Beruflich Dokumente
Kultur Dokumente
1. Eminent domain and police power can effectively be performed even without taxation.
2. Taxes may be imposed to encourage economic growth by granting tax exemptions.
3. Taxation is a way of apportioning the cost of government among those who are privileged to enjoy its
benefits.
4. The state can enforce contributions upon its citizens in the form of taxes even without a provision in
the Constitution authorizing it.
5. The police power of the government may be exercised through taxation.
6. When the power to tax is delegated to the local government, only the legislative branch of the local
government can exercise the power.
7. The power of taxation can be exercised without limitation because its scope is unlimited.
8. The power of taxation is absolute because it is the strongest of all powers of the government.
9. Taxation presupposes an equivalent compensation.
10. There is no imposition of amount in police power.
11. Police power and eminent domain may defeat the constitutional rights of a person.
12. Tax exemption applies only to government entities that exercise proprietary functions.
13. All government entities regardless of their functions are exempted from taxes because it would be
impractical for the government to be taxing itself.
14. The state can still exercise its taxing powers over its citizen outside its territory.
1. No law granting any tax exemption shall be passed without the concurrence of two thirds of the
members of the congress.
2. Churches are exempt from payment of income taxes.
3. A tax may be levied for the support of religious activities as long as all churches benefit from it.
4. A bill not signed by the President can still become law.
5. No person shall be imprisoned for nonpayment of income tax.
6. Taxation is considered as the lifeblood of the government and every government unit must exercise this
power.
7. The amount of taxes may be increased to curve spending power and minimize inflation.
8. Benefits from taxation have to be experienced to justify the legitimacy of collection of taxes from the
people.
9. Taxes may be used as a tool and weapon in international relations and protect trade relations.
10. The power of legislative review in taxation is limited only to the interpretation and application of tax
laws.
11. The rule of “ex post facto law” is applicable for tax purposes.
12. Real estate tax and income tax collected on the same real estate property is double taxation.
13. A tax evader sidesteps the law, while the tax avoider breaks it.
14. Tax exemption is transferable and assignable.
15. Taxation is the government’s legitimate means of interfering with the private properties of its subjects.
Problem 1-3 True or False
Write True if the statement is correct or False if the statement is incorrect.
1. The doctrine of equitable recoupment is applicable to cases where the taxes involved are totally
unrelated.
2. Protection is the basic consideration that justifies tax situs.
3. The tax situs for occupation is the place where occupation is pursued even if the criterion for
nationality is given.
4. There is no direct double taxation by taxing corporate income and corporate stockholders’ dividends
from the same corporation.
5. Tax laws are given retroactive effects.
6. In the imposition of taxes, public purpose is presumed.
7. Taxes are obligations created by law.
8. Taxes collected by the BIR are local taxes.
9. Nonpayment of license fee makes the business illegal.
10. In taxation, it is one’s civil liability to pay taxes which gives rise to criminal liability.
11. Tax laws must be construed strictly against the government, and tax exemptions must be construed
strictly against the taxpayer.
12. As a rule doubts must be resolved liberally in favor of the government and strictly against the taxpayer.
13. The Philippine tax laws are not political and penal in nature.
14. When there is ambiguity of tax laws, the rules of statutory construction may be used to search for the
legislative intent. However, when the meaning of the law is clear, the statute must be enforced as
written.
15. Revenue regulations that are inconsistent with law have the effect and force of law if they are useful
and reasonable.
10. The power of taxation is supreme, plenary, unlimited and comprehensive. Hence, it may be exercised
by the state without any Constitutional provisions granting it. Which of the following is not correct?
a. The power of taxation is based on necessity because without money, the state cannot survive.
b. The scope of the power of taxation is unlimited.
c. The power of taxation can be exercised only if there is just compensation.
d. The power of taxation is not absolutely unlimited.
2. Tax affects the area or nation as a community rather than as individuals. This is a specific explanation
of
a. Public purpose
b. Common good
c. General welfare
d. Reciprocity
3. Which of the following is a correct nature of restriction to exercise taxation power?
1. Statement 1: The City of Baguio claims that it can impose additional taxes on banks under the Local
Government Code (in addition to the percentage tax on banks imposed in the NIRC).
Statement 2: Such imposition is a direct double taxation.
a. Both statements are correct.
b. Only statement 1 is correct.
c. Only statement 2 is correct.
d. Both statements are incorrect.
2. There can be no tax unless there is a law imposing that tax is consistent with the doctrine of
a. Uniformity in taxation
b. Due process of law
c. Taxation is legislative in nature
d. The power of taxation is very broad
3. The following are kinds of exemption from tax, except
a. Expressed exemption
b. Statutory exemption
c. Exemption by omission
d. Tax evasion
4. Which of the following is not correct?
a. Tax avoidance is forbidden in our jurisdiction.
b. A group of persons which forms a corporation with the intention to save taxes is not guilty of tax
evasion.
c. There is a constitutional prohibition against double taxation in the Philippines.
d. All of the above.
5. Which of the following are characteristics of taxes?
i. Voluntary contribution
ii. Imposed by legislative body
iii. Proportionate in character
iv. Used for public purpose
Choices:
a. i, ii and iii only
b. i, ii and iv only
c. i and iii only
d. ii, iii and iv only
6. All of the following are national taxes as to collecting authority except
a. Income tax
b. Real property tax
c. Estate tax
d. Value-added tax
7. Which of the following tax rates is behaving in the same direction with the taxable value?
a. Proportionate
b. Progressive
c. Regressive
d. Digressive
8. Statement 1: All tax escapes are illegal.
Statement 2: Tax shifting is a form of tax avoidance.
a. Both statements are true.
b. Only statement 1 is true.
c. Only statement 2 is true.
d. Both statements are incorrect.
9. One of the following is a true classification of tax.
As to object As to Who bears the burden
a. Income tax Personal Indirect
b. Value-added tax Excise Direct
c. Donor’s tax Excise Direct
d. Estate tax Property Indirect
10. Statement 1: Custom duties are national taxes.
Statement 2: Tariff is an import tax.
a. Both statements are true.
b. Only statement 1 is true.
c. Only statement 2 is true.
d. Both statements are incorrect.
11. One of the characteristics of a tax is that it is generally
a. Based on contract.
b. Payable in money.
c. Assignable.
d. A demand of a taxpayer.
1. Tax of a fixed proportion of the value of the property with respect to which the tax is assessed, and requires
the intervention of assessors or appraisers to estimate the value of such property before the amount due
from each taxpayer can be determined is known as
a. Specific tax
b. Ad valorem tax
c. Specific or regulatory tax
d. Proportionate tax
13. It is collected for the use of somebody else’s property.
a. Toll
b. Debt
c. Tax
d. Special assessment
14. For this, the state has complete discretion on the amount to be imposed after distinguishing useful from
non-useful activity.
a. License fee
b. Tax
c. Toll
d. Special assessment
1. The proportional contribution from persons and properties levied by the law-making body of the State
by virtue of its sovereignty for the support of the government and all public needs is referred to as
a. Taxes
b. Special assessment
c. License fees
d. Surcharges
2. Which of the following statements is not correct?
a. Taxes may be imposed to raise revenues or to provide disincentives to certain activities within the
state.
b. The state can have the power of taxation even if the Constitution does not expressly give it the
power to tax.
c. For the exercise of the power of taxation, the state can tax anything at any time.
d. The provisions of taxation in the Philippine Constitution are grants of power and not limitations
on taxing powers.
3. Which of the following forms of escape from taxation does not result to loss of revenue to the
government?
a. Tax exemption
b. Tax avoidance
c. Tax evasion
d. Shifting
4. Tax as distinguished from license fee:
a. Nonpayment does not necessarily render the business illegal.
b. A regulatory measure.
c. Imposed in the exercise of police power.
d. Limited to cover cost of regulation.
1. Statement 1: When the primary consideration is the legislative intent, but doubts exist in determining
such intent, the doubts must be resolved strictly against the taxing authority.
Statement 2: Tax exemptions are strictly construed against the taxpayer.
a. Both statements are true.
b. Only statement 1 is true.
c. Only statement 2 is true.
d. Both statements are incorrect.
2. A body of law that codifies all national tax laws is known as
a. National law
b. Tax law
c. Revenue law
d. Revenue regulation
3. Which of the following characteristics describes our internal revenue laws?
a. Political in nature
b. Penal in nature
c. Generally prospective in operation although the tax statute may nevertheless operate
retrospectively provided it is clearly the legislative intent
d. Retroactive in character
4. In cases of deductions and exemptions on income tax returns, doubts shall be resolved
a. Liberally in favor of the government
b. Liberally in favor of the taxpayer
c. Strictly against the government
d. Strictly against the taxpayer
5. In case of conflicts between the tax laws and generally accepted accounting principles (GAAP) for
preparation of tax returns,
a. Both tax laws and GAAP shall be enforced
b. GAAP shall prevail over the tax law
c. Tax laws shall prevail over the GAAP
d. The courts shall resolve the issue
6. Which statement is incorrect?
a. A toll is a demand of sovereignty
b. A toll is a demand of ownership
c. A special assessment is a demand of taxpayer
d. A customs duty is a tax
7. Tax exemptions are strictly construed (1) if the law provides for liberal construction; (2) if the
exemptions refer to public utilities; (3) in case of exemptions granted to entities organized for
charitable, religious, or educational purposes; (4) in case of special laws applying in cases.
a. Exemption 3 is correct.
b. Exemptions 2 and 3 are correct.
c. No given exemptions are correct.
d. All given exemptions are correct.
8. Which of the following statement is not true?
a. If a taxpayer is acquired of a criminal violation of the Tax Code, this acquittal does not exonerate
him from his civil liability to pay the taxes.
b. A conviction for tax evasion is not a bar for collection of unpaid taxes.
c. A tax assessment is necessary for criminal prosecution for willful attempt to defeat and evade
payment of taxes.
d. Criminal proceedings under the Tax Code are now a mode of collection of internal revenue taxes,
fees or charges.
9. Which of the following falls under the jurisdiction of the Court of Tax Appeals?
a. Criminal action for the violation of the NIRC.
b. Question of whether or not to impose a deficiency tax assessment upon a taxpayer.
c. Appeal from undisputed tax assessment.
d. Action for refund of real property tax.
10. Statement 1: BIR rulings are the correct interpretations of the Tax Code.
Statement 2: Supreme Court decision shall prevail over the BIR rulings.
a. Only statement 1 is correct.
b. Only statement 2 is correct.
c. Both statements are correct.
d. Both statements are not correct.
11. All of the following statements are incorrect, except
a. General provision under the Tax Code prevails over BIR Regulation.
b. BIR Rulings prevails over Local Tax Ordinance on matters concerning barangay taxes.
c. BIR Rulings are sound law until changed by court resolution.
d. Tax Code could violate Constitutional provisions.
12. Which statement is wrong? A revenue bill:
a. Must originate from the House of Representatives and on which same bill the Senate may propose
amendments.
b. May originate from the Senate and on which same bill the House of Representatives may propose
amendments.
c. May have a House version and a Senate version approved separately and then consolidated with
both houses approving the consolidation version.
d. May be recommended by the President to Congress.
13. Tax law is derived from
a. Constitution
b. Judicial decision
c. Statutory enactment
d. All of the above
14. Which of the following statements is correct?
a. Revenue regulations have the force and effect of law and a memorandum and a memorandum
order of the Commissioner of Internal Revenue, approved by the Secretary of Finance, has the
same force and effect as revenue regulation.
b. The revenue regulations in conflict with law are null and void.
c. The interpretations of the former Secretary of Finance do not necessarily bind on their successors.
d. All of the above.
15. Statement 1: The law on prescription being a remedial measure should be interpreted liberally.
Statement 2: Doubts as to whether double taxation has been imposed should be resolved in favor of the
taxpayer.
a. Only statement 1 is correct.
b. Only statement 2 is correct.
c. Both statements are correct.
d. Both statements are not correct.
16. Statement 1: Tax statutes should be strictly construed against the government.
Statement 2: Tax exemptions are strictly construed against the taxpayer.
a. Only statement 1 is correct.
b. Only statement 2 is correct.
c. Both statements are correct.
d. Both statements are not correct.
17. Statement 1: Tax laws are applied prospectively.
Statement 2: in case of conflict, Tax Laws prevail over Civil Laws.
a. Only statement 1 is correct.
b. Only statement 2 is correct.
c. Both statements are correct.
d. Both statements are incorrect.
Chapter 2
Tax Administration
1. The BIR Director should first approve the filing in courts of civil and criminal action for the recovery
of taxes and the enforcement of any fine, penalty, or forfeiture.
2. Forfeited property shall not be destroyed at least twenty days after seizure.
3. The required initial bond for manufacturers and importers of articles subject to excise tax is P200,000.
4. The informer’s reward is subject to 10% creditable withholding tax.
5. The BIR Regional Director is authorized to issue a Letter of Authority.
6. Once a taxpayer is served with an LA, he should first verify or check with the BIR’s National Office
whether he is listed or not for National Office Audit.
7. Only the real properties of a delinquent taxpayer are subject to tax lien.
8. A fraudulent return with 30% understatement of income reported is subject to a penalty of 25% based
on the basic tax unpaid.
9. By forfeiture, the proceeds of the property sold are applied to satisfy the tax liability and the excess
thereof shall be returned to the taxpayer.
10. By seizure, no part of the proceeds goes to the taxpayer because the property is confiscated in favor of
the government.
11. A compromise tax remedy is available for both the taxpayer and the government.
12. Cases regarding collection of taxes already filed in the court are not subject to compromise.
13. Delinquent accounts with duly approved schedule of installment payments are not subject to
compromise.
1. Upon conviction, an alien as an offender for tax violation could immediately be deported even if he has
paid all the tax liability discovered as chargeable against him.
2. A letter of authority is not necessary in conducting an examination of books of account of taxpayer.
3. Only criminal actions can be submitted to a court for a judicial proceeding for tax violation cases.
4. Assessment protest made by the taxpayer should be completely complied with by the submission of
pertinent documents to support the taxpayer’s claim.
5. Upon issuance of a tax ruling by the BIR Commissioner, the concerned taxpayer can still file a petition
to the Court of Appeals.
6. A tax assessment could be done only after a tax return has been filed.
7. If no tax return was filed, no government assessment could still be made if it was not assessed after 10
years from the required filing date.
8. After the tax liability has been assessed, the actual collection should be done within 10 years from date
of assignment.
9. Levy of real property could be done only after distraint of personal property of delinquent taxpayer is
sold out to partially collect the tax deficiency.
10. The residual value of real properties sold under levy proceedings are payable to the government.
11. When a tax compromise is reached, the ongoing litigation proceeding involving the tax assessed and
being collected shall be terminated.
12. Filing of bond in lieu of the actual tax to be paid is applicable only for export transactions.
13. A 10% reward to tax informer is applicable also to discovery of smuggled goods which resulted in the
capture and seizure of goods smuggled.
Can the BIR deny the protest of Mr. Lang? What would be the remedy available to Mr. Lang?
Advertisement P10,000
Transfer of title 15,000
Capital gains tax 30,000
How much is the amount of excess from the proceeds of sale to be remitted to Mr. Santago as of October 31, 2009?
The related income tax referred to the above ITR has been paid. After a year however, the BIR provided assessment
that the sales of the corporation is understated by 30%. How much is the total amount of tax unpaid including
surcharges and interest?
How much is the sales price of the property under distraint if the BIR Commissioner decided to purchase the
property in behalf of the National Government?
Mr.Lucas redeemed his residential lot on December 1, 2009. How much is the capital gains tax paid upon sale and
the required total redemption price?
Required:
a. If the government sold the captured goods for P15,000,000, how much would be the cash reward of Miss
Wan as tax informer?
b. If the government destroyed the goods seized because these are regarded as harmful to health, how much
cash reward would Miss Wan receive?
c. In assumption to letter “a”, how much final income tax should be withheld from the reward of Miss Wan?
Required:
a. Enumerate all the Tax Code violations committed by Miss San Tago.
b. If convicted for all these violations, how much is the total amount of penalties?
Required: Assuming that the taxable year is 2009, compute the following:
a. Total annual registration fee of Splash Corporation for 2009 if payment was made on January 31, 2010.
b. Total amount paid to the BIR if payment was made on July 30, 2010.
How much is the price of the personal property if purchased by the BIR in behalf of the National Government?
Advertisement P 5,000
Transfer tax 20,000
How much is the amount of excess from proceeds of sale to be remitted to Mr.Balana as of September 1, 2009?
If Atang Ang proposed for a compromise to the BIR Commissioner, how much is the maximum compromise that is
allowed to Ang?
You are called to compute the tax to be collected per compromise agreement under the following independent
assumptions:
1. Mr.Tinidor is financially incapable and has P10,000 income per month.
2. The compromise is due to doubtful validity of assessment.
Total properties:
Real property P200,000
Personal property 100,000
Total liabilities, exclusive of tax 150,000
Required:
a. If Miss Lugui offers for a compromise payment of P100,000 for her tax liabilities on the ground of her
financial incapability, and Commissioner accepted the offer, would it be in accordance with the pre-
requisite for a compromise settlement?
b. Assuming that a distraint proceeding was carried out instead, which of the above properties would be
issued with warrant of distraint?
c. If all the properties of Miss Lugui have a realizable value of P200,000 after payment of her P150,000
liabilities and possible cost of the proceedings, would it be possible for the government to carry out the
distraint and levy proceeding simultaneously to effect the conversion of Miss Lugui’s assets into cash?
d. If, after the properties of Miss Lugui were sold in public auction only P200,000 was realized and used as
payment of her liabilities, would this extinguish the unpaid tax liabilities of Miss Lugui?
PROBLEM 3-2
1. Statement I: All wealth that flows into the hands of taxpayer other than mere return of capital is income.
Statement 2: All earnings are taxable with income tax.
A. Only statement 1 is correct.
B. Only statement 2 is correct.
C. Both statements are correct.
D. Neither statement are correct.
2. Which of the following is not classified as income?
A. Gain derived from labour
B. Return on capital
C. Excess of selling price over cost of assets sold
D. Gift received
3. Which of the following are not characteristics of income?
A. Increase in taxpayers wealth
B. Return of taxpayers wealth
C. Realization of receipt of gain
D. Earnings constructively realized
4. Which of the following is not a criterion of a taxable income?
A. There must be a gain
B. The gain need not actually received.
C. The gain must be included by the law as treaty from taxation.
D. The law as treaty from taxation must exclude the gain.
5. If a property is received in lieu of cash compensation, the basis of tax is the
A. Supposed amount of cash to be receive
B. Agreed value of the property received
C. Fair market value of the property received
D. Salvage value of the property received.
6. If services are rendered for the cancellation of debt, the basis of tax is the
A. Fair market value of the service rendered
B. Amount of obligation omitted
C. Fair market value of the debt cancelled
D. Supposed amount of cash to be receive
7. If the taxpayer is subjected to jeopardy assessment, his taxable accounting period would be
A. Calendar period C. Short period
B. Fiscal period D. Variable period
8. Which of the following businesses is/are normally reporting income on accrual basis?
A. Real property lessor C. Trading business
B. Professional partnership D. Brokerage business
9. Which of the following is/are generally subject to final tax?
i. Compensation income
ii. Business income
iii. Passive income
iv. Capital gain
A. i, ii, iii and iv C. Iii and iv only
B. i and ii only D. Iii only
10. Which of the following is/are reportable (returnable) in the annual income tax return?
v. Compensation income
vi. Business income
vii. Passive income
viii. Capital gain
C. i, ii, iii and iv C. Iii and iv only
D. i and ii only D. Iii only
11. all of the following are passive income except
A. Gross profit C. interest
B. Royalty D. Dividend
12. Which of the following is not correct?
A. All income received is taxable
B. Taxable income is equal to gross income less statutory deductions
C. Net income is synonymous to taxable income
D. Income derived from illegal activities is taxable income
13. One of the following is taxable income.
A. Income from a qualified pension plan
B. Compensation from personal injuries
C. Stock dividend received
D. Vacation leave with pay
14. Which of the following is incorrect?
Taxable income
Year 1 Year 2
A. Rent for year 2 collected in year 1 no yes
B. Income from year 1 sales collected in year 2 yes no
C. Services for year 1, collected in year 2 no yes
D. Income from year2 sales, collected in advance in year 1 no yes
15. Statement 1: All foreign corporations are taxable only for income earned within the Philippines.
Statement 2: All Filipino citizens are taxable for their income earned within and outside the Philippines.
A. Both statements are correct.
B. Only statement 1 is correct.
C. Only statement 2 is correct.
D. Both statements are incorrect
16. If an individual renders services for a creditor who in consideration thereof cancels the debt, the
cancellation of indebtedness may amount to a
A. Gift C. Donation inter-vivos
B. Capital contribution D. Payment of income
Choices:
During the year, the owner made a total withdrawal from the business amounted to 245000. How much is the
reportable income for year 2009?
A. 245000 c. -0-
B. 100000 D. (100000)
Continuation of chapter 2
Instruction: Determine the last day to exercise the right of the taxpayer.
Situation 1:
Date of tax erroneously paid April 15, 2008
Date of claim for refund May 20, 2010
No decision on the claim of refund was made
Question 1: When is the last day to appeal to the CTA?
Situation 2:
Date of tax erroneously paid June 10, 2008
Date of claim for refund was filed with BIR March 3, 2010
Date of BIR decision of denial was received April 5, 2010
Question: When is the last day to appeal to the CTA?
Situation 3:
Date of tax erroneously paid June 10, 2008
Date of claim for refund was fled with BIR June 10, 2009
Date of BIR decision of grant was received August 1, 2009
Date of refund check received July 15, 2009
Question: If the refund check was not encashed, when is the starting date for the government to forfeit?
Situation 4:
Date of tax erroneously paid June 10 , 2008
Date of claim for refund was filed with BIR June 10, 2009
Date of BIR decision of grant was received August 21, 2009
Date of tax credit certificate received July 30, 2009
Question: If the tax credit certificate was not utilized or revalidated, when is the starting dste for the
government to revert it to the general fund?
Situation 5:
Date of assessment was received January 2, 2009
Petition for reconsideration was filed with BIR January 12, 2009
Documents to support petition submitted January 22, 2009
No decision on the protest as of July 12, 2009
Question: When is the last day to appeal to the CTA?
Situation 6:
Assessment received January 5, 2009
Petition for reconsideration filed with BIR February 1, 2009
Documents to support petition submitted February 7, 2009
Decision of BIR denying the petition March 22, 2009
2nd request for reconsideration filed with BIR March 30, 2009
Decision on 2nd request denied April 12, 2009
Question: When is the last day to appeal to the CTA?
Situation 7:
Date of appeal to the CTA April 21, 2009
Date adverse decision of the CTA June 1, 2009
Date the CTA adverse decision received June 10, 2009
Question: When is the last day to appeal to the Court of Appeals?
Situation 8:
Date of appeal to the CA June 10, 2009
Date of adverse decision of the CA August 20, 2009
Date of the CA adverse decision received June 25, 2009
Question: When is the last day to appeal to the Supreme Court?
Situation 9:
Date the real property was levied January 5, 2009
Date the real property levied was sold March 1, 2009
Question: When is the last day to redeem the real property?
CHAPTER 4
GROSS INCOME
1. Only the salary received by a statutory MWE is nontaxable but his income from business is taxable.
2. Any amount received by an employee for any cause beyond the control of the employee is tax exempt.
3. Baptismal fees given to religious officers are not subject to income tax because of the separation of church and
state.
4. Under the employee stock option, the difference between the fair market value and the option price is
compensation.
5. The cancellation of a taxpayer’s indebtedness is an income unless such cancellation of indebtedness is a gift.
6. If debt is cancelled due to services rendered, the basis of tax is the value of service rendered.
7. The excess of actual expenses over advances made shall constitute taxable income if such amount is not
returned to the employer.
8. Remuneration for casual labor not in the course of an employer’s trade or business is not considered
compensation.
9. In the sale of service, gross income means gross receipts less sales returns, allowances, discounts and cost of
services.
10. Cost of services includes but not limited to cost of facilities directly utilized in providing the services such as
depreciation or rental of equipment used and cost of supplies.
11. Rental income includes obligations assumed by the lessee in behalf of the lesssor.
12. If the advanced payment is received from a customer to deliver a commodity, such receipts should be reported
as income when received.
13. If the advanced rental is a security deposit, without restriction, then such amount is excluded in the
determination of rental income.
Problem 4 – 2
Write True if the statement is correct or False if the statement is incorrect.
1. Which of the following income is/ are earned through employee – employer relationship?
i. Professional fee
ii. Wages
iii. Pension Pay
iv. Capital gain
Choices:
Statement 2: All unused vacation leave converted into cash are taxable
a. P425,000 c. P480,000
b. P450,000 d. P685,000
a. P180,000 c. P205,000
b. P195,000 d. P255,000
Problem 4 - 7 Compensation Income
Tips 360,000
a. P480,000 c. P500,000
b. P485,000 d. P505,000
a. P-0– c. P400,000
b. P300,000 d. P500,000
- Retrenchment 200,000
Which of the following is the gross compensation income for 1,000 staock certificates received as payment of
services rendered to employer? The share of stock is selling at P10 per share in the stock exchange. This has par
value of P5 per share. The shares were acquired by the employer at cost of P8 per share.
a. P8,000
b. P5,000
c. P10,000
d. Whichever is the lowest of a, b or c
An employee received stock option right for 10,000 shares of P10 per common stock at option price of P12 per
share for one –year service. At date of grant, the market price was P13 per share and at date of exercise and sell of
stock option, the market price was P15.
a. P30,000 P20,000
b. P10,000 P20,000
c. P20,000 P30,000
d. P10,000 P50,000
X, an officer of Y Corporation was given stock portion for 10,000 shares with P20 par at option price of P23. The
market price of the share in year 200B, date of grant was P25. The option was exercised in year 200C when the
market value price was P30.
How much would be the taxable compensation income of X in year 200B and capital gain in year 200C?
200B 200C
a P35,000 P35,000
b. P30,000 P70,000
c. P20,000 P50,000
d. P-0- P20,000
Bingcol works as the CEO of Co. His compensation income is P50,000 per month. In January 31, 200B, he borrowed
P300,000 from B Co. As a result, his monthly compensation income is reduced by P25,000 a payment to his
borrowing.
If on December 31, 200B, B Co. cancelled Bingcol’s indebtedness, how much is the latter’s compensation income in
December 200B
a. P25,000 c. P75,000
b. P50,000 d. P100,000
During the year, Sico has the following benefits received from his employer:
a. P- 0 - c. P21,000
b. P5,000 d. P45,000
Ana, a single proprietor, employs the following persons for a short period of time and pays their relative
remuneration
a. P3,000 c. P5,500
b. P4,000 d. P8,000
During the taxable year, the total purchase of goods for sale amounted to P500,000. Transportation expenses are
P5,000 for goods purchased and P10,000 for goods sold. During the year, total sales amounted to P550,000. At the
end of the year unsold goods amounted to P40,000. The cost of goods sold for the year is
a. P505,000 c. P465,000
b. P475,000 d. P460,000
Purchases P 1,200,000
Transportation in 5,000
a. P 95,000 c. P1,125,000
b. P1,185,000 d. P1,135,000
Year 1 Year 2
Year 2 Year 1
a. P920,000 P890,000
b. P910,000 P790,000
c. P790,000 P910,000
d. P860,000 P790,000
Freight in 20,000
Sales 1,275,000
a. P238,000 c. P228,000
b. P250,000 d. P188,000
Before starting to render his service, X collected an advance payment of P2,000 for the acceptance of the job
contract. When the required service from X was completed, X received P8,000 cash service fee after deducting the
P2,000 advanced payment, plus an office machine with cash price value of P3,000 and P2,500 cost to the seller.
The gross service income of X is
a. P15,000 c. P11,000
b. P13,000 d. P10,500
From the following data compute the gross business of a servicing business:
a. P340,000 c. P280,000
b. P335,000 d. P275,000
How much is the following receipts of a foreign corporation would be reported as gross income for Philippine
Income Tax computation?
Collection in the Philippines of collect messages originating outside the Philippines 10,000
a. P160,000 c. P560,000
b. P210,000 d. P520,000
How much of the following amount received in 200B will be included in the tax return for the year 200B?
a. P720,000 c. P560,000
b. P210,000 d. P520,000
For the year, the following amounts were received from the lessee:
For the year’s real property tax assumed by the lessee 10,000
a. P450,000 c. P420,000
b. P430,000 d. P370,000
The lease dated January 1, 2007 provided for construction of improvements at the cost of the lessee, and the
ownership will belong the lessor at the end of 5 year contract. The construction of improvements which was
completed at the end of the 3rd month of the contract amounted to P240,500. the improvement has an economic
life of 8 years and estimated scrap value of P560. The rent income on improvements for year 1 under each method
is
a. P240,500 P19,672
b. P147,620 P22,143
c. P239,940 P14,754
d. P240,500 P15,479
The following information are available related to a 10-year lease contract which commenced on June 30, 200B:
a. P180,000 P1,974
b. P180,000 P3,750
c. P180,000 P-0–
d. P180,000 P3,947
The following data are pertaining to a 5-year lease contract which started October 31, 2009:
The income from leasehold improvement was reported by the lessor using the spread – out method. Assuming that
the lease contract was pre-terminated on December 31, 2012, how much would be the additional income in 2012
from the pre-termination of contract?
a. P137,500 c. P120,000
b. P135,455 d. P 42,500
a. P10,000 winnings
b. P20,000 prizes
c. P50,000 cash dividend received by an individual
d. P100,000 property dividend received by a domestic corporation from another domestic corporation
The following are the income of a resident citizen for the period:
X is a beneficiary for P100,000 payable in 3 equal payments at 12% interest per year. The P100,000 is payable in the
following annuity table:
P100,000.00
Total P24,905.00
a. P41,635.00 c. P24,905.00
b. P37,173.80 d. P 4,461.20
The following are the gross royalty income of a resident for the period:
a. P 80,000 c. P130,000
b. P100,000 d. P150,000
c.
Problem 4 – 32 Royalty Income
X, a resident citizen received P51,500 from his royalties, net of final taxes of P3,500 for book copyrights and P5,00
for exclusive patent. There transactions are correctly summarized as
Copyright Patent
A domestic corporation received P500,000 cash dividend from a foreign corporation the earnings of which are 70%
earned in the Philippines. The taxable dividend income of the domestic corporation is
a. P500,000 c. P 150,000
b. P350,000 d. P100,000
A, a domestic corporation, invested P1,000,000 in 10,000 common shares of stock of B, another domestic
corporation. The investment represents 20% of the outstanding shares of B. During the year, B declared property
dividend of 20,000 common shares of investment in common stock of C Corporation.
The par value of C’s share is P10 per share. At time of declaration, the fair market value of the share was P15 per
share but when A received the property dividend, the fair market value was P16.
a. P -0 – c. P60,000
b. P40,000 d. P64,000
Problem 4 – 35 Prizes and Winnings
Which of the following winnings and prizes received by a citizen is not subject to 20% final tax?
a. P 50,000 c. P349,000
b. P300,000 d. P449,000
Problem 4 - 37 Bad Debts Recovery
a. P42,000 c. P48,000
b. P45,000 d. P50,000
For year 1, net operating income of P500 was reported. In year 2, P600 of year 1 bad debts written off was
collected. The income from bad debt recovery to be reported would be
Year 1 Year 2
a. P800 P600
b. P600 P600
c. None P500
d. None P600
In year 3, P5,000 of year 1 local tax and P2,000 income tax were refunded. What amount of tax refund should be
reported as part of year 3 taxable income?
a. P8,000 c. P6,000
b. P7,000 d. P5,000
During the year, the following tax refunds were received by the taxpayer :
a. P17,500 c. P10,500
b. P12,500 d. P10,000
Problem 4 – 41 Annuity
Mr. Normal received P20,000 as annuity of life insurance from Malayan Life. The annuity received includes a 10%
interest. How much is the amount of taxable annuity?
a. P20,000 c. P1,818
b. P 2,000 d. P-0–
Problem 4 – 42 Annuity
X received an annuity of P5,880, includes of 12% interest as part of the insurance plan entered into by X. What
amount of this annuity is taxable against X?
a. P5,880 c. P 706
b. P5,250 d. P 630
a. P 50,000 c. P500,000
b. P450,000 d. P - 0 –
Golang received a salary of P5,000 per month as a conductor of Philippine Lapid. Aside from his salary, he also
obtain some money from the changes of bus clients which he intentionally neglect to return with a monthly
average of P4,000 per month. If the BIR assessed Golang using the net worth method, and net increase in net asset
is determined at P150,000, how much of the illegally obtained income would be taxable?
a. P108,000 c. P 48,000
b. P 60,000 d. P 42,000
A-1 Barber Shop Shows a total receipts of P425,000 from its hair cut and massage services in 200B. The following
expenses were incurred by the barbershop in providing services:
(a) Commission given to the barbers was 65% of the total receipts.
(d) Interest expense for buying furniture, P2,000; and ointment used P1,750
Required: For income tax computation, what is the correct amount of gross income of A-1 Barber Shop
Atty. Orville Thomas is employed as a corporate-lawyer of FLP, International. In 200B, he received the following
from his employment:
Salary P300,000
Required: Compute for the gross taxable compensation income of Mr. Thomas for year 200B
Mrs. Rowena Gorospe reports the following items of income and expenses as of December 31, 200B:
Cash salary, net of withholding tax, P25,000 and SSS, P3,000 P302,000
Living quarters and meals allowances, within the employer’s premises 40,000
Winnings 10,000
Stock dividends from Asia Brewery at fair market value 4,000
Required: Compute the taxable income subject to normal tabular tax before personal exemptions.
CHAPTER 5
1. If the MWE earns other income subject to final tax, his SMW becomes taxable.
2. If the MWE earns other income subject to normal tax, his SWE becomes taxable.
3. Amount received by virtue of settlement of will litigation is not taxable income.
4. The proceeds of life insurance taken by a corporation who insured the life of its employee who subsequently
died constitute taxable income
5. Amount received as a consideration for a service rendered shall be excluded from gross income
6. Bequest refers to real property transferred from one person to another by will
7. Income subject to treaty obligation binding upon the government of the Philippines is exempted from taxable
8. Termination pay for any cause beyond the control of an employee is not subject to tax, except if the dismissal is
with a cause.
9. Damages for loss of earning capacity are nontaxable.
10. Actual liquidated damages are taxable
11. Physical, exemplary, and moral damages except damages for loss of profit in property are not taxable.
12. Income divided by foreign government in the Philippines is taxable
13. All prizes and awards are subject to income tax.
14. Inventor’s awards are subject to income tax.
15. Income derived by the political subdivision of the government is not taxable.
16. Income derived from the property acquired by the gift, devised, or descent is excluded from gross income.
17. Capital gains from sale of certificate of indebtedness with maturity of more than five years are subject to
taxable.
18. Maternity benefits advanced by the employer to the employee are excluded from gross income, hence exempt
from withholding tax.
First answer: Yes, if the retirement gratuity was paid based on the reasonable pension plan where William
Galam was 50 years old and has served the corporation for 10 years.
Second answer: No, if William Galam was forced by the corporation to retire.
a) Both answers are wrong.
b) Both answers are correct.
c) First answer is correct, the second answer is wrong.
d) First answer is wrong, the second answer is correct.
5. XYZ Co. took two insurance on the life of its President, Mr. A. In one policy, the beneficiary is the corporation
to compensate it for its expected loss in case of death of its president. The other policy designates Mr. A’s wife
as its irrevocable beneficiary.
Question 1-Are the insurance premium paid by XYZ Co. in both policies deductible?
Question 2-Will the insurance proceeds be treated as income subject to tax by corporation and by the wife?
First advice: The proceeds of life insurance paid to beneficiary upon the death of insured are exempt from
income tax and need not be declared for income tax purposes.
Second advice: The proceeds of life insurance would have to be declared for estate tax purpose if the
designation of the beneficiary was irrevocable; otherwise it needs not to be declared.
a) Both advices are correct.
b) 1st advice is correct and 2nd advice is wrong.
c) Both advices are wrong.
d) 1st advice is wrong and 2nd is correct.
7. The following are the requirements to exempt retirement pay due to old age from taxation exempt.
a) SSS or GSIS retirement pay.
b) Equitable retirement program approved by the BIR Commissioner.
c) The retiree should have been employed for at least 10 years and retiring at the age of at least 50 years old.
d) Retirement pay should have been availed of for the first time.
8. Which of the following is classifiable as a taxable separation pay?
a) Separation pay due to optional retirement
b) Separation pay due to reorganization of the company
c) Separation pay due to company’s brink of bankruptcy
d) Separation pay due to death, sickness or disability
9. Which of the following is a common for non-taxable pension benefits
i. The retiring employees have been in service of the same employer for at least 10 uninterrupted years.
ii. The retiring employee is not less than 50 years of age at the time of retirement.
Choices
a) I and ii c) ii only
b) I only d) None
10. Which of the following income earned in the Philippines by a citizen is subject to income tax?
a) Winnings in Philippine Charity Sweepstake Lottery
b) Interest on government bonds as stipulated on the bond issue
c) Gains sale of 3-year bond
d) Value of property received as gift
11. A CDA registered cooperative is not subject to which of the following tax?
a) Output VAT
b) Final tax on interest income
c) Final tax on foreign currency income
d) Input VAT
12. The law excludes some items of income from taxation because
a) The transformation of these income into economic gain are not essentially the result of labor or efforts of
taxpayer.
b) The law or treaty provides that they are not taxable.
c) Some of these items are just return of capital.
d) All of the above.
13. The following are the exclusions from gross income, except,
a) Proceeds of life c) gifts, bequest and devises.
insurance policies.
b) Retirement benefits d) prizes and winnings.
14. Which of the following is excluded from the gross taxable income?
a) Retirement benefits c) Raffle prizes
b) Various winnings d) Rent income
1. Eddie resigned from his employment and received P25,000 separation pay. Glory received P30,000 as her
terminal pay due to retrenchment legally enforced by her employer. Joseph received P35,000 termination pay
when he was dismissed due to gross negligence.
a) Only the separation pay of Eddie is taxable.
b) Only the terminal pay of Glory is not taxable.
c) Only the termination pay of Joseph and Glory are not taxable.
d) Only the separation pay of Eddie and Joseph are not taxable.
2. Which of the following is taxable?
a) SSS and GSIS benefit
b) Social security benefits received by a balikbayan from employer abroad.
c) Separation pay received by a 50-year old employee due to the retrenchment program of the employer.
d) Interest income on time deposit.
3. Which of the following exclusion from gross income is not provided by special laws?
a) Prizes and awards on religious and educational achievement.
b) Winnings from lotto.
c) Winnings from Philippine Charity Sweepstakes.
d) Interest and capital gains on land covered by Land Reform under the purchaser tenant program.
4. The proceeds of insurance taken by a corporation on the life of the President to identify it against
Loss in case of his death is
a) Part of taxable income of the corporation.
b) Taxable income of the corporation.
c) Partly exempt, partly taxable.
d) Exempt from income tax.
5. Mr. Tso’s building with a book value of P2,000,000 was razed by fire. The insurance company paid
P1,400,000. The P1,400,000 proceeds is
a) Taxable in full. c) tax exempt.
b) Subject to final tax. d) any of the above.
6. Which of the following maybe excluded from the gross income of a taxpayer?
a) Income derived from bequest and devices.
b) Interest on proceeds of life insurance policies.
c) Interest received from a domestic corporation.
d) None of the above.
7. Which of the following is considered as taxable income?
a) Separation pays due to sickness.
b) Separation pays due to death.
c) Separation pays due to voluntary resignation.
d) Retirement pay of P3,000 per month.
8. Which of the following is a taxable income?
a) SSS contribution deducted from salary.
b) SSS sickness benefits.
c) 13th month pay in excess of P30,000.
d) Passive income earned by a citizen from sources outside the Philippines.
9. The following are taxable compensation for injuries except
a) Interest from nontaxable damages.
b) Compensatory liquidated damages.
c) Damages for loss of goods and other belongings.
d) Damages for unrealized profit.
10. which of the following cases is retirement benefit excluded from taxable income?
a) The retiree is 45 years of age and has been in the service for more than 20 years.
b) The retiree is 50 years of age and has been in the service for lesser than 10 years.
c) The retiree is more than 50 years of age and has been in the service of the same employer for 15 years.
d) The retiree is less than 50 years and has been in the service of the same employer for 10 years.
Rent apartment
Insurance premium (employer is beneficiary)
Reimbursement of personal expenses
From the above payment and transaction, what is the amount of taxable income accruing to Mr. Arango in 200C?
a) P -0- c) P 70,000
b) P40,000 d) P 50,000
What amount of these receipts is taxable and not taxable with income tax?
Taxable Nontaxable
a) P610,000 P - 0 -
b) P500,000 P110,000
c) P110,000 P500,000
d) P - 0 - P610,000
Problem 5-19
During the year, a resident citizen received the following among others:
Last pay upon resignation from 1st employment P 100,000
Separation pay due to closure of his 2nd employer 70,000
Retirement pay received from SSS as member 150,000
Which is the reportable income from data above?
a)P20,000 c)P150,000
b)P170,000 d)P100,000
Lotto-Philippines P 10,000,000
Boxing price 25,000,000
Gambling winnings 100,000
Raffle-refrigerator 20,000
The total winnings/ awards and prizes are not subject to income tax is
a) P2,505,000
b) P2,000,000
c) P1,905,000
d) P1,900,000
Required: Compute for the amount to be included in the gross income of Mr. Matiyaga for 200x based on the
following independent assumptions:
1) He received the retirement benefit for the first time after serving for 10 years.
2) He received the retirement benefit for the second time.
3) He has served the company for 10 noncontinuous years.
Question: Is the transfer excluded from income taxation if received by Miss Tandana upon the death of Judge Laxa?
Required: Compute for the gross income to be included in the income tax return of Mrs. Buduhan subject to noramal
or tabular tax.
1. Salaries of household maid granted by the employer to a managerial employee are taxable
fringe benefits
2. All household expenses are taxable fringe benefits.
3. A travel as fringe benefit required by the company to its officer is subject to fringe benefit tax
4. Holiday and vacation expenses of the managerial employee borne by his employer are taxable
fringe benefits.
5. All scholarship grants to the employees are non-taxable fringe benefits.
6. Contributions of the employer for the benefit of the employee for retirement, insurance and
hospitalization benefit plans are subject to fringe benefit tax.
7. All fringe benefits are subject to fringe benefit tax, except those covered by employer benefit
rule and de minimis.
8. A fringe benefit no t subject to FBT is also not subject to compensation income tax.
9. Fringe benefit tax is not applicable when the fringe benefit given is required by the nature of
or is necessary to the trade, business or profession of the employer, or when the fringe
benefit is for the convenience of the employer.
10. The monetized value of leave credits paid to government officials and employees is not
subject to FBT and withholding tax on compensation.
11. A medical allowance of P750 per employee per month to the employee’s dependent is a
nontaxable fringe benefit.
12. Daily meal allowance not exceeding twenty-five percent of the basic minimum wage is a “de
minimis.”
13. Monetized unused vacation leave credits of private employees not exceeding ten (10) days
during the year and the monetized value of leave credits paid to government officials and
employees part of de minimis.
6. Which of the following concepts denotes exemption from fringe benefit tax?
a. Convenience of the employer rule
b. Necessity to the business or trade of employer rule.
c. De minimis benefits
d. All of the above
b. No Yes Yes
c. No Yes No
d. Yes No Yes
Statement 2: The fringe benefit tax is to be withheld and remitted by the employer to the BIR
a. Statement 1 is correct.
b. Statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect
10. What is the value of fringe benefit if a property is furnished by the employer to be used by the
employee without transfer of ownership?
BookValue Fair market value Depreciated value
a. No No Yes
b. Yes Yes No
c. Yes No Yes
d. No Yes Yes
11. The following business travel is subject to fringe benefit tax, except
a. Hotel accommodation for $300 per day
b. Cost of economy airplane ticket
c. Inland travel expense
d. All of the above
12. Educational grant to the employee or his dependent by the employer is not subject to fringe
benefit tax, except when
a. the study grant is connected to trade
b. there is a written contract that the employee will remain to work for a period of time
c. the assistance was through competitive scholarship program
d. the study grant is not connected to trade
Problem 6-4A De Minimis
Mr. A received the following compensation and benefits during the year:
Taxable Nontaxable
a. P240,000 P30,000
b. P240,000 P38,000
c. P240,000 P44,000
d. P246,000 P38,000
Mr. B a minimum wage earner, received the following compensation and benefits during the year:
Total basic salary P96,000
a. P132,000
b. P116,000
c. P112,000
d. P -0-
Case 3- MWE with other benefits exceeding P30,000 ceiling
Mr. C, a minimum wage earner , received the following compensation and benefits during the year:
Taxable Nontaxable
a. P150,000 P30,000
b. P154,000 P52,000
c. P176,000 P30,000
d. P -0- P 206,000
Mr. D, a minimum wage earner, received the following compensation and benefits during the year:
Taxable Nontaxable
a. P176,000 P32,000
b. P194,000 P14,000
c. P182,000 P30,000
d. P181,000 P32,000
X corporation purchased a residential property with a zonal value of P5,000,000. The property has a fair
market value of P6,000,000.
1. If the property was assigned for the use of X Co.’s president, how much is the fringe benefit tax?
a. P70,588 c. P48,000
b. P58,824 d. P40,000
2. If the property was acquired for the use of X Co.’s manager for P2,000,000 down payment and
P1,000,000 on installment basis per year in 4 years (with an effective interest rate of 12% per year), how
much is the fringe benefit tax?
a. P70,588 c. P58,824
b. P59,264 d. P35,294
A Co. purchased a car for a cash price of P1,000,000. Of the A Co. purchased the car on installment, the
monthly payment would be P20,000 for 5 years.
1. If the company decided to maintain the car for the use of its president and other employees as
needed. How much is the fringe benefit tax?
a. P47,059
b. P56,471
c. P94,118
d. P112,941
2. If the company decided to transfer the ownership of the car in the name of its president, how much is
the fringe benefit tax?
a. P47,059
b. P56,471
c. P94,118
d. P112,941
An employer remitted to BIR P80,000 pertaining to amount withheld from cash benefit granted to its
managerial employee.
1. How much is the monetary value of fringe benefit paid to managerial employee?
a. P330,000
b. P250,000
c. P170,000
d. P80,000
a. P330,000
b. P250,000
c. P170,000
d. P80,000
3. The income tax expense deductible from the business income of the employer for this particular
payment is?
a. P80,000
b. P54,000
c. P25,600
d. P-0-
X Corporation paid P136,000 cash fringe benefit for year 200A representing 80% of the car incentive for
its area manager. X remitted the related final tax of the said cash fringe benefit. The amount to be
claimed as business deduction from business income is
a. P200,000
b. P170,000
c. P136,000
d. P108,800
EGV partnership withheld P19,200 from the fringe benefit granted to its office manager. Pertaining to the
amount tax withheld, how much would be the tax expense that the office manager could deduct from
his gross compensation income?
a. P-0-
b. P 1,644
c. P 19,200
d. P60,000
Joseph Estrada, a company messenger, received the following fringe benefits during the taxable period:
a. P31,520
b. P30,400
c. P24,000
d. P-0-
In 200B, the BIR found that X Corporation’s payments of fringe benefits to its managerial employees in
200A were charged to miscellaneous expense amounting to P102,000 . If the company’s 200A net
income after tax was P1,750,000 how much is the tax recovered by the government for the said
discovery if the requirement of expense deductibility is considered?
a. P83,700
b. P48,000
c. P78,600
d. P17,400
A Corporation assigned its residential building to be used by its CEO. The building was purchased for P
2,040,00 and has a zonal value of P 1,972,000. How much is the monthly fringe benefit by the CEO
a. P125,000
b. P 6,250
c. P 6,042
d. P 2,000
B Corporation rents a condominium in Baguio City to be used by its key officers that supervise the Region
I business operation. The monthly rental expense on the condominium is P34,000. Jean, the corporate
comptroller, is assigned in Baguio City for two months to investigate inventory fraud. She was assigned to
stay in the said condominium during the period of investigation.
How much is the amount of fringe benefit tax on the condominium?
a. P-0-
b. P8,000
c. P10,880
d. P16,000
Gerry, the chairman of the board, presented the following expense accounts paid by U Corporation:
a. P27,200 c. P22,400
b. P24,000 d. P9,600
Miss Clarene Sito, the production supervisor of the Universal Corporation was given a fringe benefit in
the form of a car whereby the company has shouldered 75% of the price. The price of the car is
P476,000
a. P700,000 c. P476,000
b. P525,000 d. P 357,000
In 200B, Miss Rowena Gorospe, a managerial employee, was reimbursed by her employer for the total
salary she paid to her house helper amounting to P16,320 for the year and P34,000 traveling expenses
incurred in connection with her duty as sales manager
How much would be the fringe benefit tax for the year, to be withheld by her employer?
a. P24,000 c. P16,000
b. P23,680 d. P18,496
Problem 6-15 Household Expense
A managerial employee received P57,800 cash from his employer. The amount is to repay the manager
of the amount paid as salary of the household helper of the manager’s family.
a. P85,000 c. P27,200
b. P57,800 d. P18,649
Andoy, an employee of P Finance Co. borrowed money from the company amounting to P88,400. The
company’s policy is to charge 3% per annum to its employees instead of its regular interest rate of 1.5%
per month.
1. If Andoy is a rank-and-file employee, how much is the fringe benefit tax on the interest benefits?
a. P6,240 c. P1,248
b. P3,744 d. P-0-
2. If Andoy is a managerial employee, how much is the fringe benefit tax on the interest benefits?
a. P6,240 c. P1,248
b. P3,744 d. P-0-
a. P160,000 c. P198,400
b. P192,000 d. P200,960
Assume that $1=P50 and all expenses are in the name of the employee reimbursed by the company.
a. P50,000 c. P150,000
b. P137,500 d. P237,500
How much is the fringe benefit tax for the plane tickets paid?
a. P19,200 c. P7,680
b. P25,600 d. P6,400
A managerial employee was given by his employer all paid up vacation expenses amounting to P408,000
plus salary of P34,000.
a. P650,000 c. P208,000
b. P600,000 d. P192,000
After passing the scholarship examination, J received P92,500 as educational from EGV foundation
wherein his father works as the VP for Operations.
How much is the fringe benefit tax?
a. P-0- c. P44,800
b. P30,464 d. P95,200
1. For the year 200A, Michelle Gallego, a dean of college, received from her employer an
educational benefit with cash value of P65,280. The fringe benefit tax is
a. P65,280 c. P15,360
b. P30,720 d. P-0-
2. Pertaining to the same data in number 1, the operating expense allowed as deduction from
business income of the employer is
a. P96,000 c. P30,720
b. P65,280 d. P-0-
Miss Mabukol, as the head of office, received the following fringe benefits during the taxable year:
Car P214,000
Uniform 6,800
Violeta, a branch manager of San Miguel Corporation since 200A, received a total annual salary of
P360,000. She also received a free housing benefit with monthly rent of P12,240 and fixed monthly meal
of P2,000 considered as part of her compensation income.
In 200B, her salary and, fringe benefits has been increased by 10%. During the year, in addition to her
previous fringe benefits the following cash benefit was extended to her by the corporation:
The following items of fringe benefits are given to Mr. Wong, a manager of Leslie Company:
Housing 25,000
Food 36,000
Transportation 10,000
Educational 20,000
Total P112,000
Required: How much is the fringe benefit tax due assuming that Mr. Wong is a (an):
Mr. C, a resident Filipino citizen, shows his income and expenses during a calendar year:
De minimis:
Required: Compute the taxable compensation during the year assuming that Mr. C is a:
Mr. B, a resident Filipino citizen, shows his income and expenses during a calendar year:
De minimis:
The following fringe benefits were received by a managerial employee from his employer:
1. Monetary value
2. Fringe benefit tax
In 200x, May Tamboc is a branch manager of PCI Bank. The bank assigned to her a condominium. If the
condominium is leased to others it has a monthly rent income of P25,000.
In addition, the bank purchased a car in the name of May. The car was acquired on installment with the
following terms: P300,000 down payment and P240,000 per year for 5 installment. The effective interest
rate is 12% per year.
Required:
1. Compute the fringe benefit tax of each fringe benefit received
2. Make the appropriate journal entries of each fringe benefit.
1. The original issue by a corporation of its shares of stock above par value is subject to capital
gains tax
2. A disguised sale is a sale or exchange transaction between two related parties with intent of
partly sale and partly gift
3. The gain or loss on sale of partner’s interest (capital) in the partnership is a capital asset
transaction
4. If the property sold is not subject to mortgage, the contract price is usually the selling price
5. Gains from wash sales are taxable and losses from wash sales are deductible
6. There is a wash sale if within a 61-day period , a taxpayer sold its 1,000 common stocks and
subsequently purchased 1,000 preferred stocks
7. Banks and trust companies are dealers in debt securities
8. If stock dividends are included in the number of shares sold, an allocated cost of the original cost
shall be assigned to the said stock dividends
9. Realty business registered with HLURB engaged in socialized housing project with selling price
per house of P18,000 in Metro Manila is exempt from creditable withholding tax
10. The capital gains tax of 6% based on the higher amount of selling price or zonal value simplifies
the complex computation of donor’s tax and capital gains tax
11. Real property sold in the Philippines by a nonresident foreign corporation is subject to a final tax
based on the selling price
12. If a domestic corporation sold a real property located outside the Philippines the net income
thereof shall be subject to a normal tax of 35%
13. Liquidating dividends in general is not taxable if only a return of investment
14. Issuance of a corporation of its bonds at a premium gives rise to capital gain
Problem 7-4 Multiple Choice
1. Which of the following is a capital asset?
a. Inventory for sale
b. Real property for rent
c. Equipment used in business
d. Investment property
9. The sale of real property that is considered as capital asset shall be taxed at 6% of
c. selling price, where the zonal value is 80% of the selling price
d. zonal value, where the zonal value is 80% of the selling price
10. If the real property sold is classified as inventory with a selling price of P3,000,000 and zonal value of
P4,000,000 the creditable withholding tax is
c. determined cost over the value received from the sale or exchange of a capital asset
13. When a taxpayer provided a consideration for an option period to buy a capital property but such
privilege was not exercised, the option money shall be considered
1. For income taxation purposes, which of the following is classified as capital asset of a
manufacturing business?
a. Work-in-process ending inventory
b. Investment in equity securities
c. Factory building
d. Office equipment
2. The following rules shall be observed when a capital gain or loss is sustained by a
corporation, except,
a. Capital gains and losses are recognized to the extent of its full amount
b. Capital losses are deductible only to the extent of capital gains
c. Net capital losses are not deductible from ordinary gain or income but ordinary losses
are deductible from capital gains
d. There is a holding period
3. To compute for the gain or loss in the disposition of the capital assets, the selling price
should be reduced by
a. Cost of the capital assets
b. Cost and expenses of the capital assets acquired
c. Disposition expenses of the capital assets
d. Acquisition cost and disposition expenses of the capital assets
4. Which of the following rules shall be observed on securities becoming worthless for
purposes of income taxation?
a. The securities are ascertained worthless and written off
b. The taxpayer owning the securities written off should not be bank or trust company
c. The written off amount is a capital loss
d. All of the above
5. Sales of stocks of a domestic corporation traded through a local stock exchange are
subject to a
a. Percentage tax of one half of one percent
b. Final tax of five percent if the net capital gain is not over P100,000
c. Final tax of ten percent on any amount in excess of P100,000
d. Percentage tax of one fourth of one percent
6. If the stock cannot be properly identified, the following rules are applicable in the
determination of the cost of the shares of stocks, except
a. The cost to be assigned shall be on the basis of the first-in first-out method
b. The cost to be assigned shall be on the basis of the average method if the seller
maintains a record for every particular stock
c. An allocated cost shall be assigned to stock dividends to get the cost of each stock
d. No cost shall be assigned to the stocks since the stocks cannot be properly identified
8. Sales of stocks of a domestic corporation not traded through local stock market are
subject to a final tax of
a. 5%
b. 10%
c. 10% on the net gain not over P100,000
d. 5% on the net gain not over P100,000 and 10% on the excess of the first P100,000
9. If the proceeds are from the disposition of principal residence and fully utilized in
acquiring or constructing a new principal residence, the capital gain is not subject to tax
if the
a. acquisition or construction of the new residence us within 18 months
b. Commissioner is notified within 30 days from the date if disposition of the taxpayer’s
intention to avail of the tax exemption
c. Historical cost or adjusted basis of property sold is carried over to the new principal
residence
d. All of the above
11. Which of the following is/are to be included as part of the selling price of installment
sale?
i. Cash payment by the buyer
ii. Non-cash item given by the buyer
iii. Existing obligation assumed by the buyer
iv. Promise to pay originated by the buyer
a. i, ii, and iv only c. i and ii only
Ordinary assets:
Capital assets:
a. P900,000 P 600,000
b. P 850,000 P 650,000
c. P 650,000 P 950,000
d. P 350,000 P 1,150,000
1. If per subdivided lot is sold for P100,000 per 200 square meters, how much is
the ordinary gain from the sale of land?
a. P 4,500,000 c. P 2,700,000
b. P 4,000,000 d. P 2,500,000
Mr. Basa exchanged his car with a cost of 250,000 and a book value of 150,000 to a lot with a fair market
value of 190,000 and a zonal value of 150,000
a. (60000) c. 50000
b. 40000 D. 90000
a. There is a capital gain if the property given away has fair value lesser than 200000 at date of
exchange
b. There is capital gain if the property given away has acquisition cost that is higher than 200000.
c. There is capital loss if the property given away has fair value more thabn 200000 when it was
inherited.
d. There is capita loss if the property given away has fair value at the date it was received as
donation that is lower than 200000.
Miss Bambao owns a parcel of land worth 500000 which she inherited from her father in 200A when it
was worth 300000. Her father prrchased it in 1996 for 100000.
If miss Bambao transfers this parcel of land to her wholly owned corporation in exchanged for share of
stocks of said corporation worth 450000, miss bambao’s taxable gain is
a. -0- c. 150000
b. 50000 d.350000
Mr. Alejandro Ciencia sold his capital asset for a sales price 500000.the sale was subject to 10% agent
commission based on the gross capital gain and a processing fee of 1% based on the sales price. The
capital asset was acquired by Mr. Ciencia for a purchase price of 200000 including installation and
insurance cost of 20000.
a. 200000 c. 235000
b. 225000 d. 275000
Problem 7-12 Special Rules
A acquired a capital asset for 50000. He donated it to X corporation when the market value was 80000.
After 2 years from date of donation, X sold the capital asset for 150000.
a. 100000 c. 50000
b. 70000 d. 35000
A taxpayer sold his capital asset previously acquired at a cost of 150000. He spent another 20000 to put
it to its intended use. Subsequently, the same capital asset was sold for 200000 before broker’s
commission and 5% based on sales price. The capital gain is
a. 50000 c. 30000
b. 40000 d. 20000
Cash 30000
Inventory 20000
X sold the business for P100,000, the buyer assuming the outstanding liabilities. Which of the following
is true, pertaining to the sale?
Under the Tax Code, how much shall be taken into account in computing the net income, if a gain is
realized by an individual taxpayer from the sale or exchange of capital asset (other than real properties
and shares of stocks) held for more than twelve months?
A capital asset of an individual was acquired at cost of P100,000. Subsequently, this owner died and the
capital asset is transferred to a religious organization when the fair market value was P120,000. They
later sold the capital asset for P200,000 after holding it for 2 years.
a. P 40,000 c. P 80,000
b. P 50,000 d. P 100,000
Year 1 Year 2
Capital gain for asset held for more than a year 50,000 40,000
Capital loss for asset held for less than a year 40,000 10,000
The following are the transactions of the X business for the year:
a. P 95,000 c. P 80,000
b. P 90,000 d. P 75,000
a. P 95,000 c. P 80,000
b. P 90,000 d. P 75,000
200A 200B
1. The taxable income before personal exemption of Mr. Dolinta for 200A is
a. P 30,900 c. P 48,900
b. P 45,835 d. P 64,795
2. The taxable income before personal exemption of Mr. Dolinta for 200B is
a. P 131,400 c. P 105,530
b. P 108,595 d. P 82,530
C reported the following income and losses for the years 1 and 2:
Year 1 Year 2
a. P 330,000 c. P 270,000
b. P 280,000 d. P 170,000
b. P 280,000 d. P 170,000
In addition to his business as construction materials dealer, Mr. Espiritu had the following transactions in
200x:
a. P 76,500 c. P 27,000
b. P 42,000 d. P 26,500
BPI Family bank and Trust Co. reports the following results of operations:
If BPI is a dealer of debt and equity securities, how much is the net capital gain of BPI Family Bank?
a. P -0- c. P 800,000
b. P 1,000,000 d. P 750,000
Marizza bought shares of stock not through the local stock exchange in 1999 for P 50,000. These shares
were donated to Roel Evangelista in 200A when the fair market value was P 300,000. Mr. Evangelista sold
the shares directly to the buyer in 200B for P 400,000
a. P 350,000 c. P 400,000
b. P 100,000 d. P 300,000
The following capital stock transactions on shares of stock were reported by an individual taxpayer:
If tax returns were filed and paid on prescribed dates, how much capital gain tax should be reported
within 30 days from November sales?
a. P 1,500 c. P 6,500
b. P 3,000 d. P 8,000
The following are the transactions of Maricris for the year 200A:
Sale of shares of stock of X corporation which she acquired previously at P100 per share:
(1) 1,000 shares sold in the stock exchange at P 105 per share
(2) 1,000 shares sold outside the stock exchange at P 110 per share
a. P 500 c. P 1000
b. P 750 d. P 1,500
Corporation sold its 5,000 investment in stock of SMC Co. for P 500,000 with a realized 30% gross profit
on sale. Other expenses incurred were agent commission of P 3,800 and documentary tax of P200.
If Garoy is a dealer in securities, how much is the tax exposure assuming the shares were:
a. P 2,500 c. P 29,600
b. P 46,300 d. P 43,800
a. P 2,500 c. P 17,500
b. P 9,600 d. P 43,800
(1) Total share issued 1,000 shares of P100 par value per share, sold at P120 per share.
(2) Total shares retrieved 250 shares at cost of P125 per share.
(3) From the total shares retrieved, 100 shares were sold outside stock market at P150 per share.
What would be the net capital gain before tax for the year?
a. P 22,500 c. P 21,250
b. P 20,000 d. P 2,500
Marjorie Corpuz is an investor in X Corporation. In 200A she has 1,000 share holdings acquired at P120 per share or
a total investment cost of P 120,000 classified as capital asset.
200B Transactions:
a. P 8,000 c. P 3,000
b. P 5,000 d. P 2,000
3. Supposing that all of the remaining 300 shares were liquidated in December 200B at P100 per share because of
bankruptcy of X Corporation. What would be the capital loss in December 200B?
X Corporation issued 5, 000 of its P20 per share common stock at P25 per share. Of the 5, 000 common share
issued, 2, 000 shares were reacquired for P21 per and eventually reissued for P23 per share.
a. P 25,000 c. P 4,000
b. P 12,500 d. P-0-
Manwong is a resident of Mankayan, Benguet. He sold his family home for P4, 000, 0000 which was previously
acquired for P2, 000, 000. Manwong complied all BIR requirements to avail of tax exemption and spent P2, 500,
000in acquiring new family home.
Hunk sold his old residential house and lot for P5,000,000 and acquired a new residential house and lot for
P9,000,000. How much is the cost of the new residence and capital gains tax on the said sale if the old house and a
lot was previously acquired for P2,000,000 and no tax exemption was allowed by the BIR?
On August 15, 2007, Mr. Tandingan, sold 500 square meter residential land for P300, 000. The land was acquired in
1999 for P200, 000 and classified as capital asset. On the date of sale the fair market value as shown in the real
property declaration is P250,000 and the assessed value amounts to P75,000. The zonal value is P700 per square
meter. The capital gain tax is
In 200A, Mr. Del Rosario acquired his principal residence for P6, 000, 000. He sold it to Mr. De la Cruz for P12, 000,
000 in 200D. Within 30 days, he wrote the BIR for tax exemption because he intends to use the entire sales
proceeds to purchase a new principal residence.
How much is the basis of the new residence for the taxation purposes if he actually acquired it for P15, 000, 000?
The following are the transactions of Ruby pertaining to sale of real properties for the year 200x:
(a)Sale of vacant lot used as open warehouse of her trading business, P500, 000. This was acquired 2 years ago at
P200, 000.
(b)Sale of her residential lot for P1, 000, 000, the zonal value at date of sale is P1, 200, 000. This was purchased 3
years ago at P400, 000.
1. What would be her final tax for these real estate transactions?
RCBC, a domestic bank, foreclosed a real property with a zonal value of P550, 000 in payment for a P400, 000
client’s unpaid loan. Subsequently, the property was sold for P500, 000.
Camella Homes, a realty corporation, sold the following real property during a taxable year:
INCOME TAXATION
Sales price/unit
The operating expense incurred during the year is P2, 800, 000. How much is the creditable withholding tax and
income tax still due and payable of Camella Homes?
The San Fernando City Government sold 10 hectares of land to Goldrich Realty Corporation (a member of HLURB)
at a price of P10, 0000, 000.
2. How much is the income tax still due and payable by San Fernando Government?
1. A sold his real property with a cost of P1, 000, 000 to B. At the date of sale, the land has a zonal value of P10,
000, 000 but the selling price stipulated in the absolute contract of sale is P6, 000, 000. How much is the capital
gains tax on the sale of land?
2. Based on number 1, what is the capital gain tax if A is a bank and the land sold were acquired by foreclosure
from clients?
3. Based on number 1, if A sold his land to B who is a government owned and controlled corporation, what is the
amount of creditable withholding tax on sale if A opted to apply the normal tax rate?
4. Based on number 1, assuming that A is a religious group, how much is its capital gain tax it should pay if the said
religious group is exempted from real property tax?
The real property with a cost of P400, 000 was sold for P1, 000, 000. P120, 000 down payment, P500, 000 unpaid
mortgage assumed by the buyer. The selling price is?
The real property with a cost of P400, 000 was sold for P1, 000, 000. P120, 000 down, P500, 000 unpaid mortgage
assumed by the buyer. The contract price is?
a. P500000 c. P900000
b. P600000 d. P880000
The real property with a cost of P400, 000 was sold for P1, 000, 000. P120, 000 down payment, P500, 000 unpaid
mortgage assumed by the buyer. The balance is payable P950, 000 every December 31 for the next 4 years. The
initial payment is?
The real property costing P500, 000 was sold P1, 500, 000, P20% down, unpaid mortgage of P300, 000 assumed by
the buyer, balance payable in 3 equal annual installments. Under installment method of reporting income, the
income to be reported in the year of sale is?
The real property with a cost of P400, 000 was sold for P1, 000, 000. P120, 000 down payment, P500, 000 unpaid
mortgage assumed by the buyer. The balance is payable P950, 000 every December 31 for the next 4 years. The
reportable income under installment method in year of sale is?
Villa Corporation, a real estate developer and member of HLURB, sells socialized housing. In 200B, records show the
following sales of houses as follows:
b. 30 houses: selling price of P1, 000, 000 each, gross profit of 30%
c. 40 houses: selling price of, 500, 000 each, gross profit of 35%
Required: Compute for the creditable withholding tax and income tax still due and payable on the sales.
The following data pertains to the transactions of Miss Lacy De Guzman for the 200B:
Sale of vacant lot used as open warehouse for her trading business.
This was acquired 2 years ago at accost of P150, 000 200, 000
And lot. All pertinent BIR requirements were complied with. 1, 000, 000
Sale of her personal computer. He bought this for her personal use,
Sale of personal car, acquired 3 years ago at P50, 000 100, 000
Questions:
2. How much is the supposedly final tax taken from the proceeds of Miss De Guzman transactions for the year
200B?
Required: Compute the tax due and payable for the 350 shares sold assuming that the shares are not traded in
stock exchange using (a) FIFO Method (b) Moving Average.
In 200A, Miss Virginia Reyes sold outside stock exchange 1, 000 shares of stock with a cost of P80 per share for
P150 per share under the following terms:P300, 000 down payment and the balance shall be payable in three equal
annual installments.
Required: Compute the annual tax due of Miss Reyes for 200A, 200B, 200C and 200D.
Miss Limas sold a real property(capital asset) under the following terms:
Additional information:
a. The real property was purchased five years ago at a cost of P600, 000.
b. The property was mortgaged for P650, 000 which was assumed by the buyer.
1. Initial payments
2. Selling price
3. Contract price
a) Gave P5, 000 option money to buy a capital asset of Mr. Yew of which she did not exercise.
b) Invested P1, 000, 000 in San Pedro Corporation’s bonds with an interest of 30%which was retired after 9 months
for 120.
c) Received P50, 000 from Mr. Chu for 20, 000 common shares with market value of P3.00 per share delivered
immediately
d) Invested P20, 000 for 100 common shares in Philippine Airlines which was ascertained insolvent.
Required: Compute the net capital gain or net loss incurred by Mrs. Dolinta.
On December 31, 200B, Trinidad Wood Corporation sold its land with erected warehouse to the Benguet Provincial
Government at sales price of P3, 000, 000. The land was previously acquired by Trinidad for P2, 000, 000 and the
warehouse has a remaining book value of P200, 000 at the date of sale. Trinidad books of accounts shows the
following data related to its 200B operations:
Sales
Questions: Trinidad intends to pay the sale to the land at its capital gains tax of 6% instead of opting to pay the
normal tax with a creditable withholding tax of 6%. Is Trinidad correct? Show your supporting computation.
Loakan Corporation sold the residential building used as housing privilege of its employees for P10, 00sales p, 000.
The building was previously constructed at P8, 000, 000 with recorded accumulated depreciation of P7, 500, 000.
The corporation wrote the BIR to avail of the tax exemption privilege because its plan to use the entire sales
proceeds to construct a new residential building amounting to P10, 000, 000.
Question: Can Loakan avail of the tax exemption? Justify your answer.
Required:
1. What is the amount of taxable income for years 3 and 4 before personal exemption if T is an individual taxpayer?
2. What is the amount of taxable income for years 3 and 4 if T is a corporate taxpayer?
Problem 7-53 Capital Asset Transaction
Business income P200, 000 P400, 000 P450, 000 P520, 000 P600,000
Business expenses 300, 000 350, 000 400, 000 500, 000 500, 000
Capital
Short-term gain (loss) 120, 000 (100, 000) -0- 70, 000 50, 000
Long-term gain (loss) (100, 000) 180, 000 20, 000 (200, 000) -0-
2. Corporation
In 2009, Toyota Philippines sold a land Cruiser (inventory) costing P4, 000, 000 for P5, 000, 000 by installment. The
terms of payment were:
Downpayment 40%
3. Assuming that the Land Cruiser is classified as a capital asset, how much is the reportable gross income 2009?
Mr. S sold his family home costing P1, 200, 000 for P3, 000, 000. He applied for tax exemption. He spent P2, 000,
000 for the construction of his new residential home.
1. If the tax exemption was granted how much is the capital gains tax?
2. Based on No. 1, how is the basis of the new residential home?
3. If the tax exemption was not granted, how much is the capital gains tax?
In 200x, X sold a real property lot (capital asset) by installment by P3, 000, 000. Information related to the
sale:
Downpayment 20%
1. Initial payment
2. Contract price
Mr. I had the following transactions in ABC Corporation’s ordinary shares classified as capital asset:
Jan. 10, 200x Purchased 9, 000 shares at P50 per share P450, 000
Jan. 20, 200x Purchased 5, 000 shares at P50 per share 250, 000
Feb. 10, 200x Purchased 4, 000 shares at P45 per share 180, 000
Feb. 14, 200x Sold 8, 000 shares at P40 per share (FIFO) 320,000
5. If on Feb. 25, Mr. I sold 4, 000 shares P60 per share, how much is the capital gain (loss)?
Y, a shareholder, owns 100, 000 A Co. shares which cost him P9 per share. As a result of merger of A Co. and B Co.,
he received from b Co. the following shares:
Required:
3. Assume that the ordinary shares were sold for P25 and preference share for P60 per share, determine the net
gain or loss.
4. If the shares were sold in the stock exchange, compute the percentage tax.
5. If the shares were sold not in the stock exchange, determine the capital gains tax.
6. Choosing the lower tax between 4 and 5, determine the tax advantage.
As a result of merger, Mr. X transferred his A Co. shares with a basis of P180, 000 in exchange for the following:
Required:
5. If the investment in B Co. shares were sold for P250, 000, compute the gain or loss on sale.
Classify the item whether deductible or non deductible from business gross income.
2. To compute for optional standard deduction, a taxpayer should multiply 10% of the
a. net income
b. gross income before itemized deductions
c. gross income after expenses
d. all of the above.
4. Which of the following is not allowed as deductible in full from gross income?
a. Entire amount expended for meals, lodging, and travel in connection with own business.
b. Tuition fees, board and lodging incurred by amedical doctor while attending acontinuing
professional education seminar.
c. Costs of technical books used by a CPA in the practice of his profession.
5. Which of the following is not allowed as deductible in full from gross income?
a. Interest expense paid by the bank.
b. Interest expense paid by the taxpayer in relation to the purchase of merchandise by
installment.
c. Interest expense paid to the relative of the taxpayer.
d. Interest expense with reported interest income.
6. The following taxes are not allowed as deductions from gross income, except
a. Documentary stamp tax. c. percentage tax.
b. Special assessment tax. d. value added tax.
8. The following are requisites of depreciation expense to be deducted from the gross income.
a. It must be reasonable and charged off during the year.
b. It must be used in business, profession or trade.
c. The asset subject to depreciation must have a limited life.
d. All of the above.
10. Statement 1: the taxpayer has the burden of justifying the allowance of any deduction claimed.
Statement 2: deductions are strictly construed against the taxpayer.
11. Statement 1 : revenue expenditures are period costs that are related to a particular period of
time of business operation.
Statement 2: capital expenditures are non – recurring expenditures related to acquisition of
depreciable assets to be used in the business.
12. Which of the following expenses of the business would be allowed as deduction from its
business income?
a. insurance premium on life insurance of employee where the employer is the beneficiary.
b. Donation made to employees.
c. Losses incurred on transaction wiyh related party.
d. Regular repairs of business property.
13. Statement 1: in preparing financial statements, GAAP should prevail over the Tax Code.
Statement 2: in preparing tax returns, tax code should prevail over GAAP.
4. Statement 1: unless the taxpayer signified in his return that he is electing the standard
deduction, he is deemed to have availed of the itemized allowable of deductions.
Statement 2: in case of consolidated income tax return of husband and wife, each is allowed to
choose from either optional or itemized deductions.
5. Statement 1: self employed taxpayer is required to file his quarterly income tax return.
Statement 2: the option ton avail of optional or itemized deduction could be opted for each
quarter.
8. Statement 1: as a general rule, if the taxpayer is in cash basis of accounting, prepaid interest is
allowed as deduction in the year tha principal is fully paid.
Statement 2: prepaid interest made by service business is deductible in the year when the
interest is paid.
10. Statement 1: the amount of deductible taxes is limited to the basic tax and shall not include thae
amount for any surcharges or penalty.
Statement 2: interest on delinquent taxes is deductible from gross income in full amount.
1. Statement 1: gains arising from transactions between related taxpayers are taxable.
Statement 2: losses incurred from transactions between members of the family are not
deductible from business income.
a. Both statements are correct.
b. Only statement 1 is correct.
c. Only statement 2 is correct.
d. Both statements are incorrect.
6. Statement 1: the optional standard deduction is allowed to all individual taxpayers earning
business income.
Statement 2: the optional standard deduction is 10% of gross business income.
a. only statement 1 is correct.
b. Only statement 2 is correct.
c. Both statements are correct.
d. Both statements are not correct.
7. Statement 1: husband and wife should report their income and expenses in the same or
common tax return.
Statement 2: husband may choose itemized deduction while the wife may choose optional
standard deduction or vice versa.
9. Which of the following expenses incurred in relation to conduct of business could be deducted in
full, if the net sales is P1,000,000?
i. salaries of employees, net of withholding tax
ii. P60, 000 rent expense
Choices:
c. I and ii only
d. I only
10. The interest expense allowed as deduction for individual taxpayer must be.
a. 100% of actual amount even when interest income for the same taxable year is very
minimal
b. 38% of the actual amount of interest income earned the same taxable year
c. 62% of the actual amount of interest expense or interest income which are equal to
each other
d. 100% of the actual interest expense if the interest expense is lower than the interest
income for the same year
Expensed Capitalized
a. P–0– P130,000
b. P10,000 P120,000
c. P20,000 P110,000
d. P60,000 P70,000
From the above expenses, how much is the allowed deduction from S compensation?
a. P – 0 – c. P65,000
b. P60,000 d. P90,000
The deductible expenses and losses from Mr. Bago’s business income is:
a. P 164,000 c. P60,000
b. P154,000 d. P54,000
1. From the items above, how much is the total deduction form gross compensation income of
Linar?
a. P – 0 – c. P20,000
b. P 18,000 d.P25,000
2. From the items above, how much is the total deduction from gross income from professional of
Linar?
a. P – 0 – c. P20,000
b. P 18,000 d.P25,000
The miscellaneous expense was incurred but not reported last year.
a. P 250,00 c. P200,000
b. P 248,000 d.P150,000
2. The net amount of income that would enjoy tax savings would be:
a. P 360,00 c. P180,000
b. P 208,000 d.P172,000
Phoenix Corporation paid the following salaries and fringe benefits to its officers and employees for
200B:
*The P320,000 final tax on fringe benefits shall be payable to the BIR not to the employee.
The total amount of allowable salary and fringe benefits expenses that could be claimed by Phoenix
Corporation would be
a. P 7,000,000 c. P5,980,000
b. P 6,000,100 d.P5,300,000
2. Transportation expenses of its officers from home to office and vice versa as part of their employment
contract, P68,000 from which final tax P32,000 was remitted. Transportation expenses of messengers
from office to several clients’ place at P40,000, inclusive of meals amounting to P25,000.
How much is the total allowable expense that could be claimed by A Corporation?
a. P250,000 c. P350,000
b. P318,000 d. P390,000
If a uses 60% of the space for business and the remaining 40% for residence, how much is the deductible
rent expense to be reported by A for the year ending December 31, 200B?
a. P48,500 c. P24,450
b.P44,750 d. P26,700
G’s records show the following rental collections and payments during the year:
Total payments P 80,000
Total collections 150,000
The monthly deductible expense from the above contract would be:
a. P2,000 c. P7,000
b. P6,250 d. P8,250
2. If the business is a service business, the deductible amount of representation and entertainment
expenses is:
a. P5,000 c. P30,000
b. P25,000 d. P50,000
How much is the total operating expense deductible from gross income?
a. P100,000 c.P81,800
b. P83,000 d. P80,900
If Mr. Tee has an interest income of P10,000 earned from the bank, how much is the deductible and
nondeductible interest expense during the year?
a. P28,000 c. P142,000
b. P8,000 d. P162,000
If there is no limitation on the deductibility of interest expense, how much is the tax savings of Ajoy?
a. P6,000 c. P12,000
b. P30,000 d. P11,000
Problem 8 – 34 Tax Expenses
Care Corporation incurred the following taxes during the taxable year.
The amount of taxes deductible from gross income of Care Corporation would be:
a. P9,500 c. P46,500
b. P28,500 d. P51,900
The business expense includes P10,000 representing income tax payment made in foreign country. If his
personal exemption is P50,000, how much is the correct taxable income to avail better tax savings?
a. P320,000 c. P300,000
b. P310,000 d. P280,000
2. 100% of bad debts from profession are actually written off during the year
3. Uncollectible salary was due to employer’s bankruptcy.
4. Brother died from operation and could not pay anymore.
If Gold Ore was able to produce 800,000 tons of gold ore, how much is the deductible depletion
expense?
a. P752,000 c. P848,000
b. P800,000 d. P960,000
1. The new depletion rate if the additional exploration and development costs will be part of the
adjustment on depletion rate would be
a. P3.00 c. P2.38
b. P2.50 d.P2.00
3. If the additional exploration and development cost are to be treated as direct deduction from the
taxable income, how much would be the allowable amount for 200x?
a. P2,500,000 c. P1,000,000
b. P1,725,000 c. P605,000
4. Taking option 2, direct deduction from gross income, what amount of exploration and
development costs would be charged to succeeding years?
a. P625,000 c. P1,000,000
b. P775,000 d. P2,500,000
1. If the retirement plan is BIR-registered, how much is the deductible retirement expense for year
200C?
a. P300,000 c. P800,000
b. P530,000 d. P830,000
2. If the retirement plan is NOT BIR-registered, how much is the deductible retirement expense for year
200C?
a. P300,000 c. P800,000
b. P530,000 d. P – 0 –
Year X Year Y
Benefit expense for accounting purposes P750, 000 P900, 000
Actual contribution 800, 000 600, 000
How much retirement expense is deductible for year Y?
During the same year, X reported a business income of P31, 500, 000 and business expenses of P22, 500,
000 before the amount of donation per MOA.
Required: If Laban cannot substantiate with receipts the operating expense, how much is its income
from operations using optional standard deductions?
Receipts:
Professional fees P 500, 000
Allowance as director of Corporation A 25, 000
Interest on time and savings deposits, net of 20% final tax 16, 000
Commissions 5, 000
Expenditures:
Interest on the loan (The loan was used for the repair
Of the residential house of Mr. Arroyo) 3, 850
Required: Compute for the allowable deductions from the business gross income
Love Enterprises incurred the following business expenses in the taxable year 200x:
a) Allowance per aging of accounts receivable at the beginning and ending of the year are P20, 000
and P30, 000 respectively. The firm’s provision for bad debts during the year is P15, 000.
b) Accumulated depreciation on machine at the beginning is P100, 000 but at the end of the year is
P110, 000. During the year, the firm sold a machine with a cost of P300, 000 and an accumulated
depreciation of P30, 000 and purchase at the end of the year a new machine worth P400, 000
with a better capability.
Required: Compute the total allowable deductions of Love Enterprises assuming that the firm is a
1. Sole proprietorship
2. Corporation
3. Partnership
Problem 8 – 54 OSD and NOLCO
X Co. reported the following income and expenses for a calendar year:
Only 30% of the operating expenses can be substantiated with official receipts. Included in the operating
expenses is P50, 000 interest expense.
Required:
3. Net taxable income using the amount that provides tax advantage
X Corporation maintains a BIR registered benefit retirement plan. The company’s normal cost per
actuarial valuation for funding is P1, 000, 000 and P1, 200, 000 for years 200A and 200B, respectively:
2. Net income before income tax for years 200A and 200B
Problem 8 – 56 Financial to Tax Reporting
X, reported the following income and expenses during the calendar year:
Bad debt expense (of which only 20% actual write-off) 100, 000
1. Corporate taxpayer
2. Individual Taxpayer
Problem 8 – 57 ________________ to Tax Reporting
a. Salaries expense:
c. Retirement expenses deducted amounted to P1, 000, 000. The retirement plan is not BIR-registered.
Actual retirement payments amounted to P620, 000.
f. Rent expense”
a. Individual taxpayer
b. Corporate taxpayer
Chapter 9
Losses
Problem 9-1 True or False
Write True if the statement is correct or False if the statement is incorrect.
3. If there is a partial loss, the allowable deduction will be the book value of the damaged asset at the time
of loss.
5. A loss claimed as deduction from estate tax purposes should not be claimed as deduction for income tax
purposes.
6. Gambling losses can be deducted from gambling gains and capital gains.
8. Loss incurred from the sale of business furniture is deductible from business income.
9. Loss from embezzlement of business fund is a loss deductible from business income.
10. Fire damage on the sold proprietorship’s equipment is deductible from business income.
11. Typhoon damage on the residence of the owner of the business is not allowed as deduction from business
income.
12. Net operating loss of prior year could be claimed as deduction from business income of the current year.
13. Partial loss on business property, plant and equipment is deductible loss from business income.
14. A loss claimed as deduction for estate tax may be claimed as deduction for income tax purposes.
15. NOLCO could be deducted from next year’s business income of a sole proprietorship which is opting for
optional standard deduction.
16. The NOLCO should be deducted from gross income to arrive at base amount for the computation of MCIT.
3. If the casual loss on business property is partial, the deductible loss is the
a. replacement cost to put back the business property to its operating condition
b. actual cost of damaged on business property
c. higher amount between a and b
d. lower amount between a and b
9. Statement 1: A loss in one line of business is not permitted as allowable deduction from gain in another
line of business, if one of the two lines is exempt from tax
Statement 2: Losses from transactions between related party taxpayers may be allowed as deduction as
long as supported by documentation
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect
10. Statement 1: When the loss is cause by embezzlement of funds by a known person, the loss sustained is
not deductible on the year of commission or discovery, but in the year when the right of recovery
becomes worthless
Statement 2: The loss on mortgage is determined upon sale of the property by the mortgagee
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect
12. Statement 1: Domestic and resident foreign corporation taxed during the year with MCIT cannot claim
NOLCO.
Statement 2: Decline in the value through market fluctuation of investments in stock of a corporation is
not a deductible loss.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect
The equipment has an accumulated depreciation of P150,000 at date of fire. To acquire new equipment of the same
type will cost P110,000. The allowable deductible loss is
a. P200,000 c. P60,000
b. P110,000 d. P50,000
Required: Compute for the deductible loss from business income related to above construction.
Required: Compute for the deductible loss at balance sheet date and reportable gain on June 30
Required: Compute for the net operating loss that could be carried over for the next 3 succeeding years.
Required: Compute for the NOLCO that could be deducted from year 2 income.
Required: Compute for the deductible loss from business income of the bank
X opted to deduct OSD because the cash disbursement that represent business expense are not properly supported
with documentation.
Due to losses and since the company has been in existence for more than 3 years, the BIR required Y co. to pay a
minimum corporate tax of 2% based on gross income.
The Burglary loss was reported to the police station within 90 days but such loss was not reported to the BIR. The
cashier was traced capable for the embezzlement.
Required: Compute the following:
1. Deductible loss from gross income
2. Deductible loss from capital gain
Problem 9-22 Losses from farming
The following losses were incurred by Dizon Farms during the calendar year:
Shrinkage loss if farm products produce P140,000
Casualty losses of propective products 40,000
Casualty losses of animals raised in the farm 20,000
Death of livestock previously purchased 10,000
Cost of property expropriated by the government:
The government paid only 10,000 as compensation 30,000
Chapter 10
1. When different type of income are subjected to common tax rate, the tax system is described as:
a. Global tax system c. scheduler tax system
b. Gross income tax system d. final tax system
2. Scheduler tax system of income taxation means:
a. All types of income are added together to arrive at gross income
b. Separate graduated rates are imposed on different type of income.
c. Capital gains are excluded in determining gross income.
d. Compensation income and business professional income shall be added together in arriving at gross
income.
3. Which of the following taxpayers are taxed for income earned within and outside the Philippines.
i. Resident citizen
ii. Resident alien
iii. Domestic corporation
iv. Resident foreign corporation
Choices
a. i,ii,iii,and vi c. i and iv only
b. i,ii and iv only d. i and iii only
4. a self employed taxpayer is required to file his quarterly income tax return in
a. BIR Form 1700 c. BIR Form 1701Q
b. BIR Form 1701 d. BIR Form 2316
5. A domestic corporation is required to file its annual income tax return in
a. BIR Form 1700 c. BIR Form 1701Q
b. BIR Form 1701 d. BIR Form 2316
6. The quarterly tax return of a commercial partnership is required to be reported in BIR Form
a. 1700Q c. 1702Q
b. 1701Q d. 2316Q
7. Which of the following is required to file quarterly income tax return?
a. Compensation income c. Annual income tax
b. Passive income d. Capital gain
8. An income tax that is used to reduced the income tax due at the end of the year.
a. Creditable withholding income tax c. Annual income tax
b. Final withholding income tax d. Capital gains tax
9. Statement 1: NOLCO can only be deducted from the operating income of the last quarter.
Statement 2: The individual taxpayer’s personal exemption can only be deducted from the operating income of
the last quarter.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are not correct
___Within ____Outside
Compensation income P250, 000 P–0-
Business income 500, 000 600, 000
Business expenses 200, 000 300, 000
Dividend income 50, 000 100, 000
Required: Compute for the net taxable income before personal exemption that should be reported in the annual
income tax return.
___Within ____Outside
Compensation income P250, 000 P–0-
Business income 500, 000 600, 000
Business expenses 200, 000 300, 000
Dividend income 50, 000 100, 000
Required: Comute for the net taxable income before personal exemption that should be reported in the annual tax
return.
___Within ____Outside
Compensation income P 500, 000
Business income 600, 000
Business expenses 300, 000
Dividend income P 50, 000 100, 000
Required: Compute for the net taxable income before personal exemption that should be reported in the annual;
income tax return.
___Within ____Outside
Business income P 500, 000 P600, 000
Business expenses 200, 000 300, 000
Dividend income from foreign corporation 50, 000 100, 000
Required: Compute for the net taxable income that should be reported in the annual income tax return.
___Within ____Outside
Business income P 500, 000 P600, 000
Business expenses 200, 000 300, 000
Dividend income from foreign corporation 50, 000 100, 000
Required: Compute for the next taxable income that should be reported in the annual income tax return.
Q U A R T E R S_________
______First ____Second ____Third _____Fourth
Sales P1, 000, 000 P800, 000 P600, 000 P1, 200, 000
The cost of sale is 60% of sale and the business expenses allowed is 40% of gross income. Assume that the amounts
are noncumulative.
Required: Compute the income tax still due for the first, second, third and fourth quarters.
Q U A R T E R
S_________
______First ____Second ____Third _____Fourth
Sales (noncumulative) P500, 000 P600, 000 P400, 000 P900, 000
Operating expenses before interest and 120, 000 10, 000 15, 000 160, 000
contribution
Interest expenses 10, 000 10, 000 15, 000 15, 000
Contribution (deductible in full) 20, 000 40, 000
Other revenue:
Dividend income (domestic) 40, 000
Royalty income 60, 000
Rent income 30, 000 30, 000 30, 000 30, 000
Interest income 15, 000 10, 000 15, 000 20,000
Quarters
First Second Third
Business income P2, 5000, 000 P4, 000, 000 P5, 500, 000
Itemized allowance deductions 1, 500, 000 2, 500, 000 3, 000, 000
Taxable income P1, 000, 000 P1, 500, 000 P2, 500, 000
The net taxable business income for the quarter is P110, 000.
Chapter 11
1. All qualified dependents are granted an additional personal exemption of P50,000 as long as the maximum
number of dependents is four.
2. A foreigner who stays in the Philippines for 180 days during the taxable year is deemed as doing business
in the Philippines.
3. Nonresident aliens not engaged in business in the Philippines are allowed for personal exemptions and
additional exemptions subject to reciprocity.
4. The basic personal and additional exemptions of a single mother with an unrecognized dependent child
are P50,000 and P25,000.
5. Individual taxpayers are allowed of installment payment for their income taxes when the tax due is in
excess of P2,000.
6. At the option of the taxpayer, income taxes paid in the foreign countries can be claimed as deduction from
gross income or tax credit subject to limit.
8. An individual taxpayer is exempted from filing income tax return if his sole income has been subjected to
final withholding tax.
9. For self-employed taxpayers, his quarterly income tax return is not to be reduced by personal exemption.
10. Income earned outside the Philippines by domestic helpers is tax-exempt because they are considered
nonresident citizens.
11. The personal exemption of a nonresident alien not engaged in business in the Philippines is subject to
reciprocity.
12. A citizen who works abroad most of the time during the taxable year is a nonresident citizen.
1. A man os woman who provides chief support to a brother who is 20 years old and incapable of self
support is entitled to claim basic exemption of P50,000 and additional exemption of P25,000.
2. Payments for hospitalization not exceeding P2,400 per year is allowed as a deduction for individual
taxpayers.
3. If the taxpayer dies during the taxable year, his estate may claim the personal exemption as if he died at
the close of such year.
4. Tax on special aliens is 15% of their net income derived within the Philippines.
5. Professional or talent fees for services rendered by an individual shall be subjected to a credible value
added tax.
6. An individual taxpayer can claim additional exemption of P25,000 for supporting a senior citizen who can
show a certification from OSCA.
7. An alien residing and doing business in the Philippines is allowed to have a tax credit for income taxes paid
in other country.
8. If the professional fee of an entertainer exceeds P720,000, the credible withholding tax should be 20%.
9. Gross income for computation of standard deduction includes business income plus other taxable income
not subjected to final tax.
10. Interest income of a foreign currency deposit of a nonresident Filipino is subject to final withholding tax of
7.5%.
11. The financial position and profit and loss statements are to be attached in the annual income tax return if
the business gross sales in any quarter exceed P50,000 but do not exceed P150,000.
12. The income of a professional entertainer can be reduced by optional standard deduction.
1. The following individual taxpayers are granted basic and additional personal exemption except.
a. Resident citizen d. Nonresident alien subject to reciprocity
b. Nonresident citizen
c. Resident citizen
2. For Philippine income tax computation, which of the following individual is taxable also for income earned
outside the Philippines?
a. Nonresident alien c. Resident alien
b. Nonresident citizen d. Resident citizen
3. A foreign individual who have stayed in the Philippines during the taxable year for more than 180 days but
less than one year is considered a
a. Nonresident alien doing business in the Philippines
b. Nonresident alien not doing business in the Philippines
c. Resident alien
d. Resident alien doing business in the Philippines
5. Which of the following individual is taxable at 15% on compensation income derived within the
Philippines?
i. Compensation income of citizen earned from employment with regional or area
headquarters of multi- National Corporation.
ii. Compensation of alien earned from employment with the petroleum service contractor.
iii. Compensation income of alien earned from employment with an offshore banking unit.
Choices:
a. i,ii, and iii c. ii only
b. Ii and iii only d. iii only
8. Statement 1: An alien who shall reside in the Philippines with no definite intention as to his tax is a
resident of the Philippines.
Statement 2: A foreigner who has acquired residency in the Philippines shall only become a nonresident
alien when he actually departs with the intention of abandoning his residency in the Philippines.
a. Only statement 1 is correct
b. Both statements are correct
c. Only statement 2 is correct
d. Both statements are incorrect
9. Statement 1: Compensation income is reduced by personal expenses to arrive at the taxable amount.
Statement 2: Business income is reduced by business expenses to arrive at taxable amount.
a. Only statement 1 is correct
b. Both statements are correct
c. Only statement 2 is correct
d. Both statements are incorrect
1. An individual taxpayer, whose personal exemption allowed in the lower amount provided between
Philippine Tax Code and his country’s Tax Code.
Citizenship Residency Business income
a. Filipino Within No
b. Filipino Outside Yes
c. Alien Within No
d. Alien Outside Yes
2. Statement 1: If both husband and wife are earning income, only one of them could claim for the
additional personal exemption.
Statement 2: The husband is the rightful claimant of additional personal exemption, unless he waives his
rights in favor of his wife.
a. Only statement 1 is correct
b. Both statements are correct
c. Only statement 2 is correct
d. Both statements are incorrect
4. One of the following is not creditable against the total computed tax per ITR.
a. Final withholding tax
b. Foreign income tax paid by resident citizen
c. Creditable withholding tax on compensation
d. Income tax paid for the first three quarters for the business income earned
5. For taxation purposes, A Filipino citizen who stayed outside the Philippines and worked abroad for 182
days during the taxable year is classified as
a. Nonresident citizen c. overseas contract worker
b. Resident citizen d. special taxpayer
6. Which of the following statements is true?
a. Resident citizen with income from foreign sources only is allowed a basic personal
exemption only.
b. Nonresident alien not engaged in business in the Philippines is allowed basic personal
exemption only.
c. Nonresident citizen engaged in business in the Philippines is allowed for basic and
additional personal exemptions.
d. Nonresident citizen with income from the Philippines only is allowed both basic and
personal exemptions.
7. The personal exemption of the nonresident alien engaged in trade or business in the Philippines is equal
to that allowed by the
a. Income tax law of his country to a citizen of the Philippines not residing there.
b. Income tax law of his country to a citizen of the Philippines not residing there or the amount
provided by the NIRC to a citizen or resident, whichever is lower.
c. NIRC to a citizen or resident.
d. Income tax law of his country allows to a citizen of the Philippines not residing there or the
amount provided by the NIRC to a citizen or a resident alien, whichever is higher.
8. Which of the following taxpayers whose personal exemptions is subject to the law on reciprocity under
the Tax Code?
a. Nonresident alien with respect to his income derived outside the Philippines.
b. Nonresident alien who shall come to the Philippines and stay therein for an aggregate period
of more than 180 days.
c. Resident alien deriving income from a foreign country.
d. Nonresident alien not engaged in trade or business in the Philippines whose country allows
personal exemption to Filipinos who are not residing but deriving income from said country.
9. Statement 1: The maximum amount of hospitalization and health insurance allowed as deduction is
P2,500 per year.
Statement 2: The allowable hospitalization and health insurance is deductible from compensation income
or business income whichever is applicable.
a. Only statement 1 is correct.
b. Only statement 2 is correct.
c. Both statements are correct.
d. Both statements are not correct.
10. A net taxable income of a resident citizen sole proprietor of a proprietary educational institution is
subject to a
a. Normal tax of individuals
b. 10% special tax
c. 25% special tax
d. 32% normal corporate tax
7. One of the following individual taxpayer could claim personal exemption as head of the family
a. Single, supporting a 30 year old paralytic brother
b. Widow, with a 25 year old son under his custody
c. Legally separated with 21 year old sibling as qualified dependent
d. Married but legally separated without dependent
8. All of the following dependents will entitle the taxpayer for additional personal exemption except
a. 25 year old, but mwentally retarded son
b. 20 year old, unmarried daughter
c. 18 year old, unemployed son
d. 19 year old sister
9. Which of the following is the correct creditable withholding tax on professional income?
a. 15% on professional income of practicing lawyer earning P500,000 a year
b. 20% on professional incomeof entertainer eartning P500,000 and below per year
c. 10% o professional income of entertainer earning more than P720,000 per year
d. 15% on professional income of entertainer earning more than P720,000 per year
11. In the year2009, P500,000 dividends from a domestic corporation and/or P500,000 share in the net
income of a taxable partnership received by a citizen is subject to a final tax of
a. 15% c. 20%
b. 6% d. 10%
12. If an individual person is allowed to pay his tax on installment payment, the date would be
a. May 15 for the first installment and July 25 for the second installment
b. April 25 for the first nstallment and August 15 for the second installment
c. April 15 for the frst installment and July 15 for the second installment
d. May 15 for the first installment and August 15 for the second installment
How much will be allowed as his personal exemption for the computation of his income tax in the Philippines, if his
country’s tax law is granting the same exemption to Filipino citizens, except for additional exemption where his
country’s tax law is allowing P10,000 per dependent child,
a. P 50,000 c. P75,000
b. P100,000 d. P -0-
They paid P150 per month health insurance policy for the months of June to December 200x. Mr. Velasquez as head
of the family could claim special deductions for these payments equal to
a. P 900 c. P2,400
b. P1,800 d. P-0-
1. What is the amount of net income subject to tabular tax and final tax in the Philippines if X is a resident
Filipino citizen?
Subject to
Tabular tax Final tax
a. P550,000 P154,000
b. P760,000 P260,000
c. P770,000 P180,000
d. P790,000 P160,000
2. What is the amount of net income subject to tabular tax and final tax in the Philippines if X is a resident
alien?
Subject to
Tabular tax Final Tax
a. P490,000 P160,000
b. P520,000 P220,000
c. P410,000 P160,000
d. P640,000 P260,000
If the interest income is a dollar deposit under the expanded currency deposit system, how much is the total income
tax due of Mr. Erection in the Philippines?(One dollar is P50)
a. P 37,500 c. P146,760
b. P190,500 d. P196,260
The total capital gains tax paid during the year should be
a. P 19,400 c. P108,000
b. P 22,000 d. P124,000
Problem 11-21 Final tax and Normal Tax
In 200x, Mr. Marvin Ebojo, a native of Pangasinan, received during the year the following:
Proceeds from copyright royalty, net of tax P 11,250
Proceeds from mineral claim 12,000
Share from trading partnership, net of withholding tax 270,000
Expenditures:
Salaries of Assistants P 96,000
Partial payment of loan 20,000
Interest on the loan (The loan was used for the repair of the
Residential house of Mr. Estrada) 3,850
Travelling Expenses-business related 11,000
Light and water-office 7,890
Light and water-residence 6,500
Stationeries and supplies used in the office 1,960
Office rent 60,000
Contributions exclusively for religious purposes 38,500
2. The net income for income tax purposes after itemized deduction but before personal and additional
exemptions is
a. P317,835 c. P320,835
b. P319,275 d. P36,459
Required: Compute the taxable income and tax still due payable by Mr. Estrada using:
1. Itemized deduction.
2. Optional Standard Deduction
Required: If Mr. Galam is married and has three qualified dependent children,how much is the taxable income for
the taxable income for the year ended December 31, 2010?
Problem 11-27 Compensation and Business income
A resident citizen, single with qualified dependent chikd has the following income and expenses during the year:
Required:
Compute the following:
1. Monthly withholding taxes paid
2. Quartely business income tax paid
Required: Assume that Roses is single with four qualified dependent children, compute the following:
1.Net taxable income
2.Income tax due
3.Tax credit
4.Income tax still due and payable
Required: Compute for tax still due and payable (ITR) of Mr. and Mrs. Bravo.
Required: Compute the income tax still due and payable, if the taxpayer is an individual Filipino resident, married
and has 4 qualified dependent children.
Chapter 12
1. All proprietory educational institutions are subject to a special income tax rate of 10%.
2. The capital gains on sale of land located outside the Philippines of a resident foreign corporation is subject
to a capital gains tax of 6% based on the selling price or fair market value, whichever is higher.
3. The offshore banking units are subject to 15% tax rate based on gross income.
4. Regional operating head quarters are subject to a 10% tax rate based on their taxable income.
5. The cooperative is subject to a 20% final tax on its interest income earned from the bank.
6. Government owned and controlled corporations are exempt from income tax.
7. The applicable tax on foreign international carrier is 2 ½% of the Gross Philippine Billings.
8. A corporation should file a quarterly income tax return within 60 days after the end of each first three
quarters of the taxable year.
9. The objective of imposing tax on the improperly accumulated income is to force the corporation to
distribute dividends to stockholders and to force corporations to expand their businesses.
10. Investment of substantial amount in long-term debt securities is an improper accumulation of retained
earnings.
11. In computing the surtax, NOLCO is to be added in the income per income tax return.
12. If the corporate income has been subject to IAET, it shall no longer be subjected to IAET in later years,
even if not declared as dividend.
1. If X is a domestic corporation, how much is the taxable income and income tax due in the Philippines per
annual ITR?
Taxable Income Income Tax Due
a. P3,000,000 P1,050,000
b. P4,000,000 P1,400,000
c. P5,000,000 P1,750,000
d. P4,000,000 P1,200,000
2. If X is a resident foreing corporation, how much is the taxable income and income tax due in the
Philippines per annual ITR?
Taxable Income Income Tax Due
a. P3,000,000 P1,050,000
b. P4,000,000 P1,200,000
c. P3,000,000 P 900,000
d. P7,000,000 P2,450,000
If ABC Corporation is a resident foreign corporation, the Philippine income tax due for 2009 is
a. P175,000 c. P525,000
b. P450,000 d. P700,000
The Philippine income tax payable Unicor for the fiscal year April 1, 2009 to March 31, 2010 is
a. P12,250,000 c. P1,750,000
b. P10,500,000 d. P1,500,000
Required: Compute the income still tax due and payable if Tacurong Corporation is a
a. Domestic corporation
b. Resident Foreign Corporation
How much is the income tax due that can be collected by the Philippine Government?
a. P–0– c. P600,000
b. P700,000 d. P3,500,000
How much income tax due that can be collected by the Philippine Government?
a. P6,300,000 c. P2,800,000
b. P5,400,000 d. P – 0 –
Assume that the corporation has been existing for five years, what is the amount of deferred charges MCIT
applicable for year 4?
a. P – 0 – c. P 20,000
b. P15,000 d. P(20,000)
How much is the amount of income tax payable and tax refund if the excess of MCIT over NCIT in the previous
year amounted to P40,000?
Income Tax Payable Tax refund
a. P52,500 P 87,500
b. P50,000 P100,000
c. P45,000 P 95,000
d. P–0– P 87,500
Problem 12 – 17 Investment in Real Property
A domestic corporation sold its investment in real property carried at cost of P1,000,000 for P1,500,000. The related
income tax on sale of real property would be
a. P – 0 – c. P90,000
b. P30,000 d. P175,000
Star Diamond Corporation’s taxes payable (income tax and percentage tax) on sales of capital assets assuming the
taxpayer is:
What is the total amount of final taxes on passive income subject to final tax?
a. P800,000 c. P912,500
b. P880,000 d. P992,500
Compute the passive income taxes of Silver Corporation assuming that the corporation is a:
1. Domestic corporation.
a. P296,000 c. P96,000
b. P171,000 d. P86,000
2. Resident Foreign Corporation.
a. P296,000 c. P96,000
b. P171,000 d. P86,000
3. Nonresident foreign corporation.
a. P296,000 c. P168,000
b. P171,000 d. P144,000
1. What is the total amount of normal corporate income tax of Philippine Commercial Bank?
a. P15,000 c. P115,000
b. P30,000 d. P215,000
2. What is the total amount of normal corporate income tax of Philippine Commercial Bank?
a. P40,000 c. P385,000
b. P330,000 d. P437,500
What is the amount of Philippine income taxes to be paid by Dragon Film and American Aircraft?
Dragon Film American Aircraft
a. P2,500,000 P375,000
b. P1,000,000 P225,000
c. P1,000,000 P1,500,000
d. P250,000 P1,250,000
Problem 12 – 28 Cooperative
A multi-purpose cooperative, registered with CDA reported a business income of P500,000, operating expenses of
P300,000 and interest income of P80,000, net of 20% final tax. Its income tax would be
a. P70,000 c. P16,000
b. P20,000 d. P – 0 –
Problem 12 – 29 Cooperative
Unlad Cooperative is registered with CDA reported the following business income and expenses:
Sale of land (classified as ordinary asset) to its members P800,000
Sale of groceries to its members 900,000
Interest income from its members 600,000
Dividend income from Jollibee 60,000
Cost of land sold 700,000
Cost of groceries 500,000
Operating expenses 400,000
Interest expenses on loan for expansion 100,000
How much is the income tax still due and payable in the second quarter?
a. P18,000 c. P10,000
b. P15,000 d. P6,000
Based on the earnings presented, how much is the total income tax payable in the Philippines?
a. P160,000 c. P60,000
b. P100,000 d. P – 0 –
Required: How much is the total final passive income tax for the year 200x?
Assume that the amounts are cumulative for first quarter to fourth quarter, the income tax credit and income tax still
due and payable in the fourth quarter would be
What is the amount subject to surtax if the above taxes were paid during the taxable year?
a. P1,255,000 c. P1,305,000
b. P1,285,000 d. P1,000,000
During the year, the total revenue is P1,000,000, and the total operating expenses reported by the travel agency
amounted to P10,000.
Required: Compute for the net income tax refundable/payable by the travel agency.
If it is determined that P Corporation has an unreasonable accumulated income, what is the corresponding surtax if
the said taxes were paid during the taxable year?
Problem 12 – 44 Income Tax of Educational Institution
University of the Philippines, Baguio reported the following:
Tuition and miscellaneous fees P5,000,000
Rental income (not related to educational activities) 6,000,000
Gain from capital assets (long term) 100,000
Loss on capital assets (short term) 20,000
Business expenses, inclusive of P50,000 allowance for uncollectible accounts 10,050,000
Miscellaneous income 20,000
Required: Compute for the income tax, assuming that the school has been in existence for more than five
years.
In the first month of the fiscal year, the school secured a loan from a bank in the amount of P750,000. The proceeds
of the loan were spent in the construction of a new six-room building.
Sales P10,000,000
Less: Cost of Sales 6,000,000
Gross profit P 4,000.000
Less: Operating expenses:
Salaries P1,000,000
Deprecation 300,000
Supplies 200,000
Bad debts (percent of accounts receivable) 100,000
Interest expense 50,000 1,650,000
Operating Income P2,350,000
Add: Other Revenues:
Interest Income, net of tax P 32,000
Cash dividend (domestic) 68,000 100,000
Income before other expenses P2,450,000
Less: Losses in investment in securities 250,000
Net income before tax P2,200,000
Income Taxation
CHAPTER 14
Problem 14-1 True or False
1. A penalty shall be imposed on withholding tax agent for failure to withhold the tax.
2. Taxes are withheld at source to facilitate tax collection.
3. Under the final withholding tax system, the income tax withheld is the full and final income tax due from
the payee.
4. Under the withholding tax system, the income tax payee is not required to file an income tax return for the
particular income on which the final tax has been withheld.
5. Taxes withheld on income payments covering the expanded withholding taxes and final withholding taxes
are creditable in nature.
6. The taxes withheld from compensation of employees of offshore banking units should file income tax
returns to the BIR.
7. All income earned by persons are subject to holding tax.
8. Remuneration for casual labor not in the course of employer’s trade or business is not subject to holding
tax.
9. No withholding tax shall be required where the total compensation income of an individual in a year does
not exceed sixty thousand pesos.
10. The employee who opts to file the income tax return shll file the same not later than April 15 of the year
immediately following the taxable year.
11. In general, any juridical person, whether or not engaged in business or trade is required to withhold tax on
income payments.
12. Government offices are not constituted as withholding tax agents.
13. The obligation of the pay or to withhold tax arises at the time an income is paid or payable.
14. The withholding of creditable withholding taxes shall not apply to income payments made to national
government and its instrumentalities.
15. Business establishments whose withholding taxes amount to one million pesos are considered large
taxpayers.
a. P450,000 c. P225,000
b. P250,000 d. P212,000
a. P95,000 c. P80,000
b. P90,000 d. P70,000
Required: Computer the final withholding tax at source if the income payee is a:
CHAPTER 13
Problem 13-1 True or False (Partnerships)
Write True if the statement is correct or False if the statement is incorrect.
1. A trust a right of property, real or personal, held by one party for the benefit of another.
2. The creation of trusts may be either expressed or implied.
3. A trustee is the person who establishes a trust.
4. Each beneficiary must include in his return his distributive share of the net income of the trust.
5. The tabular rates of tax prescribed under Section 24 (A) for individuals shall be used in computing the
income tax of trusts or estates.
6. The amount of trust’s income for distribution to beneficiary, allowed as a deduction from trust’s taxable
income shall be included in computing the taxable income of the beneficiaries whether distributed to them
or not.
7. Estate and trusts are treated as separate taxable entities.
8. The exemption allowed to estate or trust is P25, 000.
9. In the case of two or more trusts created by the same person for the same beneficiary, the taxable income of
all trusts shall be consolidated and the tax shall be computed based on the consolidated income.
10. A beneficiary of an estate engaged in business has the status of self-employed individual taxpayer.
11. The computation of the net taxable income of the estate is the same manner as individual taxpayer, except
that the personal exemption is limited to P20, 000.
12. The income tax of irrevocable trust is taxable in the same manner as of the income of the estate.
1. Statement 1: Professional fee is the primary source of general professional partnership’s income
Statement 2: Trading activities are also sources of general professional partnership.
2. Statement 1: A general professional partnership is exempt from income tax and as such is not required to
file its income tax return.
Statement 2: The share of partners in the general professional partnership is subject to income tax rate for
individual.
3. Statement 1: A general commercial partnership is taxed the same manner as a domestic corporation.
Statement 2: A general commercial partnership that is reporting an operating loss on its 5 th year of operation
is still liable to pay its annual income tax for such year.
4. Statement 1: The distributive share of general commercial partnership is subject to final withholding tax of
10%.
Statement 2: The distributive share of a general professional partnership is subject to creditable withholding
tax of 10%.
5. The share of partners form the net income of a professional partnership is subject to
6. A professional partnership engaged in the practice of profession and trading of goods is subject to
7. The gross receipts of a professional entertainers is subject to a 10% creditable withholding tax if his/her
income during the year
8. The general professional partnership is not subject to income tax, but is required to file a return in order to
10. Statement 1: The creditable withholding tax on the partner’s share from the income of a professional
partnership is 15% if the partner’s share exceeded P720, 000 per year.
Statement 2: The amount received by the partner as his share in the general commercial partnership is
subject to a creditable withholding tax of 10%.
3. Statement 1: A co-ownership that exists for more than 10 years is exempt from income tax.
Statement 2: The share of co-owners from tax-exempt co-ownership is taxable against the co-owners.
5. The portion of income from irrevocable trust that would be distributed during the year is taxable against
the.
a. Grantor. c. Beneficiary.
b. Trustee. d. Trust.
7. Statement 1: The income of the estate distributed to the beneficiary during the year is subject to final tax of
15%.
Statement 2: The withholding tax on the income distributed to beneficiary is creditable against the total tax
liability of the beneficiary.
9. Statement 1: Both revocable and irrevocable trusts are taxable for their income earned.
Statement 2: The income of revocable trust is taxable against the grantor.
10. Statement 1: The grantor is liable for the income of a revocable trust.
Statement 2: A revocable trusts exist when the grantor of the trust.
power to change at any time any part of the terms of the trust.
The net taxable income per annual ITR of Black who shares profit and loss equally with White in the earnings of the
partnership is
a. P420, 000 c. P390, 000
b. P404, 000 d. P360, 000
1. How much is the income tax of the earnings from the plantation?
2. Assuming that Robert is single, how much is his taxable income in his share from the co-ownership?
1. Under the assumption that income earned from trust A is revocable and B is Irrevocable, the net income of
the grantor before personal exemption is
2. Based on the given data income of all the trust after exemption is
3. Assume further that P50, 000 of the income of trust B was distributed to the beneficiary, the net taxable
income of beneficiary, after personal exemption is
Problem 13- 12 General professional partnership has following data for 200x:
Gross income P1, 200, 000
Deductions:
Salary of A 240, 000
Salary of B 360, 000
Other business expenses 100, 000
Profit and loss distribution:
Partner A, 60%, single, providing full support to his mother.
Partner B, legally separated with 2 qualified dependent children.
1. The partnership
2. Partner A
3. Partner B
Required:
In 200x, the estate realized a gross income from business amounting to P5, 000, 000 and related business expenses is
40% of gross income. The administrator distributed the following amount to the children beneficiaries of Mr.
Baguingan.
A year following the death of Naty Poc, the estate’s income and expenses amounted to P800, 000 and 260, 000,
respectively.
The estate has not been transferred to Kalag when the income was earned. Kalag also earned business income of
P300, 000 and incurred business expenses of P180, 000 during the same year.
Required: How much would be the tax saving if the administrator of the estate would distribute p150, 000 income of
the estate to kalag?
a. Trust 1: Net income before exemption, after P10, 000 distributions to beneficiary during the year, P40, 000.
b. Trust 2: 1, 000, 000 incomes before exemption, and distribution to beneficiary amounting to P20, 000.
Required: If the related withholding taxes were made during the year, how much is the income tax still due and
payable for the two trusts?
Required:
1. How much would be the net income of the estate subject to income tax?
2. If a year following the death of Mr. Nabiag, his estate’s gross business receipts amounted to P500, 000, and
his estate has not ,been transferred to his father. Assume further that his father has a gross business receipts
of his own amounting to P200, 000, How much would be the tax saving if the administrator of the estate
would distribute P150, 000 income of the estate to Nabiag’s father?
Required:
1. Using a better way to minimize income tax, what device could Dokling use to lower his income tax.
2. If 50% of his business will be put in an irrevocable trust in favor of his son who is married, how much
would be his annual tax savings?
Required:
1. Applying the tax minimization principle, how much is the income tax due of Mr. A.
2. If Property No. 1 would be held in irrevocable trust for any of his beneficiaries, hoe much is the amount of
tax savings?
X Co. and Y Co., both domestic corporations, form a joint venture to construct a building with a constract price
including 12% VAT amounting to P112, 000, 000.
The total cost of construction amounted to P72, 000, 000 including 12% VAT. Operating expenses related to the joint
venture amounted to P15, 000, 000.
Required: Compute the related taxes of the joint venture and joint venture partners assuming that the construction is
2. A government project.
Required: Compute the related taxes of the joint venture and the joint venture partners assuming that the
construction is