Flashcards Studio

(a) State the controlling doctrine on when income is realized and recognized for accrual-basis taxpayers under the NIRC, and briefly describe how it operates.
(b) Luna Co., a sole proprietor, designs, manufactures, and installs a bespoke furniture set for Client Orion. The total contract price is PHP 2,400,000, payable in two stages: Stage 1 – design and prototype, PHP 960,000; Stage 1 completed on November 8, 2024; Stage 1 payment due on November 25, 2024. Stage 2 – fabrication and installation, PHP 1,440,000; Stage 2 completed on January 25, 2025; Stage 2 payment due on February 15, 2025. Assume accrual-basis accounting for income tax purposes and the all-events/earned-right concept. (i) State the controlling doctrine on when income is realized and recognized for accrual-basis taxpayers under the NIRC, and briefly describe how it operates. (ii) Apply that doctrine to Luna Co.’s facts and determine the gross income to be recognized in 2024.
(c) If Luna Co. instead uses the cash-basis method, determine how much gross income is recognized in 2024 and in 2025, assuming Stage 1 payment is received on November 25, 2024 and Stage 2 payment is received on February 15, 2025.