Primordial Construction is engaged in the construction business as a contactor. Due to a shortage of workers,
Question:
Primordial Construction is engaged in the construction business as a contactor. Due to a
shortage of workers, it was not able to meet the targeted turnover for the project with EC
Malls. Primordial is required to to pay the liquidated damages worth 10,000,000 under the
agreed construction contract.
Are the liquidated damages received by EC Mart subject to VAT?
A. Yes. The liquidated damages result in its gross receipts exceeding the threshold of
P3,000,000.
B. No. Because the payment is not in the regular course of trade of business.
C. No. It should instead be subjected to regular income tax. The payment of the liquidated
damages amounts to profit to EC Mart.
D. None of the above
Auditing The Art and Science of Assurance Engagements
ISBN: 978-0133405507
13th Canadian edition
Authors: Alvin A. Arens, Randal J. Elder, Mark S. Beasley, Joanne C. Jones