Dealings in Properties

Chapter 1: Introduction to Financial Management

• Overview of Course

  • Financial management is a key subject in accounting.

  • Focus on significant topics such as income tax, asset classification, and compensation.

• Engagement Activity

  • Students encouraged to share learnings from previous sessions.

Types of Assets

• Ordinary Assets

  • Definition: Assets used in normal business operations.

  • Examples: Real estate, buildings, condos.

  • Tax: Subject to regular income tax.

• Capital Assets

  • Definition: Held for investment or personal use.

  • Tax: Subject to capital gains tax on sale.

  • Examples: Sale of shares or real properties.

• Passive Income

  • Definition: Income generated without active effort.

  • Examples: Prizes, interest, dividends, royalties.

  • Tax: Subject to final withholding tax (10% for specific cases in the Philippines).

Chapter 2: Gross Income and Business Income

• Compensation Income

  • Types: Managerial, rank-and-file employees.

  • Components: Basic salary, allowances, commissions, retirement pay, etc.

  • Tax: Subject to regular income tax depending on classification.

• Fringe Benefits

  • Definition: Added benefits provided to employees.

  • Tax Treatment: 35% final tax for managerial employees; regular income tax for rank-and-file employees.

• Deminimis Benefits

  • Examples: Medical cash allowances, rice subsidies, holiday bonuses.

  • Tax Implication: Generally exempt from tax if within specified limits.

Chapter 3: Computing Gross Income from Business Income

• Principles of Income Calculation

  • Income arises from sale of goods and services.

  • Formula for gross income: Gross sales - Cost of goods sold = Gross income.

• Expenses and Deductions

  • Operational expenses must be accounted for to determine taxable income.

• Bad Debts

  • Definition: Uncollectible accounts due from customers.

  • Accounting Treatment: Written off as an expense which affects taxable income.

Chapter 4: Ordinary Income Tax

• Tax Rate Structure

  • Overview of different tax rates applicable based on income classification.

  • Key takeaway: Capital gains from assets held over one year receive different tax treatment compared to those held under one year.

Chapter 5: Final Income Tax

• Computation Examples

  • How to compute income tax payable on annual earnings, including passive income and capital gains.

Chapter 6: Final Tax Issues

• Final Withholding Tax (FWT)

  • Explanation of final withholding tax as a method for prepaying income tax on certain types of income, like dividends.

Chapter 7: Regular Income Tax Considerations

• Gains from Property Transactions

  • Differentiate between ordinary and capital assets.

  • Capital gains tax implications on property disposals.

Chapter 8: Regular Income Tax Scenarios

• Holding Period Rule

  • Assets held for more than 12 months are taxed differently.

  • net capital losses can carry over to the next year under specific conditions.

Chapter 9: Conclusion and Study Review

• Review of Key Concepts

  • Importance of reviewing all income tax rules and regulations for accurate financial reporting.

  • Students encouraged to practice computations for exams.