823 x 32%)
P 58,823
4.
Grossed-up monetary value of the car (P500,000/5)/68%
P 147,059
5.
FBT of car (P147,059 x 32%)
P 47,059
6.
None. The cash is a fixed compensation income
7
Zero. Compensation income is subject to normal income tax.