PART 5

Partnership

I. Partnership Defined 

A Partnership is defined as "a contract whereby two or more persons bind

themselves to contribute money, property, or industry to a common fund, with the
intention of dividing the profits among themselves". Two or more persons may also
form a partnership for the exercise of profession (Art. 1767 of the Civil Code).
Partnership has a juridical personality separate and distinct from that of each of the
partners. It may be constituted in any form, except where immovable property or real
rights are contributed thereto, in which case a public instrument shall be necessary. 

KINDS OF PARTNERSHIP 

1) General Professional Partnerships – 

A partnership formed by persons for the purpose of exercising their

common profession, no part of income of which is derived from engaging in trade
or business. Under Section 26 of the Tax Code and pertinent revenue regulations, a
GPP is not subject to income tax and consequently to creditable withholding tax.
However, a GPP is required to file income tax return for the purpose of furnishing
information as to the share of each partners in the net income of the partnership
which each partner shall include in his individual income tax return. For this
purpose, the net income of a GPP shall be computed in the same manner as a
corporation. 

It shall be noted, however, that the tax exemption of GPPs shall pertain
only to its ordinary income. Hence, a GPP is subject to final withholding taxes on its
passive incomes as well as capital gains tax. 

Partners shall be liable for income tax only in their separate and individual
capacities. Each partner shall report as gross income his or her distributive share
(actual or constructive) in the net income of the partnership. Income payments
made periodically or at the end of the taxable year made by a GPP to the partners,
such as drawings, advances, sharings, allowances, stipends, etc. is subject to 15%
 creditable withholding tax if the amount of income payment is more than P720,000,
otherwise, 10% (RR 11-2018; TRAIN Law). 

DISTRIBUTIVE SHARE OF THE PARTNERS

For purposes of computing the distributive share of the partners, the net income of the
partnership shall be computed in the same manner as a corporation. (Section 26, RA 8424) 

FORMULA: 
Gross income Pxx
Operating expenses (xx) *Part of returnable
Net income Xx* income of the
Add: Other tax exempt income Xx** partners.
Passive Income subject to final taxes (net) Xx**
Capital gains subject to capital gains tax (net) Xx** **Non-returnable
DISTRIBUTABLE INCOME of the partnership Pxx income of the
x Profit and Loss Percentage of a partner X% partners.
DISTRIBUTIVE SHARE of a partner Pxx

The GPP may claim either:

1) Itemized Deduction; or
2) Optional Standard Deduction (OSD) 

Sample Computation of a Partner's Distributive Share in the net income of a GPP: 

Income from Passive incomes Capital gains
Operations net of FWTx net of CGIs TOTAL
Gross Income-GPP P1,000,000
Allowable deductions 400,000
Net income-GPP P600,000 P80,000 P20,000
P700,000*
x Partner’s P&L % 50% 50% 50%
Share in Income P300,000 40,000 10,000
P350,000**
*Total Distributable Income of the GPP
**Total Distributive share of a Partner

Sample Computation of a Partner's Taxable Net Income: 

Gross compensation income (if any)  P800,000 
Gross business income (if any)  2,400,000
Allowable deductions from gross business income (1,200,000)
Share in the Net income of the GPP***  300,000 
Partner's Taxable Net Income  P2,300,000 
 ***The other incomes of the GPPs as shown above are not included in the computation of a
Partner's taxable net income because those incomes were already subjected to Final
withholding taxes on passive incomes or capital gain tax. 

2) Taxable Partnerships 
Partnerships (other than general professional partnerships, whether registered or not), for
income taxation purposes, are considered as corporations and are therefore taxed as such.
Consequently, partners are considered shareholders, and therefore, profits distributed to
them are considered as dividends subject to final withholding tax. Being a final tax the share
Partnership
of a partner in the net income of a partnership subject to tax is not returnable in the
partner's personal income tax return. Distributive Share is equal to each partner’s
distributive share of the net income declared by the partnership for a taxable year net of tax.

TYPES:
 General Co-Partnerships- are partnerships, which by law are assimilated within the
context of, and so legally contemplated as corporations.
 Unregistered business partnerships
 Unregistered joint ventures 

Computation of Distributive Share in the net income of a General/Commercial/Taxable

Partnership:
Gross income Pxx
Allowable deductions/operating expenses (xx)
Net income xx
Less: Corporate Tax_ (xx)
Net income after corporate tax xx
Add: Tax exempt income  xx
Passive Income subject to final taxes (net)  xx
Capital gains subject to capital gains tax(net) xx
DISTRIBUTABLE INCOME of the partnership Pxx
x Profit and Loss Percentage of a partner
x%
DISTRIBUTIVE SHARE of a partner  ***subject to final
Pxx** withholding tax on
* dividend income

Sample Computation of a Partner's Distributive Share in the net income of a GP: 

Income from Passive Capital gains
incomes
Operations net of FWTx net of CGTs TOTAL
Gross Income-GP P1,000,000
Allowable deductions 400,000
Net income-GP P600,000
30% RCIT* (180,000)
Net Income after Tax P420,000 P80,000 P20,000 P520,000**
x Partner’s P&L % 50% 50% 50%
Share in Income P210,00 P40,000 P10,000 P260,000***
0
*A General Partnership is subject to RCIT or MCIT, whichever is higher
**Total Distributable Income of the GPP
***Total Distributive share of a Partner. The partner’s share is treated as dividend income from
a domestic corporation, hence, subject to final withholding tax on dividend income.

Consequently, this amount shall not be included in the computation of a Partner’s taxable net
income.

Sample Computation of a Partner’s Taxable Net Income:

Gross compensation income (if any) P800,000
Gross business income 2,400,000
Allowable deductions from gross business income (1,200,000)
Share in the Net income of the GP NA
Partner’s Taxable Net Income P2,000,000

ALLOWED DEDUCTIONS TO PARTNERS of a GPP FROM THEIR DISTRIBUTIVE SHARE IN ARRIVING

AT NET TAXABLE INCOME
The following rules shall govern the claim of the partners of deductions from their share in the
net income of the partnership, viz.: (RR No. 2-2010) 

PRIOR to TRAIN LAW UNDER TRAIN LAW

1) If the GPP availed of the itemized deduction in 1) same 
computing its net income, the partners may still claim
itemized deductions from said share, provided, that in
claiming itemized deductions, the partners are
precluded from claiming the same expenses already
claimed by the GPP. 

2) If the GPP availed of the itemized deduction in 2) same 

computing its net income, the partners may still claim
itemized deductions from said share, provided, that in
claiming itemized deductions, the partners are
precluded from claiming the same expenses already
claimed by the GPP. 

3) If the GPP avails OSD in computing its net income, the 3) same 
partners can no longer claim further deduction from
 their share in the said net income. 

4)  The type of deduction (itemized or OSD) chosen by the 4) The partners are free to
GPP must be the same type of deduction that can be choose between
availed of by the partners.  itemized or optional
standard deduction,
5) If the partner also derives other gross income from regardless of the type of
trade, business or practice of profession apart and deduction chosen by the
distinct from his share in the net income of the GPP, GPP 
the deduction that he can claim from his gross income
would follow the same deduction availed of from his
partnership income. Provided, however, that if the 5) Same with item #4 
GPP opts for the OSD, the individual partner may still
claim 40% of its gross sales/receipts from trade,
business or practice of profession but not to include
his share from the net income of the GPP. 
 --------------------------------QUIZZER……………………...……………..

Choose the letter of the correct answer. 

1. Partnership is formed by persons for the sole purpose of exercising their profession, no part of
the income of which is derived from engaging in any business. 
a Joint venture
b. General professional partnership
c. Trading partnership
d. Joint accounts 

 Answer: B 

2. A general professional partnership is exempt from income tax, but is required to file an income
tax return 
a. For statistical purposes.
b. Because the net income of the partnership will be traced into the income tax return
of the partners. 
c. Because all income earners are required to file income tax returns.
d. None of the above. 

 Answer: B 

3. For purposes of taxation, partnership is 

I. Classified into two major categories, partnership in trade and general professional
partnership.
II. Partnership in trade is treated as corporate taxpayer.
III. General professional partnership is exempt from income tax 
a. I, II and III  c. I and III only
b. I and II only  d. I only 

 Answer: A 

4. Statement 1: All partnerships are taxed in the same manner as corporation.

Statement 2: The income of a general commercial partnership is also subject Regular Corporate
Income Tax whichever is applicable. 
a Statements 1 & 2 are false
b. Statement 1 is true but statement 2 is false
c. Statement 1 is false but statement 2 is true
d. Statement 1 and 2 are true

 Answer: C 
5. Which of the following statements is false? 
a. Registered general professional partnerships are subject to income tax.
b. A partners' share in the net profits of a general professional partnership is
not compensation income.
c. A limited partnership is considered, for tax purposes, a corporation and the partnerships
thereof likened to stockholders.
d. Tax income taxation rules application to corporations likewise apply to
informal partnerships. 

 Answer: A 

6. A taxable partnership may be subject to the following taxes: 

I. Minimum corporate income tax
II. Regular corporate income tax
III. Improperly accumulated earnings tax. 
a l, ll and III c. I and III only
b. I and II only d. I only 

 Answer: B 

7. Which of the following statements is wrong? 

a. A general partnership in trade is not taxable as a corporation.
b. A joint venture for undertaking construction projects is not taxable as a corporation.
c. A consortium for energy operations pursuant to an operating consortium agreement under
a service contract with the government is not taxable as a corporation.
d. A co-ownership where the activities of the co-owners are limited to the preservation of
property and collection of income from the property is not taxable as a corporation. 

 Answer: A 

8. Pedro and Ana contributed money and purchased five (5) hectares of land in 2017. In the same
year, they sold the land a higher price. In 2018 they bought a bigger parcel and sold it after three
(3) months at double the price. They paid the corresponding capital gains taxes.
Q1: Have they formed an unregistered partnership subject to tax?
QZ: Are their respective shares in the income taxable to them? 
a. Yes, Yes  c. Yes, No
b. No, Yes  d. No, No 

 Answer: B
 The purchase and subsequent sale of subsequent sale of a bigger parcel of
land was isolated. Hence, they are taxable on their own capacity as individual
taxpayers. 
9. When their parents died, Romeo and Juliet inherited five (5) hectares of land in Isabela. They
decided to invest capital and developed the land into a subdivision being sold either on
installment or cash basis
Q1: Is a partnership created by Romeo and Juliet?
Q2: Are they subject to final tax on their respective share in the income 
a. Yes, No  c. Yes, Yes
b. No, Yes  d. No, No 

 Answer: C 

10. Statement 1: A CPA and a Dentist may form a GPP or an ordinary partnership. 
Statement 2: Partnership and Corporation have separate juridical personalities from the
owners.
a. Statements 1 & 2 are false 
b. Statement 1 is true but statement 2 is false
c. Statement 1 is false but statement 2 is true
d. Statements 1 and 2 are true 

 Answer: C
 Statement 1 is false. They can form an ordinary partnership but not a GPP because
they have different professions. 

11. Statement 1: A Partner of a GPP is not required to include in his personal gross income his
share in the distributable income of the GPP 

Statement 2: Corporations may form a taxable partnership but not a GPP.

a. Statements 1 & 2 are false
b. Statement 1 is true but statement 2 is false
c. Statement 1 is false but statement 2 is true
d. Statements 1 and 2 are true 

 Answer: A
 Statement 1 is false. Share in the income of a GPP is a returnable income or ordinary
income which shall be included in the partner's ITR.
 Partnership is a contract. It is perfected through meeting of the minds.
Hence, corporations and other juridical persons cannot form a partnership because they
are incapable of giving consent. However, juridical persons may form a joint venture. 

12. Statement 1: The distributive share of a partner in the net income of a taxable partnership is
equal to each partner's distributive share of the net income declared by partnership for a taxable
year after deducting the corresponding corporate tax. 
Statement 2: If a taxable partnership sustains net operating loss, the partners entitled to deduct
their respective shares in the net operating loss from the gross income.
 a. Statements 1 & 2 are false
b. Statement 1 is true but statement 2 is false 
c. Statement 1 is false but statement 2 is true
d. Statements 1 and 2 are true 

 Answer: B 

13. Statement 1: For purposes of computing the distributive share of the partners of a general
professional partnership, the net income of the partnership shall be computed in the same
manner as a corporation. 

Statement 2: Partners of a taxable partnership are considered as shareholders and profits

distributed to them by the partnership are considered as dividends.
a. Statements 1 & 2 are false
b. Statement 1 is true but statement 2 is false 
c. Statement 1 is false but statement 2 is true
d. Statements 1 and 2 are true 

 Answer: D 

14. The partner's share in the profits of a general professional partnership is regarded as received
by the partners although not yet distributed. This concept of income reportin g under the Tax
Code is known as:
a. Installment basis of reporting income
b. Accrual basis of reporting income
c. Constructive receipt basis of reporting income
d. Hybrid method of reporting income 

 Answer: C 
15. Statement 1: If the amount to be distributed to a partner of a GPP is more than P720,000 , it
is subject to 15% creditable withholding tax. 

Statement 2: The share of a partner in a GPP is subject to final withholding tax of 10% if the
amount is below P720,000 . 

Statement 3: The distributive share of a partner in a commercial partnership is subject to final

tax.
a. Statements 1, 2 and 3 are false
b. Only statement 3 is false
c. Only statement 2 is false
d. Statements 1, 2 and 3 are true 

 Answer: C 
16. Statement 1: A GPP shall not be subject to Income Tax. 
Statement 2. Income payments to a GPP shall be considered exempt from withholding tax 
a. Statements 1 & 2 are false
b. Statement 1 is true but statement 2 is false 
c. Statement 1 is false but statement 2 is true
d. Statements 1 and 2 are true 

 Answer: D 

17. Which of the following options is correct? 

Part of distributable Returnable Subject to
income of the income of the CWTx
partner partner
SHARE IN TNE INCOME OF
GGP:
a. From its operations Yes Yes No
b. From its passive income Yes Yes No
c. From its capital gains No No No
subject to CGT.
d. From its tax exempt income Yes No No

 Answer: D
 “A” is wrong. Share in income from GPP's operations is subject to CWT. 
 “B” is wrong. Share from the GPP's passive income is non-returnable income of the
partner.
 “C” is wrong. Share in GPP's capital gains subject to CGT is part of the distributable
income of the partner. 

18. Which of the following options is correct? 

Part of distributable Returnable Subject to
income of the income of the FWTx
partner partner
SHARE IN TNE INCOME OF
COMMERCIAL PARTNERSHIP:
a. From its operations Yes No No
b. From its passive income Yes No Yes
c. From its capital gains No No No
subject to CGT.
d. From its tax exempt income Yes No No

 Answer: B
 “A” is wrong. Share in income from GP's operations is subject to FWT.
  "C" is wrong. Share from the GP's capital gains subject to CGT shall be part of
the distributable income and shall be subject to FWT.
 "D" is wrong. It shall be subject to FWT 

19. Statement 1: The share of the partner in the gross income of the GPP is added to his own
gross income.
Statement 2: The share of the partner in the net income of a GPP is also considered passive
income.
a. Statements 1 & 2 are false 
b. Statement 1 is true but statement 2 is false
c. Statement 1. is false but statement 2 is true
d. Statements 1 and 2 are true 
 Answer: B 
 Share in income of a GPP is treated as ordinary income subject to basic tax. Share in
income of a GP is treated as a dividend income, a passive money subject to a final
withholding tax. 

20. Statement 1: Co-ownership and partnership are similar as to taxability,

Statement 2: Corporations and ordinary partnerships are similar as to taxability.
a. Statements 1 & 2 are false
b. Statement 1 is true but statement 2 is false
c. Statement 1 is false but statement 2 is true
d. Statements 1 and 2 are true 

 Answer: C
 Statement 1 is false. Co-ownership is non-taxable while a partnership is
generally  taxable as corporation.
 Statement 2 is correct. Ordinary partnership or general partnership, for income taxation
purposes, is taxable as a corporation. 

21. Prior to the effectivity of the TRAIN Law, If the GPP chooses itemized deductions, the 
partners comprising it must also claim itemized deductions under RR 2-2010, which are in the
nature of ordinary and necessary expenses for the practice of profession that were “not claimed
by the GPP” during the year such as: 
a. Representation expenses incurred by the partner where the covering receipt
or invoice is issued in his name.
b. Travelling expenses while away from home which were not liquidated by
the partnership
c. Depreciation of a car used in the practice of profession where said car is registered in
the name of the partner:
d. All of the above 

 Answer: D 
22. Which of the following statements is incorrect assuming the taxable year is prior to 2018?
a If the GPP avails of the OSD in computing its net income, the partners can no longer
claim further deductions from their share in the net income of the GPP
b. OSD covers or in lieu of the itemized deductions allowed to both the GPP or the
“partner(s)
c. Both "a" and "b"
d. Neither “a” nor “b” 

 Answer: D 

23. Statement 1: Under RA10963, an individual partner of a GPP applying optional

standard deduction is not allowed for any deduction on his distributive shares.
Statement 2: Under RA10963, an individual partner of a GPP may avail of 8% tax on his
distributive share, in lieu of graduated tax rate. 
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect 

 Answer: A 

24. Statement 1: GPP's may claim the 40% OSD in the determination of distributable income.
Statement 2: A GPP is subject to income tax. 
a. Only statement 1 is correct
b. Only statement 2 is correct 
c. Both statements are correct
d. Both statements are incorrect 
 Answer: A 

Use the following data for the next four (4) questions:
Bobadilla, Trinidad and Company (BTC) is a general professional partnership, with Bobadilla,
married, and Trinidad, single, participating equally in the income and expenses. The following are
the data for the partnership and the partners during 2017 taxable year: 

BTC Partnership Bobadill Trinida

a d
Gross revenue/sales P1,000,000 P400,000 P350,000
Cost of direct services/sales 400,000 250,000 150,000
Expenses 350,000 70,000 120,000

Additional information:
 Bobadilla uses his personal car in going to meetings with various clients. His expenses to
such meetings amounted to P35,000 . The said amount was not included in the expenses
claimed by the partnership.

25. The distributive share of Bobadilla from the partnership profit is: 
a. P300,000 c. P640,000
b. P125,000 d. P30,000 

 Answer: B
Solution: 
Gross revenue P1,000,000
Cost of direct services (400,000)
OPEX (350,000)
GPP's net income P250,00
0
Divide 2
Distributive share/partner  P125,00
0

26. The taxable income of Bobadilla is: 

a. P220,000 c. P155,000
b. P120,000 d. P30,000 

 Answer: B 
Share in GPP's income P125.000
Bobadilla's Gross sales 400,00
0
Cost of direct services (250,000)
OPEX  (70,000)
Additional expenses (35,000)
Basic exemption **  (50,000)
Taxable net income P120,000 
 **Personal
exemptions are still allowed prior to the effectivity of TRAIN Law.
 The additional expenses incurred by Bobadilla amounting to P35,000 is allowable
deduction from the gross income of the partner provided such expenditures were
not yet claimed by the GPP and that the GPP is using itemized deductions. 

27. The taxable income of Bobadilla if the Partnership is engaged in trade or business is: 
a. P220,000 c. P155,000
b. P120,000 d . P30,000 

 Answer: D 
Bobadilla's Gross sales 400,000
 Cost of direct services (250,000
)
OPEX  (70,000
)
Basic exemption** (50,000
)
Taxable net income P30,000 

 The share in income of a GP or commercial partnership is a non-returnable

income of the partners. It shall be treated as a dividend income (passive income)
subject to FWT. 

28. The taxable income of Bobadilla if the Partnership opted to use Optional Standard Deduction
is: 
a. P220,000  c. P155,000
b. P120,000 d. P370,000 

 Answer: D 
Solution: 
GPP's Gross Income (P1M – 400k)  P600,000 
X 60% 
GPP's net income using OSD P360,000
Divide 2
Share in GPP's income per partner P180,000 
Bobadilla's Gross sales  P400,000
X 60% ***
Bobadilla's net income from business P240,000
Basic exemption (50,000 190,00
) 0
Taxable net income  P370,000

 *** Prior to the effectivity of the TRAIN Law, if the GPP chooses itemized deductions,
the partners comprising it must also claim itemized deductions If GPP chooses OSD, the
partners shall likewise use OSD. Under the TRAIN Law, the partners may choose
between itemized or OSD. 
 OSD is in lieu of itemized deductions (OPEX).
 OSD is 40% of gross income if the taxpayer is a corporation or partnership However, in
case of individual taxpayers or partners of a GPP, the 40% OSD shall be based on gross
sales or receipts. 
Use the following data for the next five (5) questions:
Garcia, Ramos, Toribio and Co., CPAS (GRT & Co.), are partners of an accounting firm. The 2018
financial records of the firm disclosed the following: 
Service Revenue  P4,490,000
Cost of Services  1,610,000
Operating expenses  800,000
Rental income  500,000
Interest income from bank deposit  200,000
Interest income from from FCDS deposit 280,000

Ramos is also engaged in business with the following data for the year: 
Sales P2,500,000
Cost of Services 1,250,000
Operating 550,000
Expenses

29. How much is the distributable income of the GPP? 

a. P992,667  c. P2,578,000
b. P1,019,333 d. P2,978,000 

 Answer: D
Net income of the firm firm (4,490k-1,610k-800k+500) P2,580,000
Interest income from bank deposit, net (P200,000 x 80%) 160,000
Interest income from FCDS transaction, net (P280,000 x 85%) 238,000
Total distributable income of the GPP P2,978,000
Divide 3
Distributive share/partner  P992,66
7 

30. How much is the distributive share of each partner in the total income of the GPP? 
a. P992,667  c. P2,578,000
b. P1,019,333 d. P2,976,000 

 Answer: A 

31. How much is the taxable income of Ramos in 2018? 

a. P860,000  c. P1,560,000
b. P1,510,000 d. P2,580,000 

 Answer: C 
Solution: 
Net income from GPP's operations P2,580,000
 Divide by 3
Share in GPP's ordinary income per partner P860,00
0
Add: Ramos' own net income (2.5M-1.25M-550k) 700,000
Taxable net income of Ramos P1,560,000

 The partners' share in the other income of the GPP (i.e., subj. to FWT and CGTs) are non-
returnable income of the partners. 

32. How much is the taxable income of Ramos in 2018 assuming GRT & Co. opted to use Optional
Standard deduction? 
a. P1,376,000  c. P1,692,000

b. P1,426,000  d. P1,860,600 

 Answer: "A"
Solution: 
GPP's Gross Income (4,490K-1,610k+500k)  P3,380,000
X 60
%
GPP's net income under OSD P2,028,000
Divide 3
Share of Ramos in the ordinary income of the GPP P676,00
0
Add: Ramos' own net income (2.5M-1.25M-550k) 700,000
Taxable net income of Ramos  P1,376,000

 Under the TRAIN Law, the partner may use either itemized deduction or OSD.
 Under the TRAIN Law, apply OSD only if the taxpayer indicated the same in its ITR.
Hence, unless clear, itemized deduction must be applied. 

33. How much is the taxable income of Ramos in 2018 assuming the GPP and the partner opted
to use Optional Standard deduction? 
a. P1,376,000 c. P1,692,000
b. P1,426,000  d. P2,176,000 

 Answer: "D" 

Solution: 
GPP's Gross Income (4,490K-1,610k+500k)  P3,380,00
0
x 60%
 GPP's net income under OSD P2,028,00
0
Divide 3
Share of Ramos in the ordinary income of the GPP P676,00
0
Add: Ramos' own net income using OSD (P2.5M X 60%) 1,500,00
0
Taxable net income of Ramos  P2,176,00
0

 The basis of OSD for individual taxpayers is either Gross Sales or Receipts 

34. TGT & Co. is a general partnership in trade and on its fifth year of operations. During current
taxable year, it had a gross profit from sales and business expenses P2,000,000 and P1,000,000,
respectively. T, G, and T share equally in the profits a losses of the partnership. The income tax
due of the partnership is: 
a. P 40,000  c. P640,000
b. P300,000  d. P 0 

 Answer: B 
GP's Gross Income P2,000,000
OPEX (1,000,000)
Net income  P1,000,000
x 30%
Income Tax Due  P300,000

35. The income tax payable of the partners as a consequence of being a partner in
the Partnership is: 
a. P 0  c. P77,000
b. P68,000  d. P70,000 

 Answer: A 
 Partners' share in the net income of a GP is treated as dividend income, s ubject to
FWT. Hence, the amount received by the partners are net of the applicable tax on
the income they received. Final tax withheld constitute full payment of the tax due. 

36. TG Partnership reported for a year net profit from trading amounting to P800,000. The other
income included interest income of P8,000, net of 20% final withholding tax, and dividend
income from domestic corporation of P20,000. Assuming T and G share profits and losses
equally, how much is the final withholding tax on the distributive share of T in the earnings of
that partnership? 
a. P28,700  c. P28,000
 b. P28,600  d. P29,400 

 Answer: D 
GP's net profit, net of RCIT (P800,000 x 70%) P560,000
Interest income net of FWT 8,000
Dividend income (tax exempt) 20,000
Total distributable income P588,000
Divide 2
Share in income of the GP (per partner) P294,000
x tax rate 10%
Income Tax Due  P29,400

37. Juan and Ponce are partners in a business partnership sharing profits and losses in the  ratio
of 55:45. The following data on income and expenses of the partnership for 2018 show: 
Gross income  P750,000
Expenses  200,000
Dividend received from a domestic corporation  20,000
Bank interest income, Metrobank (gross of  100,000
withholding tax) 

What are the correct amounts of final taxes withheld on the respective shares of 
Juan and Ponce in 2018 partnership income? 
Juan Ponce
a. P21,175 P17,325
b. 26,675 21,825
c. 25,025 20,475
d. 25,116.50 20,587.50

 Answer: B 
GP Juan Ponce
GP's gross income P750,000
OPEX (200,000)
GP's net income  P550,000
X 70%
GP's net income, net of tax P385,000
Interest income net of FWT 80,000
Dividend income 20,000
Total distributable income of the GP P485,000
x share in income 55% P266,750
x share in income 45% P218,250
x tax rate 10% 10%
FWT P26,675 P21,825
38. In 2018, Louie and Floyd are partners in the following partnership: 
Business 
Partnership  GPP
Gross income  P800,000  P500,000
Deductible expenses  420,000  375,000

Personal Income and Expenses:  Louie Floyd

Gross income  P 325,000 P 380,000
Deductible expenses  117,000 205,000
Dividend from domestic corporation 25,000 30,000
Dividend from domestic corporation 12,000 8,250
Prize, supermarket raffle 15,000 7,500
Royalty, books  10,000 18,000

Additional Information:
Partners agreed to share partnership income and losses as follows: Louie = 30%
(married with 2 dependent children); Floyd = 70% (single but supporting her 15 year
old sister living with and dependent upon him for chief support).

39. Determine the income tax payable of the:

Business Partnership GPP
a. P114,000 Exempt
b. P114,000 P114,000
c. Exempt P114,000
d. 380,000 P125,000

 Answer: A
Solution: 
Business
Partnership GPP
Gross income P800,000 P500,000
Deductible expenses (420,000) (375,000)
Net or Taxable income P380,000  P125,000 
Tax rates 30% -
Income tax due/payable  P114,000  EXEMPT 

40. Determine the income tax payable of:

Louie Floyd
a. P1,500 P5,650
b. P5,650 P1,500
 c. P257,500 P278,250
d. 1,500 P4,000

 Answer: A 
LOUIE AND FLOYD LOUIE FLOYD
Gross Income P 325,000 P 380,000
Deductible expenses (117,000) (205,000)
Dividend from foreign corporation 12,000 8,250
Prize, supermarket raffle - 7,500
Share in income of GPP 37,500 87,500
Taxable income P257,500 P278,250
Income tax payable (TRAIN Law) P1,500 P5,650

NOTE: 
 The share in the net income of the business partnership, the dividend income from a
domestic corporation and royalty from books are subject to a final tax rate of 10%.
 The prize in a supermarket raffle by Louie (more than P10,000) is subject to 20% mina
tax