Northern CPAR: Business Laws and Taxation – 2nd Pre-Board Examination

NORTHERN CPA REVIEW

4th Floor Pelizloy Centrum, Lower Session Road Baguio City
Mobile Numbers: SMART 09294891758 & GLOBE 09272128204
E-mail: ncpar@yahoo.com
A. DOMINGO & R. BANGGAWAN

2nd PRE-BOARD EXAMINATION – BUSINESS LAWS & TAXATION

Instruction:
Indicate the letter of your choice in the answer sheet provided for. No
erasure allowed.

Multiple Choices Questions:

1. Quasi – traditio is equivalent to

a. Traditio longa-manu
b. Traditio brevi – manu
c. Traditio constitutum possessorium
d. Execution of a public instrument

2. A borrowed 100,000 from B, and as a security, A pledge his ring to B.

After the obligation falls due, A goes to B relinquishing ownership of
the ring in favor of B. This is
a. caveat emptor c. pactum comisorio
b. dacion en pago d. pacto de retro

3. ••In mutuum or loan, one of the parties delivers to another something not
consumable so that the latter may use the same for a certain time and
return it
••Mutuum is essentially gratuitous
a. Both are True c. only the first is true
b. Both are False d. only the second is true

4. ••In commodatum one of the parties delivers money or consumable thing

upon the condition that the same amount of the same kind and quality
shall be paid
••In commodatum and mutuum ownership of the thing loan is transferred to
the borrower
a. Both are True c. only the first is true
b. Both are False d. only the second is true

5. ••The bailee in commodatum can lend or lease the object of the contract
to a third person
••When there are two or more bailees to whom a thing is loaned in the
same contract, they are liable jointly
a. Both are True c. only the first is true
b. Both are False d. only the second is true

6. ••A contract of deposit must be in writing

••The depositary can make use of the things deposited even without the
express permission of the depositor
a. Both are True c. only the first is true
b. Both are False d. only the second is true

7. ••Fixed, savings, and current deposits of money in banks and similar

institutions shall be governed by the provisions concerning simple loan
••The depository can demand that the depositor prove his ownership of the
thing deposited
a. Both are True c. only the first is true
b. Both are False d. only the second is true

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8. Which of the following statements is incorrect?
a. Partnership creditors are preferred as to partnership assets.
b. Partnership creditors are preferred as to each partner’s separate
assets.
c. A partner’s separate creditors are preferred as to the partner’s
separate assets.
d. A partner’s separate creditors may attach a partner’s share in the
partnership assets.

9. In three of the following wrongful acts of partners, the partnership is

solidarily liable with all the partners to third persons. Which one is
the exception?
a. For loss or injury cause to a third person by reason of the wrongful
act or omission of a partner acting in the ordinary course of
business.
b. Where a partner acting within the scope of his apparent authority
receives money or property of a third person and misapplies it.
c. Where the partnership receives money or property of a third person in
the ordinary course of business and such money or property is
misapplied by a partner while it is in the custody of the partnership.
d. For loss or injury caused to a third person by reason of the use of
partnership property by a partner for personal purpose.

10. A skinny man Raymond who is presumed by his neighbors to be sane

mortgaged his 1950 old yellow door less car to Zeus, who is a striking
and good-looking in his thoughts, as security for a loan. Failing in the
payment of the loan, Zeus foreclosed the chattel mortgage and sold the
car at public auction. In case of deficiency, is Raymond liable for it ?
a. Yes, in the absence of contrary stipulation.
b. No, because it would be unjust enrichment on the part of creditor.
c. Yes, if so agreed upon by the parties.
d. No, unless stipulated.

11. Based on the preceding case, suppose it was a pledge, would the
debtor/pledgor be liable for the deficiency?
a. No, notwithstanding stipulation to the contrary.
b. No, unless otherwise stipulated.
c. Yes, if so agreed upon.
d. Yes , even in the absence of the stipulation.

12. A, B, C are co-owners of a parcel land. A sold his share to B. Can C

redeem the said share from B?
a. No, unless he was prior to its perfection.
b. No, legal redemption applies only if the interest was alienated by
onerous title to a third person.
c. Yes, because the law frowns upon co-ownership.
d. Yes, provided he pays B the price, expenses of the sale and necessary
and useful expenses on the thing sold.

13. A and B are co-owners of a parcel land. A donated his share to C. Can
B redeem the said share from C?
a. Yes, because the law looks with disfavor at co-ownership.
b. No, because legal redemption applies only in case of onerous
alienation.
c. No, but in proportion to his interest in the land as co-owner.
d. Yes, but in proportion to his interest in the land as co-owner.

14. ••If two or more principal appointment a single agent for a common
transaction, the liability of the former shall be solidary.
••If two or more agents appointed by a single principal are jointly
liable unless solidarity is stipulated.
a. Both statements are false. c. First is false, second is true.
b. Both are true. d. Second is false, first is true.

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15. A, B, C entered into an oral contract of partnership each contributing
P1M each to the common fund plus other personal properties of the same
amount and failed to register the partnership with the SEC. Is the
partnership valid?
a. No, because every contract of partnership having a capital of three
thousand pesos or more in money or property must be in public
instrument and registered with the SEC.
b. Yes, because public instrument is necessary only in case of
contributions of immovables.
c. Yes, because a partnership contract can always be oral.
d. No, because registration with the SEC is essential for a partnership
to be valid and acquired juridical personality.

16. A and B are partners in NCPAR partnership. While A was performing his
duties as a partner in the conduct of the business, he negligently caused
damaged to X, a third person. Who shall be liable to X and in what
capacity?
a. Only the partnership shall be liable it being a juridical person
separate and distinct from the partners.
b. b. Only A shall be liable for he is the only one at fault.
c. c. Both A and B shall be liable solidarily to X.
d. A, B, and the Partnership are all liable solidarily to X.

17. Which of the following is not a prohibition on a limited partner?

a. Surname of a limited partner may not appear in the partnership name.
b. Limited partner may not take part in the control of the business.
c. Limited partner may not contribute services.
d. Limited partner may not constitute his assignee as substitute limited
partner.

18. A contract in which a person literally contracts with himself is

a. Adhesion contract c. Accessory contract
b. Auto contract d. Unilateral contract

19. A partner can engage in business for himself without the consent of
his co-partners if he is:
a. A capitalist partner whether or not the business he will engage in is
of the same kind as or different from the partnership business.
b. An industrial partner whether or not the business he will engage in is
of the kind as or different from the partnership business.
c. A capitalist partner and the business he will engage in is of a kind
different from the partnership business.
d. An industrial partner and the business he will engage in is of a kind
different from the partnership business.

20. A, 17 years old, sold to B, of legal age, her necklace worth P20, 000
for P15, 000. Later, B sold the necklace to C for P20, 000. Which of
the following statements is correct?
a. A has got a voidable title because at the time of sale, she is a minor
b. A can ask for rescission of the sale to C because she suffered a
lesion of more than ¼ of the value of the property
c. If C is in bad faith, C becomes the owner of the necklace upon
delivery to him but his title is voidable
d. A can ask for the annulment of the sale to C because at the time of
sale is a minor

21. One of the following is not correct

a. Thing subject to a resolutory condition may be the object of the
contract of sale
b. A thing is generic when it is particularly designated or physically
segregated from all others of the same class
c. Things having a potential existence may be the object of the contract
of sale
d. The sole owner of a thing may sell an undivided interest therein

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22. The redhibilitory action based on the faults or defects of animals
must be brought within
a. 30 days from delivery
b. 45 days from delivery to the vendee
c. 40 days from delivery to the vendee
d. 6 months from delivery to the vendee

23. A sold to B orally a parcel of land for P200, 000. Traditio was made
of the land. The payment of the price was to be made three months later.
At the end of the three month period
a. B may refuse to pay claiming in his defense the Statute of Frauds
b. B may return the parcel of land to A
c. A can collect from B because the contract has already been executed
d. B may refuse to pay on the ground that there is no written contract to
support the sale

24. A contract of sale whereby the seller acquires the right to redeem or
repurchase the object of the sale from the buyer within a certain period
agreed upon
a. Equitable mortgage c. On sale or return
b. Absolute sale d. Pacto de retro sale

25. Which of the following statements is false when no one among the
partners was appointed as manager?
a. Each partner will be considered as agent of the partnership.
b. Any one may make an important alteration in the immovable property of
the partnership without the consent of the others provided it is
useful to the partnership.
c. In case the act of one partner is opposed by another, the decision of
the majority of the partners will prevail.
d. In case of a tie in the voting, the tie shall be resolved by the vote
of the partner owning the controlling interest.

26. If redemption is to be made by the seller, one of the following need

not be given to the buyer
a. Expenses of the contract
b. Interest on the price of the sale
c. Necessary expenses on the thing sold
d. Price of the sale

27. The following are characteristics of a contract of agency, except:

a. Consensual c. Innominate
b. Principal d. Bilateral

28. In real estate mortgage, the mortgagor can sell the property mortgaged
a. Only if with the oral consent of the mortgagee
b. Only if with the written consent of the mortgagee
c. If not prohibited to sell
d. Even without the consent of the mortgagee

29. Which of the following stipulation is valid?

a. A stipulation excluding a capitalist partner from profits.
b. A stipulation exempting a capitalist partner from losses.
c. A stipulation exempting an industrial partner from losses.
d. A stipulation excluding an industrial partner from profits.

30. Torres is indebted for P5,000.00 to MACE Trading Company, a

partnership managed by Mendoza to whom Torres also owes P10,000.00. The
two debts which are both demandable are unsecured. Torres remits
P4,500.00 to Mendoza in payment of his debt to him. Accordingly, Mendoza
issues a receipt for his own credit. To which credit should the payment
be applied?
a. To Mendoza’s credit because the payment made by Torres is intended for
his debt to Mendoza who issues his own receipt.

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b. To both the partnership credit and Mendoza’s credit proportionately at
P1,500.00 and P3,000.00, respectively.
c. To Mendoza’s credit because its amount is greater than that of the
partnership credit.
d. To the partnership credit because the managing partner should not
prefer his own interest to that of the partnership.

31. A partner’s interest in the partnership is his share of the profits

and surplus which he may assign to a third person. Which of the following
statements concerning such right is correct?
a. The conveyance of a partner’s interest will cause the dissolution of
the partnership.
b. The assignee becomes a partner.
c. The assignee has a right to interfere in the management of the
partnership business.
d. The assignee has the right to receive the profits which the assigning
partner would otherwise be entitled to.

32. The partnership will bear the risk of the loss of three of the
following things. Which is the exception?
a. Things contributed to be sold.
b. Fungible things or those that cannot be kept without deteriorating.
c. Things contributed so that only their use and fruits will be for the
common benefit.
d. Things brought and appraised in the inventory.

33. A limited partnership named AB and C Co. Ltd. Was formed on October
25, 2006 by A as general partner and B and C as limited partners. In
2007, A and B got married, did the marriage dissolve or put an end to the
partnership?
a. Yes, the partnership is dissolved by marriage because there is
a change in equity among the partners.
b. No, the marriage did not dissolve the partnership.
c. No, because spouses can enter into a universal partnership.
d. Yes, because spouses can enter into a particular partnership
on be thereof.

34. X, Y and Z were partners. X is an industrial partner. During the first

year of operation, the firm received a profit of P 60, 000. During the
second year, the firm sustained a loss of P 30, 000. In the Articles of
Partnership, it was agreed that the industrial partner would get 1/3 of
the profit. But would not share in the losses. How much will X, the
industrial partner get?
a. X will get only P 20, 000 which is 1/3 of the profit of the 1st year
of operation.
b. X will get only P 10, 000 which is 1’3 of the net profit
c. X will get only P 20, 000 in the first year and none in the second
year.
d. X will share in the loss in the second year.

35. A, B, and C, capitalist partners each contributed P 30, 000, P 20, 000
and P 10, 000, respectively and D, the industrialist partner, contributed
his services. Suppose X, a customer, is the creditor of the firm to the
amount of P 180, 000. Can he recover the P180,000?
a. X must sue the firm and get P 60, 000 from all the partners including
D, the industrial partner. X. can still recover the balance of P120,
000 from the four partners jointly.
b. X can recover from the firm P 60, 000. X can still recover the balance
of P 120, 000 from the capitalist partners only.
c. X can recover from the firm P 60, 000. X can recover the balance of P
120, 000 from any of their partners solidarily.
d. X can recover from the firm P 60, 000 and consider the balance of P
120, 000 as loss.

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36. Which of the following statements does not support the principle that
tax is not subject to compensation or set-off?
a. The government and the taxpayer are not creditors and debtors of each
other
b. Tax is not in the nature of contract but it grows out of a duty
wherein taxpayers are bound to obey even without the personal consent
of the taxpayer
c. Taxes arise from law not from contracts
d. Both taxes and debt partakes the nature of an obligation

37. Which is not legally tenable in refusing payment of tax?

a. Absence of benefit from the government
b. The taxing authority has no jurisdiction.
c. The authority’s right to collect has prescribed.
d. All of these

38. International double taxation can be mitigated by any of the

following, except
a. Providing allowance for tax credit
b. Provision of reciprocity provisions in tax laws
c. Provision of tax exemptions
d. Entering into treaties to form regional trade blockage against the
rest of the world

39. Which is correct?

a. Tax condonation is a general pardon granted by the government.
b. BIR has five deputy commissioners
c. Taxation is the rule; exception is the exemption
d. The President of the Philippines can change tariff or imposts without
necessity of calling Congress to pass a law for that purpose

40. Which is not a Constitutional limitation?

a. No tax law shall be passed without the concurrence of the majority of
all members of Congress.
b. Non-appropriation for religious purpose
c. No law impairing the obligations on contracts shall be passed.
d. Non-impairment of religious freedom

41. Which of the following is not an inherent limitation of the power to

tax?
a. Tax should be levied for public purpose
b. Taxation is limited to its territorial jurisdiction
c. Tax laws shall be uniform and equitable
d. Exemption of government agencies and instrumentalities

42. In order to phase-out a huge deficit, the President of the Philippines

passed a decree requiring all offering all taxpayers with previous tax
delinquency to pay a minimum tax in exchange of relief from tax
assessment in the period of delinquency. Is this a valid exercise of
taxation power?
a. Yes, because the measure adopted is of necessity.
b. Yes, because the President is merely exercising its presidential
discretion.
c. No, because the power of taxation is non-delegated.
d. No, because only the Department of Finance can issue such ruling.

43. Concerned with increasing unemployment rates in the country, the

President of the Philippine encouraged the Philippine senate to pass a
law granting special tax privileges to foreign investors who will
establish businesses in the country. The senate accordingly drafted the
bill and passed to congress for approval. Is this valid exercise of
taxation power?
a. Yes. It is the discretion of the President to adopt any measures he
deemed necessary to alleviate the condition of the country.
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b. Yes. Any means beneficial to the public interest should be given
optimum priority.
c. Yes. The President’s proposal will have to be finally approved and
passed by the legislature. The rule on non-delegation of taxation
would not be violated.
d. No. Tax bills shall originate from the house of representative.

44. With the country under incessant shortage of sugar, the Philippine
congress enacted a law providing tax exemptions and incentives to cane
farmers without at the same time granting tax exemptions to rice farmers
which is the staple food of the Philippines. Is the new law valid?
a. Yes, since there is a valid classification of the taxpayer who would
be exempted from tax.
b. Yes, since sugar is more important than rice.
c. No, since the grant of exemption is construed in favor of taxpayers.
d. No, because there is no uniformity in the grant of tax exemption.

45. Congress passed a law subjecting government owned and controlled

corporations (GOCCs) to income tax. Is the law valid?
a. Yes, because all government agencies and instrumentalities are subject
to tax.
b. Yes, because the GOCCs are essentially commercial by operation.
c. No, because government agencies are exempt. This would pose violation
of the equality clause in the constitution.
d. No, because GOCCs are constitutionally exempted from paying taxes.

46. Effective January 15, 2011, Carlos, Inc. changed its fiscal year
ending every April 30 to the calendar year. An adjustment return shall
be filed covering the period
a. January 15 to December 31, 2011.
b. January 1 to April 30, 2011.
c. May 1 to December 31, 2011.
d. April 30 to December 31, 2011.

47. Effective July 2, 2011, John Hay Company changed is fiscal year ending
every March 31 to another fiscal year ending every August 31. An
adjustment return shall be filed covering the period
a. July 3 to August 31, 2011. c. April 1 to July 2, 2011.
b. April 1 to August 31, 2011. d. April 1 to July 1, 2011.

48. Raymond owns 20% of the capital and profits of a general professional
partnership. The partnership reported P500,000 profits in 2011. How much
final tax will be withheld from Raymond?
a. P 0 c. P50,000
b. P10,000 d. P100,000

49. Chang Department Store conducted a sales promotion where customers

purchases exceeding P1,000 in one transaction shall be entitled to a
ticket for a chance to win P500,000. Mr. Shing won the prize.

How much shall Chang withheld from the grand prize winning?
a. P200,000 c. P 50,000
b. P100,000 d. P 0

50. Mr. Tacurong submitted a sworn statement regarding the alleged tax
evasion practices of Chitie Corporation. This led the BIR to recover
P20,000,000 unpaid taxes.

How much net tax informer’s reward shall be paid to Mr. Tacurong?
a. P1,800,000 c. P1,000,000
b. P1,600,000 d. P900,000

51. Capital gains tax that are not payable on the installment basis is due
a. Within 30 days from the end of month of sale.

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b. Within 30 days from the date of sale or exchange.
c. On or before the 15th day of the fourth month following the close of
the quarter when the sale was made
d. On or before the 15th day of the fourth month following the taxpayer’s
year-end.

52. D, Inc. exchanged its investments representing domestic shares for a

piece of land owned by E, Inc.

Fair market value of shares P 400,000

Fair market value of land 500,000
Par value of shares 300,000
Cost of shares 350,000

Compute the capital gains tax.

a. P5,000 c. P10,000
b. P7,500 d. P15,000

53. On January 5, 2011, Love disposed the following shares directly to

buyer:

Shares Selling price Cost

Common stocks P200,000 P170,000
Preferred stocks 100,000 110,000

The capital gains tax payable on the sale is

a. P 0 c. P1,500
b. P 1,000 d. P3,000

54. Kidapawan, a trading company, made the following transactions during

the year involving the stocks of Carmen, a domestic corporation:

Date Transaction Shares Price

6/15/2011 Buy 10,000 P 30
9/30/2011 Sell 8,000 28
10/3/2011 Buy 15,000 25
12/7/2011 Sell 10,000 32

Kidapawan uses the FIFO method in costing the Carmen stocks.

Compute the deductible loss on the September 30 sale.

a. P20,000 c. P12,800
b. P16,000 d. P 0

55. Mr. Kalibo shows the following transactions in the shares of Aklan
Corporation, a closely held corporation:

Date Transaction Quantity Price

2/8/2011 Purchase 10,000 P 120,000
4/5/2011 Sale 10,000 100,000
5/1/2011 Purchase 20,000 240,000

What is the tax basis of the shares acquired on May 1, 2011?

a. P300,000 c. P240,000
b. P260,000 d. P220,000

56. Ms. Henson retired from her job after 25 years of service. She joined
the company at the age of 23 and was promoted from an accounting clerk
to VP Finance. She was paid P2,000,000 total retirement pay from the
employer’s contributory pension plan which was duly registered with the
BIR. Out of the total proceeds, Ms. Henson contributed P600,000. This
was Ms. Henson’s first retirement from employment.

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How much is not included in gross income.
a. P2,000,000 c. P600,000
b. P1,400,000 d. P 0
c.
57. Mr. Bangus received the following benefits during the year:

13th month pay P 18,000

Productivity pay 12,000
Excess de minimis above legal limits4,000

Compute the total exempt and exclusions from gross income:

a. P34,000 c. P18,000
b. P30,000 d. P16,000

58. Mr. Alvarez has the following income during the year:

Gross compensation income

including P25,000 13th month payP 325,000-
Less: Tardy or absences ( 10,000)
Net compensation income P 315,000-
SSS deductions 12,000-
PhilHealth deductions 9,000-
Pag-Ibig deductions 10,000-
Union dues 5,000-
Withholding tax 40,000-
Net pay P 239,000-

Compute the total exclusions from gross income?

a. P36,000 c. P66,000
b. P61,000 d. P71,000

59. Mr. Tacurong has the following data during the year:

Basic salary P 400,000

Income tax withheld 50,000
13th month pay 40,000
SSS 2,000
PhilHealth 1,800
Pag-Ibig 1,700
Union dues 500
Capital build up contribution in a social fund 2,000

Compute the total exemptions and exclusions from gross income:

a. P56,000 c. P38,000
b. P46,000 d. P36,000

60. Andres is a lessor of commercial spaces to one client. During the

year, he received the following remittance:

Rental, net of 5% creditable withholding tax P 1,900,000

Real property tax 50,000
Reimbursement for utilities used
by lessees paid by Andrea 200,000

How much will be included in gross income subject to regular tax?

a. P2,250,000 c. P2,000,000
b. P2,050,000 d. P1,950,000

61. Zeus, a professional practitioner, received the following from his

clients:

Advances for future services to be rendered P 30,000

Collections for past services rendered70,000
Reimbursements for client expenses 40,000

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Reimbursement for out-of-pocket expenses10,000
How much will be included in Zeus’ gross income for regular taxation
purposes?
a. P150,000 c. P110,000
b. P140,000 d. P100,000

62. Northern Crest Corporation reported a P40,000 recovery from bad debts
that was claimed as deduction against gross income in 2009. In 2009, the
write-off increased the operating loss of North Crest to P50,000. How
much of the P40,000 recovery is subject to tax?
a. P60,000 c. P10,000
b. P40,000 d. P 0

63. West PhilSea Oil abandoned its facility in 2010 and claimed
abandonment loss of P300,000 for its unrecovered investment in its oil
facilities. The 2010 taxable income before provision for such loss was
P200,000. With increasing prices of crude oil in 2012, West PhilSea Oil
re-commissioned the facility to use.

How much will be included in gross income in 2012.

a. P300,000 c. P100,000
b. P200,000 d. P 0

64. A taxpayer under the cash basis had the following expenditures:

Acquisition of office
equipments at the P 200,000
start of the year (5 year
useful life)
Payment of employee salaries 40,000
Payment for office utilities 60,000
expenses

How much is claimable as deductible business expense for the year?

a. P300,000 c. P100,000
b. P120,000 d. P 60,000

65. The following relates to a taxpayer’s warehouse:

Cost P 2,000,000
Accumulated depreciation 600,000
Residual value 200,000
Current fair market value 2,500,000
Remaining useful life 12 years

Compute the deductible depreciation expense.

a. P208,333 c. P191,667
b. P200,000 d. P100,000

66. The taxpayer has the following losses:

Net Operating Loss Carry Over P 200,000

– last year
Net Capital loss – current 80,000
Net capital loss – last year 70,000
Ordinary loss 50,000

Compute the total losses deductible in the current year.

a. P400,000 c. P250,000
b. P330,000 d. P200,000

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67. An individual income taxpayer reported the following:

Capital loss – current year P 50,000

Capital gain – current year 200,000
Net capital loss – last year 70,000

Compute the total capital loss deductible in the current year.

a. P320,000 c. P120,000
b. P200,000 d. P50,000

68. An individual income taxpayer reported the following:

Capital loss – current year P 50,000

Capital gain – current year 60,000
Net capital loss – last year 70,000

Compute the deductible capital loss in the current year.

a. P180,000 c. P60,000
b. P120,000 d. P50,000

69. A taxpayer reported the following items of gross income and deductions
in 2011:

Rent income P 400,000

Service fees 200,000
Interest income from bank 50,000
deposits
Deductible expenses 800,000
Non-deductible expenses 100,000

Compute the NOLCO to be carried out in the next three years.

a. P300,000 c. P200,000
b. P250,000 c. P150,000

70. An individual taxpayer showed the following:

2011 2012
Gross income P
300,000- P 400,000-
Deductible business ( 360,000) ( 300,000)
expenses
Net capital gain or ( 50,000) 70,000-
(loss)

---- End of Pre-Board Examination ----

11
NCPAR Business Laws and Taxation: 2nd Pre-Board Examination – AD & RBB