02/2011

First Pre-Board Examination

February 2011
1. This income of a resident citizen is subject to the basic tax (schedular)
a. Compensation for personal injuries and sickness
b. Interest income from foreign currency deposit in PNB
c. Winnings from wagering transactions
d. Royalty income with situs in the Philippines
2. This income of a resident alien is subject to the basic tax (schedular)
a. Fringe benefits given to managerial employees
b. Interest income from Philippine currency deposit in PNB
c. Winnings from PCSO and Philippine Lotto
d. Prizes from SM (P10,000), Rustans (P10,000) and Robinsons (P10,000) or a
total of P30,000
3. The improperly accumulated earnings tax imposed on corporations is
a. Based on the net income per books after tax
b. Based on the net income per books before tax
c. Calculated to encourage corporations to pay dividends
d. 10% of excess retained earnings over the paid in capital
4. This income is subject to final tax
a. Fringe benefits received by rank and file employees
b. Cash dividend received by a non-resident alien from a domestic corporation
c. Marriage fees, baptismal offerings received by a clergyman, evangelist or
religious worker for services rendered
d. Share of a partner from the undistributed net income of a general
professional partnership
5. No additional exemptions can be claimed if the dependent is
a. Recognized natural son who celebrated his 21 st birthday during the taxable
year
b. Legitimate daughter who got married on January 1 of the taxable year, one
day after she turned 21
c. Illegitimate son, minor who died January 1 of the taxable year
d. Legally adopted daughter, 22 years old but incapable of self-support due to
mental defect
6. Amounts receivable by the estate of the deceased, his executor or administrator
as an insurance under policy take by the decedent upon his own life is
a. Excluded from gross income whether the beneficiary is revocable or
irrevocable
b. Part of gross income whether the beneficiary is revocable or irrevocable
c. Excluded from gross income if the beneficiary is irrevocable
d. Part of gross income if the beneficiary is revocable
7. Acting on the information given by A, the BIR seized and confiscated smuggled
goods with a FMV of P15M. As reward will be subject to a final tax of
a. P1.5M
b. P1M
c. P150,000
d. P100,000

8. The deduction allowed for the payment on health and hospitalization insurance of
a qualified resident citizen during the taxable year amounting to P300.00 a month
for the months from April to December is
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a.
b.
c.
d.

P2,700
P2,400
P1,800
P900

9. In 2010, NBC Corporation paid for the annual rental of a residential house used by
its general manager amounting to P136,000. The deductible amount for the rental
and tax paid is
a. P100,000
b. P132,000
c. P168,000
d. P200,000
10.A substantial under declaration of taxable sales, receipts or income, or of
substantial overstatement deduction shall constitute a presumption of false or
fraudulent return. This presumption is
a. Conclusive
b. Absolute
c. Prima-facie
d. Irrevocable
11.A created an irrevocable trust in favour of his 2 minor children. The trust provides
that 50% of the net income should be distributed yearly to the children, share and
share alike, the balance to accumulate for eventual distribution to the children at
age 25. The net income for 2010 was P500,000. The taxable income of the trust is
a. P480,000
b. P500,000
c. P230,000
d. P0
12.The following expenses may be deducted from gross income, except
a. Employers contribution to the Christmas party of his employees
b. Contribution to the construction of a chapel of a university that declares
dividends to its stockholders
c. Premiums paid by the employer for the life insurance of his employees
where the beneficiary is the estate of the employee
d. Interest on taxes
13.Optional standard deduction
a. Is equal to 40% of the gross income from business or practice of profession
b. Cannot be used as deduction from compensation income
c. Maybe availed by all individual taxpayers
d. May be availed of by the taxpayer whether or not he signifies his desire to
elect optional standard deduction
14.M married to , left the Philippines in the middle of the year on July 1, 2009 to go to
USA and work there as a contract worker for two years, the following income
provided as of December 31, 2009:
Philippines
USA
a. January 1 to June 30
P300,000
$10,000
b. July 1 to December 31 P100,000
$20,000
His net taxable income is (1$ = P56)
a. P910,000
b. P350,000
c. P810,000
d. P250,000
15.ABC has an authorized capital stock of P5,000,000 divided into 50,000 shares with
a par value P100 per share. Of the 25,000 shares subscribed, 13,000 will belong
to A, because of additional subscription of 9,500 shares, and to pay his additional
subscription amounting to P950,000. A transferred to the corporation a parcel of
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land that he owns. The investigation conducted by the BIR revealed that A
acquired the property for only P500,000. As taxable gain is
a. P450,000
b. P950,000
c. P500,000
d. P0
16.A, resident citizen, single had the following during the taxable year:
1. Contributions during the year:
a. To the Dept. of Education for priority activity education
Php
100,000
b. To religious and charitable organizations
20,000
c. To victims of typhoon and earthquake
40,000
d. To the government for public purpose
20,000
2. Provisions for bad debts
30,000
3. Accumulated depreciation on machines:
a. Beginning
80,000
b. Ending
100,000
4. Allowance for bad debts:
a. Beginning
75,000
b. Ending
85,000
5. During the year, A sold a machine acquired three (3) years earlier. The
machine had an accumulated depreciation of P300,000
The net income of A before considering nos. 1 to 5 inclusive, amounts to
Php300,000
The taxable income of A is
a. P30,000
b. P40,000
c. P50,000
d. P57,000
17.Recovery of bad debt written off by a taxpayer:
No.1: P20,000 from accounts written off in a year which had a net income of
P200,000 before write off.(write-off of the year was P20,000)
No.2: P5,000 from accounts written off in a year which had a net loss before
write-off of P36,000.
(write-off for the year was P5,000)
No.3: P10,000 from accounts written off in a year which had a net income of
P8,000 before write-off. (write-off for the year was P12,000)
The net income from bad debt recovery is:
a. P35,000
b. P20,000
c. P26,000
d. P30,000
18.Taxation is an inherent power because:
a. It is lifeblood of the government
b. It is about the protection and benefit theory
c. It o-exists with the existence of the state
d. It is exercised for the general welfare of the people

19.A tax is invalid in all of the following, EXCEPT:

a. Theory of taxation is not recognized
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b. Basis of taxation is not recognized
c. Inherent and constitutional limitations are not observed
d. It results to double taxation
20.The government may not do all EXCEPT to:
a. Tax itself
b. Delegate its power to tax to private agencies
c. Impose tax arbitrarily
d. Disregard uniformity in taxation
21.The theory which most justifies the necessity of taxation:
a. Protection and benefits theory
b. Revenue purposes theory
c. Lifeblood theory
d. Ability to pay theory
22.1st statement: Tax impose outside the situs of taxation is void.
2nd statement: International comity is an exception to the territoriality doctrine.
a. True; false
b. False; true
c. True; true
d. False; false
23.The President of the Philippines and the Prime Minister of Malaysia entered into an
executive agreement in respect of a loan facility to the Philippines from Malaysia
whereby it was stipulated that interest on loans granted by private Malaysian
financial institutions in the Philippines shall not be subject to Philippine income
taxes. What basic characteristic of taxation has been violated by this agreement?
a. Inherent limitations
b. Theoretical justice
c. Legislative in character
d. Administrative feasibility
24.Which of the following statements constitutes tax avoidance?
a. Deliberate failure of a taxpayer to pay the taxes due to the government
b. Cannotes fraud through the use of pretenses and forbidden devises to
lessen or defeat taxes
c. Punishable by law
d. Maybe contrary to the intent of the legislature but nevertheless does not
violate the law
25.In which of the following instances may a taxpayer include his income as part of
gross income subject to basic tax at his option?
a. When it involves gain from sale of shares of stock held as capital assets,
and is not traded in the stock exchange and the gain does not exceed
P100,000
b. When a real property held as capital asset is sold to the government or any
of its political subdivision
c. When it involves a gain from sale of shares of stock held as capital assets
and is traded in the stock exchange
d. When the sale involves a personal property held as capital asset

26.Which of the following statements is NOT CORRECT?

a. Income from a general professional partnership is constructively received
by a partner when his share in the net income is credited to his capital
account.
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b. Income from a taxable partnership is constructively received by a partner
in the same taxable year that the partnership determined its net income
after tax.
c. Any distribution of dividend made to individual shareholders of a
corporation shall be considered dividend and income of the taxpayer
subject to final tax in the year received.
d. Any distribution of dividend made to corporate shareholders of a
corporation shall be deemed to have been made from the most recently
accumulated earnings or surplus exempt from income tax.
27.Gross income from within the Philippines of a resident alien subject to final
withholding tax at source
a. Dividend income form resident foreign corporation
b. Share from the net income after tax of a domestic general partnership in
trade
c. Interest income from investments in bonds
d. Gain from sale of capital assets
28.1st statement The power of taxation must first be expressly granted, either by
law or by the Constitution, before the state may validly exercise it.
2nd statement The Philippine government may subject the land where
embassies of foreign governments are located to real property taxes.
a. Both statements are false
b. 1st statement is false while 2nd statement is true
c. 1st statement is true while 2nd statement is false
d. Both statements are true
29.A, rank and file employee, receiving the statutory minimum wage and supporting
an illegitimate child had the following during the taxable year:
a. Salary, gross
Php 120,000
b. Mid-year bonus
10,000
c. 13th month pay
10,000
d. Christmas bonus
10,000
e. Overtime pay
10,000
f. Fringe benefits (paid in cash)
1. Rice subsidy
18,000
2. Uniform and clothing allowance
4,000
3. Actual medicinal benefits
10,000
4. Christmas cash gift
5,000
5. Achievement award (10 years service)
10,000
6. Monetized unused leave credits (10 days)
5,000
g. Deductions made by the employer:
1. SSS premiums contributions
2,000
2. Philhealth premiums contributions
1,800
3. Pag-ibig premiums contribution
1,200
4. SSS loan
3,600
5. Pag-ibig loan
2,400
6. Premiums on health and hospitalization insurance
2,000
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The net taxable income of A is
a. P0
b. P38,000
c. P48,000
d. P58,000

30.Why tax credit is allowed to be availed of by certain taxpayers?

a. To provide incentive thus inducing these taxpayers to report income
derived from abroad
b. To provide relief from the burden of taxation
c. In compliance with commitment to international agreement
d. For citizen doing business outside the Philippines to become competitive
31.One of the following compensation income of an individual taxpayer is NOT an
exclusion from gross income
a. Monetized vacation leave not exceeding 10 days a year
b. Separation pay of an employee who resigned from his employment
c. Retirement benefits of an employee who has worked for an employer for at
least 10 years, who at the time of retirement is not less than 50 years of
age, and who avails of the retirement for the first time
d. De minimis benefits
32-34 ABC Corporation engaged in freight and trucking business received the
following in 2010
Share in net income of the joint venture with XYZ Corp.
P
900,000
Dividend received from KLM Corp., a Domestic Corp.
100,000
Dividend received from NOP Corp., a Non-resident Corp.
10,000
Own net income
1,200,000
32.The net taxable income of ABC Corp. is
a. P1,210,000
b. P2,110,000
c. P2,210,000
d. P1,200,000
33.The total amount of income of ABC Corporation subject to final tax is
a. P1,020,000
b. P1,000,000
c. P1,018,000
d. P0
34.The amount of final tax paid (due) on ABCs income is
a. P102,000
b. P103,000
c. P2,000
d. P0
35.The following are true, except
a. Fringe benefit tax shall be treated as a final income tax in the employee
benefit withheld and paid by the employer
b. The gross up monetary value of the fringe benefit is the actual amount
received by the employee
c. The grossed-up monetary value of the fringe benefit shall be determined by
dividing the monetary value of the fringe benefit by the gross monetary
value factor

02/2011
d. The person liable for the fringe benefit tax us the employer, whether he is
an individual, professional partnership or a corporation regardless of
whether the corporation is taxable or not
36.The law requires that the object of sale must not only be licit but the vendor must
have a right to transfer the ownership thereof:
a. At the time of perfection of the contract of sale
b. At the time the thing is delivered
c. At the time of payment or delivery
d. At anytime after perfection
37.Annulment and not reformation is the remedy if the ground is
a. Accident
b. Fraud
c. Intimidation
d. Mistake
38.Annulment or reformation is the remedy if the ground is (are)
a. Fraud and mistake
b. Violence and undue influence
c. Fraud and inequitable conduct
d. Intimidation and mistake
39.In 2010, A agreed to sell his land and B agreed to pay if C will pass the 2011 CPA
Board Exam. C passes. As a result
Answer I The fruits of the land for the one year period will remain with A
Answer II B will keep the legal interest on his money
a. Both answers are true
b. Only answer I is true
c. Only answer II is true
d. Both answers are false
40.Reformation and not annulment is the remedy if the ground is
a. Inequitable conduct
b. Undue influence
c. Fraud
d. Mistake
41.The defective contracts arranged according to their decreasing validity
a. Void, voidable, rescissible, unenforceable
b. Unenforceable, rescissibble, voidable, void
c. Rescissible, voidable, unenforceable, void
d. Voidable, unenforceable, rescissible, void
42.A, minor sold the property of B his guardian without Bs authority. The property
has a FMV of P1M but the selling price was P600,000. The contract is
a. Rescissible
b. Voidable
c. Unenforceable
d. Void
43.Using
a.
b.
c.
d.

the preceding number, the remedy is

A can ask for annulment
The guardian can ask for annulment
The buyer can ask for annulment
The guardian can just ignore the contract

44.The following, except one are the requisites of cause or consideration in a

contract. Which is it?
a. It must be mentioned in the contract
b. It must not be contrary to law
c. It must exist
d. It should not be false
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45.A owes B P20,000. Thereafter B assigns the credit to C. On due date, can C collect
from B if A cannot pay?
Answer No. 1 No, if the obligation arose from a gambling debt.
Answer No. 2 Yes, if at the time of assignment, the debt has prescribed.
a. True, true
b. True, false
c. False, true
d. False, false
46.If an obligation is modified by changing its object and also changing the principal
condition
a. There is mixed novation
b. The original obligation remains
c. There is real novation
d. There is personal novation
47.P appointed A as his agent orally to sell his parcel of land for P200,000. Ten days
after, A sold the same property for P300,000 to B through a public instrument
executed between A and B. What is the effect and status of the sale between A
and B?
a. The sale is valid because A was authorized and it was executed in a public
instrument
b. The sale is unenforceable, because the agent went beyond the scope of his
authority for selling the land for a price higher than the agreed price
c. The sale is void and cannot be ratified by P
d. The sale can be ratified although the appointment of A was done orally,
because the sale between A and B was in a public instrument
48.A sold his car to B payable in ten equal monthly installments and with a mortgage
constituted on the same property. For Bs failure to pay a months instalment,
which statement is correct?
a. A may foreclose the mortgage on Ds car but he can no longer has the right
to recover the balance should it be sold for an amount lower that what he
claims from B
b. A may seek the cancellation of the sale made to B
c. A may seek fulfilment of the obligation of B to pay the entire purchase price
d. A may seek the cancellation of the sale and later on foreclosure the
mortgage should he find it impossible to collect from B
49.A was obliged to pay B P1M on December 31, 2011, A paid B on December 31,
2010 believing that the obligation was already due and demandable. How much
may A recover from B on March 31, 2012?
a. Nothing
b. Legal interest for one year and three months
c. P1M plus legal interest for one year
d. Legal interest for one year
50.One of the following is considered fraudulent
a. Failure to disclose facts when there is duty to reveal them
b. The usual exaggeration in trade, when the other party had the opportunity
to know the facts
c. Misinterpretation made not in good faith
d. Caveat Emptor or let the buyer beware

02/2011

51.A owes X P50,000 payable on July 31, 2011. S who is not a party to the contract
and without the consent of A paid X the P50,000 on April 1, 2011 when the
prevailing rate of interest was 12% per annum. As a result,
a. S can ask imbursement from A in the amount of P50,000 plus 12% interest
from April 1 to July 31, 2011
b. S can ask reimbursement from A in the amount of P50,000
c. S cannot ask reimbursement from A because the payment by S is without
the consent and against the will of A
d. S can ask refund from X because the payment of S was without the consent
of A
52.When one of the parties to a contract is compelled to give his consent by a
reasonable and well-grounded fear an imminent and grave evil upon his person or
property, or upon the person or property of his spouse, descendants or
ascendants, there is
a. Violence
b. Intimidation
c. Undue influence
d. Mistake
53.The right of a co-owner to redeem the share of his co-owner that has been sold to
a third person in an instance of:
a. Conventional redemption
b. Venta con pacto de retro
c. Legal redemption
d. Pactum commissorium
54.Which of the following statements is legally correct?
a. Specific performance of the obligation is proper only where the obligation
of the debtor is to give
b. Under certain conditions, the performance of an obligation to do may be
required by the creditor
c. An obligation to do is otherwise referred to as a real obligation if it really
exist
d. Even in an obligation not to do, the debtor may incur delay
55.Which of the following is not a ground for annulment of contract?
a. Incapacity to give consent
b. Vitiated consent
c. Lesion
d. Minority
56.A stipulation whereby the creditor automatically becomes the owner of the thing
pledged or mortgaged upon the debtors default in the payment of his obligation
is called
a. Conventional redemption
b. Acceleration clause
c. Pactum commissorium
d. Legal redemption
57.Which of the following statements is correct?
a. The debtors consent is necessary for the validity of the assignment of the
credit made by the creditor to another person
b. On case of doubt, a contract purporting to be a sale with a right to
repurchase shall be construed as a sale on installment
c. The sale of animals suffering from contagious disease is void
d. The sale of a future thing or hope is valid even if the thing or hope does not
come into existence
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58.When the sale of piece of land or any interest therein is through an agent, the
authority of the agent must be:
a. In a public instrument
b. In a private instrument
c. Either in a public or private instrument
d. Duly notarized
59.An agency cannot be revoked in the following cases, except when
a. A bilateral contract depends upon it
b. The agency is for a fixed term
c. It is the means of fulfilling an obligation already contracted
d. The authority is granted to a managing partner through the contract of
partnership
60.An agency couched in general terms comprises only
a. Acts of strict dominion
b. Acts of administration
c. Acts of appropriation
d. Acts of alienation
61.The vendor-a-retro shall be entitled to redeem the object of sale withina. Four (4) years if no period is agreed upon
b. Thirty (30) days from notice of intention to repurchase
c. Ten (10) years if there is a period stipulated
d. The period agreed upon
62.Which one of the following is a common requisite of the remedies of possessory
lien and stoppage in transit of an unpaid seller?
a. Unreasonable delay in payment of the price
b. Goods are in transit
c. Object must be in vendors possession
d. Insolvency of the buyer
63.A bought a residential house and lot from B Realty for P2M giving down payment
of P200,000 and promising to pay the balance of P1.8M in 15 years in monthly
installments of P10,000. After paying 72 installments A defaulted in the payment
of subsequent installments. Despite the grace period given, he was not able to
make any further payments. Accordingly, B Realty cancelled the sale. How much
cash surrender value is A entitled to receive?
a. P552,000
b. P396,000
c. P462,000
d. P506,000
64.A stole goods of Y and deposits the goods to W, a warehouseman, W issued an
order negotiable warehouse receipt for goods. Thereafter, A indorsed the not to B
and B to C, an innocent purchaser for value. Which of the following statements is
correct?
a. C cannot require W to deliver the goods to him
b. W, A and B are liable to C
c. C should first demand delivery from W and if W fails, C must give notice of
dishonour to A and B to make them liable
d. Only A is liable to C

65.If the thing sold had any hidden fault or defect at the time of the sale and should
thereafter be lost by a fortuitous event but the seller is not aware of the defect,
how much can the vendee recover from the vendor, if the selling price on April
19, 2011 is P100,000 and the value when lost in June 29, 2011 is P60,000?
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a.
b.
c.
d.

P100,000
P60,000
P40,000
P0

66.Using the preceding number, except that the loss is through the fault of the
vendee, how much can the vendee recover from the vendor?
a. P100,000
b. P60,000
c. P40,000
d. P0
67.X, Y and Z are joint creditors of A, B and C and D joint debtors in the amount of
_60,000. How much can the vendee recover from the vendor?
a. P100,000
b. P60,000
c. P40,000
d. P0
68.A and B are co-owners of a one hectare rural land. A sold his share to Y. C, an
adjoining land owner is interested in buying the share which A sold to Y. Which of
the following is correct?
a. B can redeem what A sold to Y if Y already owns a rural land
b. B can redeem what A sold to Y even if Y does not own any rural land
c. As adjoining land-owner C has a superior right to redeem what A sold to Y
d. C can redeem what A sold to Y whether or not Y already owns a rural land
69.A obtained an interest free loan od P50,000 from B evidenced by a promissory
note payable in six months after date. At maturity, A called B by phone to ask for
an extension of one month and offer to pay 20% interest on the load. Enticed by
the 20% interest, B agreed to the extension of the maturity. As a result
a. The interest is a demandable interest by virtue of the agreement
b. The interest is unenforceable
c. The loan is valid but the interest is void
d. The loan and interest are both demandable
70.Venus, Bea and Madonna are declared winners in a university-wide beauty
pageant. Before their coronation, Sadam divested them of their precious
belongings by requiring them to sign a deed of sale at the point of a gun. After
the coronation, the three campus beauties went after Sadam for the payment of
the price. The contract is
a. Defective due to vitiated consent
b. Defective due to intimidation
c. Defective due to duress
d. Valid due to ratification

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