CPAR

CPA Review School of the Philippines

FIRST PRE-BOARD EXAMINATION Saturday, February 11, 2017
Taxation 8:00 AM to 10:00 AM

Instructions: Choose the BEST answer for each of the following items. Mark only one answer for each item on the Special Answer Sheet provided.
Strictly no erasures allowed.

1. Which of the following is a false statement?

a. Being an inherent power, the legislature can enact laws to raise revenues even without the grant of said power in the constitution.
b. The power of taxation is an essential and inherent attribute of sovereignty, belonging as a matter of right to every independent
government without being expressly conferred by the people.
c. The constitutional provisions relating to the power of taxation operate as grants of power of the government.
d. The power to tax is a necessary attribute of sovereignty and is essentially a legislative function.

Taxation is the inherent power by which the sovereign through its law-making body raises revenue to defray the necessary expenses of the government.

2. The stages or aspects of taxation, except

a. Levy or imposition
b. Assessment and collection
c. Payment by the taxpayer
d. Prescription

3. A test applied in the realization of income and expenses by an accrual basis taxpayer

a. All events test

b. Immediacy test
c. Rational basis test
d. Pre-dominance test

The all-events test is the requirement that all the events fixing an accrual-method taxpayer’s right to receive income or incur expense must occur before the taxpayer
can report an item of income or expense.

4. A test applied to determine whether the accumulation of after-tax profits by a domestic or resident foreign corporation is really for the
reasonable needs of the business

a. All events test

b. Immediacy test
c. Rational basis test
d. Pre-dominance test

The immediacy test is used to determine the “reasonable needs of business” in order to justify an accumulation of earnings.

5. A test applied to gauge the constitutionality of an assailed law in the face of an equal protection challenge

a. All events test

b. Immediacy test
c. Rational basis test
d. Pre-dominance test

Rational basis review is the normal standard of review that courts apply when considering constitutional questions, including due process or equal protection questions.

6. Which of the following is not correct?

a. Gains realized by the investor upon redemption of shares of stock in a mutual fund company are exempt from income tax
b. An individual taxpayer can adopt either the calendar year or fiscal period for purposes of income tax
c. The capitalization rules may be resorted to by the BIR in order to compel corporate taxpayers to declare dividends to their
stockholders regularly
d. Informer’s reward is subject to final withholding tax of 10%

Prior to TRAIN, the Tax Code specifically mention the following items as income tax exclusions:
• GSIS, SSS, Medicare and Pag-IBIG contributions, and union dues of individuals;
• Gains realized from the sale or exchange or retirement of bonds, debentures, or other certificate of indebtedness with a maturity of more than 5 years; and
• Gains realized by the investor upon redemption of shares of stock in a mutual fund company

7. Which of the following items are not taxable?

a. Income from jueteng

b. Gains arising from expropriation of property
c. Income taxes paid and subsequently refunded
d. Gains on the sale of a car used for personal purposes

8. Which of the following are deductible from gross income for income tax purposes?

a. Interest on loans used to acquire capital equipment or machinery

b. Reserves for bad debts

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 c. Worthless securities which are ordinary assets
d. Worthless securities which are capital assets

Non-deductible Cash or Non-cash Payments:

• Interest Expenses incurred to acquire property used in trade, business, or exercise of profession, if treated as a capital expenditure at the option of the taxpayer.
• Net capital loss/capital losses not covered by capital gains from sale of capital assets
• Provisions or estimated expenses (i.e. allowances for bad debts)

9. An off-line international air carrier having a branch office or a sales agent in the Philippines which sells passage documents for compensation or
commission to cover off-line flights of its principal or head office or for other airlines covering flights originating from the Philippine ports or
off-line flights is

a. Subject to 2½% income tax on its gross Philippine billings

b. Subject to 3% common carrier’s tax on gross Philippine billings
c. Not subject to 2½% gross Philippine billings tax nor to the 3% common carriers’ tax
d. Subject to both 2½% gross Philippine billing and to the 3% common carriers’ tax

Section 3 of RR No. 15-2002 states that an off-line carrier which has a branch office or a sales agent in the Philippines which sells passage document for compensation
or commission to cover off-line flights of its principal or head office, or for other airlines covering flights originating from Philippine ports or off-line flights, is not
considered engaged in business as an international carrier in the Philippines, thus, is not subject to the 2.5% GPBT and the 3% CCT.

10. In computing net income, no deduction in any case is to be allowed in respect of losses from sales or exchange of property directly or indirectly,
except

a. Between the fiduciary of a trust and fiduciary of another trust, if the same person is the beneficiary with respect to each trust
b. Between the fiduciary of a trust and the grantor
c. Between the fiduciary of a trust and beneficiary of such trust
d. Between the members of a family of an individual which shall include the brothers and sisters, whether by the whole or half blood,
spouse, ancestors, and lineal descendants

Losses from sales or exchanges of property in transactions made directly or indirectly between related taxpayer:
• Between members of a family – For the purpose of this non-deductible loss, the family of individual shall include only his brothers and sisters (whether by
whole or half-blood), spouse, ancestors, and lineal descendants.
• Except in the case of distribution in liquidation between an individual and a corporation, more than 50% in value of the outstanding stock of which is owned,
directly or indirectly by or for such individual
• Except in the cases of distribution in liquidation, between two corporations, more than fifty percent (50%) in value of the outstanding stock of each which
is owned, directly or indirectly by or for the same individual, if either one of such corporation, with respect to the taxable year of the corporations preceding
the date of the sale or exchange was, under the law applicable to such taxable year, a personal holding company or foreign personal holding company.
• Between a grantor and a fiduciary of any trust
• Between the fiduciary of a trust and the fiduciary of another trust, if the same person is the grantor with respect to each trust.
• Between a fiduciary of a trust and a beneficiary of such trust.

11. A cash dividend of P100,000 received by a taxpayer in 2016 from a domestic corporation whose income from Philippine source is 40% of its
total income is

a. Partly taxable if he is a resident citizen

b. Exempt from final tax if he is a non-resident citizen
c. Partly taxable if he is a resident citizen
d. Taxable in full if he is a non-resident citizen

10% (20% if NRAEBP): Cash/Property Dividend from a domestic corporation or from a joint stock company, insurance company, mutual fund company, or from a regional
operating headquarter of multinational corporation in Philippines

12. A cash dividend of P100,000 received by a taxpayer from a foreign corporation whose income from Philippine sources is 60% of its total
income is

a. Exempt from income tax if it is a domestic corporation

b. Exempt from income tax if it is a foreign corporation
c. Taxable in full if he is a resident citizen
d. Taxable in full if he is a resident alien

If the payor’s GI from the Philippines, for a 3 year period ending with the close of the taxable year preceding the declaration of said dividend (or for such part of such
period as the corporation has been in existence) is equal to 50% or more of the GI—World, said dividend income is considered derived partly within and partly without
the Philippines and has to be allocated in accordance with the following formula.

13. The following data on net income, bad debt, write off and recovery show:

2015 Case A Case B Case C

Net income (loss) before write-off P80,000 P40,000 (P20,000)
Less: Bade debts written off and claimed as deduction 50,000 50,000 50,000
Net income (loss) after write-off P30,000 (P10,000) (P70,000)

2016
Subsequent recovery P50,000 P50,000 P50,000

The taxable recovery is

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 Case A Case B Case C
a. P50,000 P50,000 P50,000
b. P50,000 P 0 P 0
c. P50,000 P40,000 P20,000
d. P50,000 P40,000 P 0

The recovery of bad debts previously allowed as deduction in the preceding year or years will be included as part of the taxpayer’s gross income in the year of such
recovery to the extent of the income tax benefit of said deduction.

14. Using the preceding number, but the subsequent recovery for Case A – P30,000; Case B – P30,000 and Case C – P30,000 the taxable recovery
is

Case A Case B Case C

a. P30,000 P30,000 P30,000
b. P30,000 P30,000 P 0
c. P30,000 P20,000 P 0
d. P20,000 P20,000 P20,000

15. The following are characteristics of a special assessment, except

a. It is levied on lands only

b. It is based on the improvements introduced by the government
c. It is based on the benefit derived by the owners of the land
d. It is a personal liability of the persons assessed

Special Assessment cannot be made a personal liability, unlike Taxes, wherein a personal liability attaches on the person.

16. As to scope of legislature power to tax, which of the following is correct?

a. The power to tax is supreme, plenary, comprehensive and without any limit because the existence of the government is a necessity.
b. The discretion of Congress in imposing taxes extends to the mode, method, and kind of tax, even if the constitution provides,
otherwise.
c. Congress has the right to levy a tax of any kind at any amount as it sees fit, even in the absence of any constitutional provisions.
d. The sole arbiter of the purpose for which taxes shall be levied is Congress, provided the purpose is public and the courts may not
review the levy of the tax to determine whether or not the purpose is public.

The court’s power in taxation is limited only to the application and interpretation of law. Although the power to tax is unlimited, it must not be exercised in an arbitrary
manner. The judiciary has the duty to hold an act unconstitutional, if the abuse is so great so as to destroy the natural and fundamental rights of people.

17. A resident citizen received a prize of P40,000. Which of the following statements is correct in connection with the imposition of final tax on the
prize?

a. The first P10,000 is part of taxable income while, the remaining P30,000 is subject to 20% final tax
b. The whole amount is part of taxable income
c. The whole amount of P40,000 shall be subject to 20% final tax
d. The first P10,000 shall be exempt from tax, the remaining P30,000 is subject to 20% final tax.

18. Under this system, the amount of income tax withheld by the withholding agent is constituted as full and final payment of the income tax due
from the payee on the said income

a. Creditable withholding tax

b. Final withholding tax
c. Global tax system
d. Schedular tax system

• Under the final withholding tax system, the amount of income tax withheld by the withholding agent is constituted as a full and final payment of the income
tax due from the payee on the said income.

19. Jun Jon and Company, a business partnership has the following data of income and expenses for 2015:

Gross income P750,000

Expenses 200,000
Dividend received from a domestic corporation 90,000
Interest on bank deposit (net) 10,000

Partners Jun and Jon share profits and losses in the ratio of 55% and 45%, respectively. The income tax payable by the partnership is

a. P192,500
b. P187,000
c. P176,000
d. Exempt

Gross Income from Operation P750,000

Ordinarily Allowable Itemized Deductions 200,000
Net Taxable income 550,000
Applicable Income Tax Rate 30%
Income Tax Due other than MCIT 165,000
MCIT (2% of Gross Income) 15,000

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20. The final taxes withheld on the respective share of Jun and Jon in the 2015 partnership income are

a. Jun – P25,162.50 and Jon – P20,587.50

b. Jun – P19,662.50 and Jon – P16,087.50
c. Jun – P20,212.50 and Jon – P16,537.50
d. Jun – P24,612.50 and Jon – P20,137.50

Net Taxable Income P550,000

Income Tax Due 165,000
Net Income after Income Tax Due 385,000
Final Withholding Tax Rate 10%
Withholding Tax Payable P38,500
Jun – share (55%) P21,175
Jon – share (45%) P17,325

Income subject to Final Withholding Tax is a permanent difference, as it is not included in the computation for the distributable income for tax purposes.

21. A domestic proprietary educational institution improved its library facilities by adding a new wing to its old library building. The capital outlay
on library improvement, for income tax purposes, may be

a. Deducted in full at the time of completion of the improvement

b. Capitalized or expenses outright at the option of the school owner
c. Capitalized and depreciated over the estimated life of the improvement
d. Capitalized or expensed outright at the option of the government

22. Which of the following special tax rates is not correct?

a. 25% of gross income of non-resident cinematographic film owner, lessor or distributor

b. 7 ½% of gross rentals of non-resident owner or lessor of aircraft, machineries and other equipment
c. 2 ½% from gross Philippine billings of resident international carrier
d. 4 ½% on gross rentals of resident owner or lessor of vessels chartered by foreign nationals

4½% Gross rentals of non-resident owner, lessor, distributor of vessels chartered by Filipino citizens or corporations

23. X, who is single, maintains Y, a common-law wife who is legally separated from her husband Z. X and Y have two children who are unmarried
minors and living with and wholly dependent upon X for support. For income tax purposes, is X considered head of the family?
1st Answer: Yes, because although the children were born out of wedlock, they are his recognized illegitimate children living with him and
wholly dependent upon him for support.
2nd Answer: No, X is not head of the family because his children with Y are presumed to be the legitimate children of Y and Z.

a. 1st answer is correct, 2nd answer is wrong

b. Both statements are correct
c. Both answers are wrong
d. 1st answer is wrong, 2nd answer is correct

Head of Family means an unmarried or legally separated man or woman with one or both parents or with one or more senior citizens, brothers and/or sisters, or with
one or more legitimate, recognized natural, legally adopted or illegitimate children, living with and dependent upon him/her for chief support, where such brothers, sisters,
or children are not more than twenty one (21) years of age, unmarried, not gainfully employed or where such children, brothers or sisters are incapable of self-support
because of mental or physical defects.

24. Which of the following statement is not correct?

a. If the taxpayer should have additional dependents during the taxable year, he can claim the exemptions for such dependents in full
for the year.
b. If the taxpayer should die during the taxable year, his estate may claim the personal exemption as if he died at the close of such year.
c. If a qualified dependent should become 21 years old during the taxable year, the taxpayer may claim the personal exemption as if the
dependent became 21 years old at the close of the taxable year.
d. If a qualified dependent should marry during the taxable year, the taxpayer may claim the personal exemptions as if the dependent
married at the close of the taxable year.

In general, each individual taxpayer shall be permitted to claim the additional personal exemption amounting to P25,00, for each qualified dependent child, but not to
exceed four (4) children.

25. Which of the following items is an income of a non-resident citizen subject to the basic tax (schedular)?

a. Dividend received from a domestic corporation

b. Prizes from USA lotto
c. Interest income from PNB
d. Share in the net income of general professional partnership

26. This income is part of taxable income subject to the basic tax

a. Fringe benefits given to rank and file employees

b. Fringe benefits given to managerial employees
c. Compensation for personal injuries or sickness
d. Proceeds of life insurance

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27. Acting on the information given by A, the government seized and confiscated smuggled goods with a fair market value of P40M. A received
reward amounting to

a. P4M
b. P3.6M
c. P900,000
d. P1M

DOJ: To encourage the public to extend full cooperation in eradicating smuggling, a cash reward equivalent to ten percent (10%) of the fair market value of the smuggled
and confiscated goods or one million pesos per case, whichever is lower, shall be given to persons instrumental in the discovery and seizure of such smuggled goods.

28. A general professional partnership and its partners are subject to the following rules, except

a. The general professional partnership is not subject to income tax

b. The partners shall be liable for income tax only in their separate or individual capacities
c. Each partner shall report as gross income his distributive share in the partnership net income
d. The share of the partner shall be subject to a creditable withholding tax of 10%

The share of the partner shall be subject to a creditable withholding tax of 10% if gross income of payee for the current year did not exceed P720,000, and 15% if gross
income of payee exceeds P720,000.

29. Consider the following statements

I. A special assessment is an enforced proportional contribution from the owners of real property especially or peculiarly benefited by public
instruments
II. The power of eminent domain maybe exercised even by private individuals while the power of taxation and police power maybe exercised
by the government
III. Unlike tax, a debt draws interest, if stipulated
IV. The police power, power of taxation and power of eminent domain being fundamental powers of the state maybe exercised by the
government even without any constitutional grant.

a. I and II are correct

b. Only III is not correct
c. II and IV is correct
d. All are correct

30. Requiring a license for the right to engage in business to earn income is an exercise of

a. Taxation power
b. Power of eminent domain
c. Police Power
d. People Power

31. Situs of taxation literally means place of taxation. Which of the following statements about situs is wrong?

a. Poll tax may properly be levied upon persons who are inhabitants or residents of the state, whether citizens or not.
b. Real estate is subject to taxation in the state in which it is located, whether the owner is a resident or non-resident.
c. Tangible personal property is taxable where it is located, whether the owner is a resident or non-resident.
d. Intangible personal property is taxable where the property is located

Intangible personal properties is guided by the principle of mobilia sequuntur personam—that the situs of personal property is the domicile of the owner.

32. A cash dividend of P100,000 received by a taxpayer in 2013 from a foreign corporation whose income from Philippine sources is 40% of its
total income is
Statement 1 – Partly taxable if he is a resident citizen
Statement 2 – Partly taxable if he is a non-resident alien

a. Both statements are true

b. Both statements are false
c. Only Statement 1 is true
d. Only Statement 2 is true

33. Using the above data, which of the following is correct? The cash dividend is

a. Exempt from income tax if he is a resident citizen

b. Partly taxable if he is a resident alien
c. Taxable in full if he is a non-resident citizen
d. Exempt from income tax if he is a non-resident alien

34. Tips or gratuities paid directly to an employee by a customer of the employer which are not accounted by the employee to the employer are
Statement 1 – considered as passive income
Statement 2 – subject to creditable withholding tax

a. Both statements are true

b. Both statements are false
c. Only Statement 1 is true
d. Only Statement 2 is true

Tips & gratuities form part of the compensation income of the employee.

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35. Which of the following statements is correct?

a. The monetized value of unutilized vacation leave credits of ten (10) days or less which were paid to the employee during the year are
not subject to income tax and to withholding tax.
b. The salary of an employee on vacation or on sick leave, which are paid notwithstanding his absence from work is an exclusion from
income.
c. Any amount which is required by law to be deducted by the employer from the compensation of an employee excluding the withheld
tax is considered as part of the employee’s compensation and is deemed to be paid to the employee as compensation at the time the
deduction is made.
d. If living quarters or meals are furnished to an employee for the convenience of the employer, the value thereof should be included,
the value thereof should be included as part of compensation income

36. Statement 1 – Amounts received by reason of involuntary separation remains exempt from income tax unless the official or employee at the
time of separation, has rendered less than ten years of service and/or is below fifty years of age
Statement 2 – Any amount received by an official or employee or by his heirs from the employer due to death, sickness, or other physical
disability or for any case beyond the control of said official or employee, such as retrenchment, redundancy, or cessation of business are exempt
from income tax.

a. True, True
b. True, False
c. False, True
d. False, True

RR 02-98: Amounts received by reason of involuntary separation remains exempt from income tax even if the official or the employee at the time of separation had
rendered less than ten (10) years and/or is below fifty (50) years.

37. Statement 1 – The premiums on health and/or hospitalization insurance paid by an employer for an individual taxpayer employee is deductible
from gross income for maximum amount of P2,400.00 per annum provided the annual family gross income does not exceed P250,000.
Statement 2 – The premium on health and/or hospitalization insurance is not deductible by the spouse who claimed the additional exemption in
case of married taxpayers.

a. True, True
b. True, False
c. False, True
d. False, False

38. The taxpayer is not allowed to claim the additional exemptions

a. Recognized natural son who celebrated his 21st birthday during the taxable year
b. Legally adopted daughter, 25 years old but incapable of self-support due to mental defect
c. Illegitimate son, minor who died January 1 of the taxable year.
d. Legitimate daughter who got married on January 1 of the taxable year, one day after she turned 21.

39. The following, except one are the basic principles of a sound tax system. The exception is

a. It should be capable of being effectively enforced

b. It should consider the taxpayers’ ability to pay
c. It is levied by the lawmaking body of the state
d. The sources of revenue must be sufficient to meet government expenditures and other public needs

40. Interest income earned by a resident alien from outside the Philippines is

a. Subject to schedular tax

b. Not subject to income tax
c. Subject to final tax
d. Partly subject to schedular and partly subject to final tax

41. D Co. took two life insurance policies on the life of its Executive Vice-President, Mrs. E. In one policy, the beneficiary is the corporation and
the other, designates Mr. F. the EVP’s husband, as revocable beneficiary. The insurance premiums paid by D Co. is

a. Deductible, only insofar as the first policy is concerned

b. Deductible for both policies
c. Not deductible for both policies
d. Deductible insofar as the second policy is concerned

42. Republic Act 9504 amending the Tax Code of 1997 (RA 8424) took effect on

a. January 1, 1998
b. July 1, 2008
c. January 1, 2008
d. July 6, 2008

43. The optional standard deduction allowed to individuals and corporations in computing their taxable income took effect on

a. January 1, 1998
b. July 1, 2008
c. January 1, 2008
d. July 6, 2008

44. A Marketing incurred the following expenses in relation to its business during the taxable year:
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 Provisions for bad debts P15,000
Research and development cost, treated as deferred expense 500,000
Contributions during the year:
To the government for priority programs in sports 50,000
To the government for public purposes 10,000
To the Catholic church for charitable purposes 25,000
Additional information:
a. Allowance for doubtful accounts per aging of accounts receivable revealed a beginning and ending balances of P20,000 and P30,000,
respectively.
b. Accumulated depreciation on machine at the beginning and end of the year amounted to P100,000 and P110,000, respectively.
c. During the year, the firm sold a machine with a cost and accumulated depreciation of P300,000 and P30,000, respectively.
d. The research and development cost was incurred in the preceding year but the benefit was received during the taxable year.
e. Taxable income before a to d and contributions amounted to P300,000.

If A Marketing is a sole proprietorship, the allowable deductions for contributions are:

a. P80,000
b. P85,000
c. P57,750
d. P65,500

Business Income P300,000

Business Expenses:
a) Accounts written off 5,000
b) Depreciation Expense 40,000
d) Research and Development Cost 100,000 (145,000)
Total 155,000
Individual Rate 10%
Charitable Contributions – Subject to limitation 15,500
Charitable Contributions – Fully deductible 50,000
Charitable Contributions – Allowable deduction 65,500

45. Furthermore, the amount of taxable income before personal exemptions

a. P220,000
b. P89,500
c. P97,250
d. P115,000

46. A, single, had the following from January 1 to June 30, 2016
Compensation income (net of payroll deduction) P180,000
Deductions made by the employer
SSS housing loan 24,000
SSS premiums contribution 3,600
PhilHealth contributions 2,400
Pag-IBIG contributions 1,800
Union dues 2,200
Premium payments on
Life insurance policy 3,000
Health insurance policy 2,400

The taxable compensation income is

a. P154,000
b. P157,000
c. P158,200
d. P133,000

Compensation Income, net P180,000

SSS housing loan 24,000
SSS Premiums contribution 3,600
PhilHealth contributions 2,400
Pag-IBIG contributions 1,800
Union dues 2,200
Premium payments on life insurance 3,000
Premium payments on health insurance 2,400
Gross Income 219,400
Allowed Deduction (10,000)
Net Income 209,400
Allowed Personal Exemption (50,000)
Health Hospitalization Insurance Premium (1,200)
Taxable Net Income 158,200

47. A domestic corporation has the following data for 2015:

Excess MCIT 2014 P11,000
Q1 Q2

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 Income, net of 1% withholding tax P495,000 P792,000
Deductions 480,000 700,000

How much is the income tax still due and payable in the second quarter?

a. P3,000
b. P7,000
c. P13,000
d. P23,000

Gross Income P500,000 P1,300,000

Deductions 480,000 1,180,000
Taxable Net Income 20,000 120,000

BCIT 6,000 36,000

MCIT 10,000 26,000

Income Tax Due 10,000 36,000

Withholding Tax 5,000 13,000
Excess MCIT 16,000
Income Tax Payable 5,000 7,000

48. A, married, died on January 1, 2011. She left an estate with a fair market value of P4M. During the year, the estate had a gross income of
P800,000 and related expenses of P300,000. The administrator gave P200,000 to B and another P200,000 to C, A’s beneficiaries, 50% of the
amounts given to B and C came from the income of the estate and the other 50% came from the estate. The net taxable income of the estate in
2011 is

a. P50,000
b. P80,000
c. P250,000
d. P280,000

Gross Income from Estate P800,000

Allowed Deduction:
Deductible Business Expenses P300,000
Income Distributed to Heirs 200,000 500,000
Net Income 300,000
Less: Allowed Personal Exemption (20,000)
Taxable Net Income 280,000

49. ABC Corp. concluded its eight year of operations. Its fiscal year ended June 30,2009. The net income from July 1, 2008 to June 30, 2009
amounted to P1M. The gross income for the same period is P20M. The income tax due for the taxable period is

a. P350,000
b. P300,000
c. P325,000
d. P400,000

Gross Income P20,000,000

Allowed Deduction 19,000,000
Taxable Net Income 1,000,000

Basic Corporate Income Tax 300,000

Minimum Corporate Income Tax 400,000

Income Tax Due 400,000

50. Using the above data, but the ninth year of operations from July 1, 2009 to June 30, 2010 shows income of P1.2M and gross income of P15M.
The tax due for the period is

a. P360,000
b. P310,000
c. P260,000
d. P285,000

Gross Income P15,000,000

Allowed Deduction 13,800,000
Taxable Net Income 1,200,000

Basic Corporate Income Tax 360,000

Minimum Corporate Income Tax 300,000

Income Tax Due 360,000

Excess MCIT Carry-over 100,000

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 Income Tax Due and Payable 260,000

51. The following were taken from the income statement of A Corporation for the taxable year 2016:
Gross profit from sales P1,000,000
Less: Business connected expenses P630,000
Provisions for bad debts 90,000 720,000
Net income before income tax P280,000
Additional information:
a. Accounts written off during the year and charged to allowance for bad debts P60,000
b. Recoveries on accounts received previously written off in 2015:
i. Allowed by BIR as deductions 30,000
ii. Disallowed by BIR as deduction 40,000
c. Refund of taxes paid in 2015:
i. Allowed by BIR as deduction 50,000
ii. Disallowed by BIR as deduction 60,000

The taxable income is

a. P310,000
b. P410,000
c. P390,000
d. P340,000

Gross Profit from Sales P1,000,000

Recoveries – Allowed 30,000
Recoveries – Disallowed 40,000
Refunds – Disallowed 60,000
Gross Income 1,130,000
Less: Allowed Deductions
Business Connected Expenses P630,000
Accounts written off 60,000
Recoveries – Allowed 30,000 (720,000)
Net taxable income P410,000

52. A presented the following data regarding the items of income he earned during the taxable year 2015:
I. Rental income (gross)
a. From an apartment unit in USA P240,000
b. From a parcel of land in Makati 180,000
II. Royalties from book:
a. Published in the Philippines 30,000
b. Published in USA 20,000
III. Interest income earned on notes receivable
a. From a debtor who resides in USA 15,000
b. From a debtor who resides in Manila 25,000
IV. Net profit from sales, merchandising business:
a. From Philippine outlet 300,000
b. From USA outlet 200,000
V. Dividend income from two domestic corporation. The gross income from the Philippines for the past 3 years
a. 60% of its world income 60,000
b. 85% of its world income 80,000
VI. Dividend income from two resident foreign corporation. The gross income from the Philippines for the past 3
years were equivalent to
a. 40% of its world income 40,000
b. 60% of its world income 20,000
VII. Prizes received from Supermarket raffle:
a. From the Philippines:
i. ABC Supermarket 8,000
ii. DEF Superstore 12,000
b. From USA
i. UVW Supermarket 6,000
ii. XYZ Supersavers 14,000
VIII. Prizes and winnings from lotto
a. Philippine lotto 200,000
b. USA lotto 100,000

The total income from sources within the Philippines is

a. P903,000
b. P703,000
c. P895,000
d. P907,000

I. Rental Income
b. From a parcel of land in Makati P180,000
II. Royalties from books
a. Published in the Philippines 30,000
III. Interest income
b. From a debtor who resides in Manila 25,000

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 IV. Net profit from sales
a. From Philippine Outlet 300,000
V. Dividend income from domestic corporation
a. 60% of its world income 60,000
b. 85% of its world income 80,000
VI. Dividend income from resident foreign corporation
b. 60% of its world income 12,000
VII. Prizes received from Supermarket raffle
a. From the Philippines
i. ABC Supermarket 8,000
ii. DEF Superstore 12,000
VIII. Prizes and winnings from lotto
a. Philippine lotto 200,000
Total income from sources within the Philippines P907,000

53. Using the above data, the total income from sources outside the Philippines is

a. P635,000
b. P535,000
c. P643,000
d. P629,000

I. Rental Income
a. From an apartment unit in USA P240,000
II. Royalties from books
b. Published in USA 20,000
III. Interest income
b. From a debtor who resides in USA 15,000
IV. Net profit from sales
b. From USA Outlet 200,000
VI. Dividend income from resident foreign corporation
a. 40% of its world income 40,000
b. 60% of its world income 8,000
VII. Prizes received from Supermarket raffle
b. From USA
i. UVW Supermarket 6,000
ii. XYZ Superstore 14,000
VIII. Prizes and winnings from lotto
b. USA 100,000
Total income from sources within the Philippines P643,000

54. Using the data in number 51, assume instead that A is a resident citizen, single, his net taxable income subject to graduated rates is

a. P1,118,000
b. P1,018,000
c. P992,000
d. P938,000

Basic Income Tax Final Income Tax Income Exempt

a. From an apartment unit in USA P240,000
b. From a parcel of land in Makati 180,000
II. Royalties from book:
a. Published in the Philippines P30,000
b. Published in USA 20,000
III. Interest income earned on notes receivable
a. From a debtor who resides in USA 15,000
b. From a debtor who resides in Manila 25,000
IV. Net profit from sales, merchandising business:
a. From Philippine outlet 300,000
b. From USA outlet 200,000
V. Dividend income from two domestic corporation. The gross income from the
Philippines for the past 3 years
a. 60% of its world income 60,000
b. 85% of its world income 80,000
VI. Dividend income from two resident foreign corporation. The gross income
from the Philippines for the past 3 years were equivalent to
a. 40% of its world income 40,000
b. 60% of its world income 20,000
VII. Prizes received from Supermarket raffle:
a. From the Philippines:
i. ABC Supermarket 8,000
ii. DEF Superstore 12,000

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 b. From USA
i. UVW Supermarket 6,000
ii. XYZ Supersavers 14,000
VIII. Prizes and winnings from lotto
a. Philippine lotto P200,000
b. USA lotto 100,000
Gross Income P1,168,000
Allowed Exemptions 50,000
Net Taxable Income P1,118,000

55. Using data in number 51, assume instead that A is a non-resident citizen, single, his net taxable income subject to graduated rates is

a. P495,000
b. P475,000
c. P470,000
d. P480,000

Basic Income Tax Final Income Tax Income Exempt

a. From an apartment unit in USA P240,000
b. From a parcel of land in Makati P180,000
II. Royalties from book:
a. Published in the Philippines P30,000
b. Published in USA 20,000
III. Interest income earned on notes receivable
a. From a debtor who resides in USA 15,000
b. From a debtor who resides in Manila 25,000
IV. Net profit from sales, merchandising business:
a. From Philippine outlet 300,000
b. From USA outlet 200,000
V. Dividend income from two domestic corporation. The gross income from the
Philippines for the past 3 years
a. 60% of its world income 60,000
b. 85% of its world income 80,000
VI. Dividend income from two resident foreign corporation. The gross income
from the Philippines for the past 3 years were equivalent to
a. 40% of its world income 40,000
b. 60% of its world income 12,000 8,000
VII. Prizes received from Supermarket raffle:
a. From the Philippines:
i. ABC Supermarket 8,000
ii. DEF Superstore 12,000
b. From USA
i. UVW Supermarket 6,000
ii. XYZ Supersavers 14,000
VIII. Prizes and winnings from lotto
a. Philippine lotto P200,000
b. USA lotto 100,000
Gross Income P525,000
Allowed Exemptions 50,000
Net Taxable Income 475,000

56. XYZ Corporation, a domestic corporation had the following data during the calendar year 2015
Gross income P1,000,000
Business connected expenses 400,000
Dividends from:
a. Domestic corporation 100,000
b. Foreign corporation, 90% of the gross income was derived from the Philippines 100,000
c. Foreign corporation, 60% of the gross income was derived from the Philippines 80,000
d. Foreign corporation, 30% of the gross income was derived from the Philippines 40,000

The taxable income is

a. P920,000
b. P820,000
c. P748,000
d. P750,000

Gross Income from Sales P1,000,000

Dividends from Foreign Corporations 220,000
Gross Income 1,220,000
Allowed Deductions 400,000
Taxable Income P820,000

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57. The power to tax is not without limitations. Such limitations may be constitutional (expressly found in the constitution or implied in its
provisions) or inherent (restrict the power although they are embodied in the constitution). Which of the following is an inherent limitation?

a. No imprisonment for non-payment of a poll tax

b. Equal protection of the laws
c. Exemption from taxation of government entities.
d. Exemption of religious, charitable, and educational entities, non-profit cemeteries, and churches from property taxation.

58. Which of the following is not a condition imposed by the Constitution for the exercise of the power of eminent domain?

a. The consent of the owner of the private property to sell the same to the government.
b. The payment of just compensation.
c. The observance of due process in taking of a private property.
d. The existence of public use for the taking of a private property.

59. A, acquired his residential land in 2000 at a cost of P1M. A sold the property on January 2, 2016 for a selling price of P4M, where the FMV is
P5M. Within 18 months, A purchased his new principal residence at a cost of P7M. How much is the capital gains tax?

a. P300,000
b. P240,000
c. P75,000
d. P0

Fair Market Value P5,000,000

Final Income Tax Rate 6%
Final Income Tax 300,000

60. Amounts receivable by the estate of the deceased, his executor or administrator as an insurance under policy taken by the decedent upon his own
life is

a. Excluded from the gross income

b. Part of the gross income if the beneficiary is revocable
c. Part of the gross income if the beneficiary is irrevocable
d. Part of the gross income whether the beneficiary is revocable or irrevocable

61. This is not a requisite for business expenses to be deductible

a. It must be reasonable
b. It must be paid during the taxable year
c. The withholding tax otherwise required have been deducted and remitted to the BIR
d. It must be ordinary and necessary

62. As a rule, which of the following is subject to 10% tax on net income

a. Dividend received by a resident citizen from a domestic corporation

b. Royalty income from musical composition received by a resident alien
c. Off-shore banking units
d. Proprietary educational institutions

63. A, retired at the end of the first quarter of 2016 after rendering 25 years of continuous service for ABC Corporation which employed her
immediately after her graduation from college. She was then 21 years old. She earned the following income for 2016:
Salary for the first quarter P60,000
Honorarium as speaker 2,000
Retirement pay 100,000
Commissions 5,000
Fee as a member of the board of director 50,000
Terminal leave payments (vacation leave) 12,000
Interest income from time deposit 3,000
13th month pay 15,000

The gross compensation income of A is

a. P167,000
b. P217,000
c. P117,000
d. P67,000

Gross Exempt Final Income

Salary for the first quarter P60,000
Honorarium as speaker 2,000
Retirement pay 100,000
Commissions 5,000
Fee as a member of the board of director 50,000
Terminal leave payments (vacation leave) 12,000
Interest income from time deposit P3,000
13th month pay 15,000
Total P117,000 P127,000 P3,000

64. C, married had the following transactions:

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 2011 Taxable income from business P170,000
Dividends received from:
Resident corporation 3,000
Non-resident corporation 1,000
Interest from bank deposit 10,000
Interest from trade receivable 4,000
Capital gain on assets held for 6 months 24,000
Capital loss on assets held for 10 months 70,000

2012 Taxable income from business 140,000

Capital gains on capital assets held for 18 months 46,000
Capital loss on assets held for 9 months 6,000
Amount received as liquidating dividend (cost = P100,000) held for 20 months 150,000

The taxable income before personal exemption in 2012 is

a. P140,000
b. P132,000
c. P186,000
d. P254,000

Taxable Income from business P140,000

Taxable Income 140,000

Long-term capital gain (50%) P23,000

Gains from Receipt of Liquidating Dividend: (50%)
Amount received 150,000
Cost of shares surrendered 100,000 25,000
Total capital gains 48,000
Less: Short-term capital loss (100%) 6,000
Capital loss carryover 46,000 52,000
Net Capital Loss 4,000

Liquidating dividend refers to a final dividend representing the distribution of the corporate net assets, to all its stockholders based on its program of distribution at the
time of dissolution or cessation of the corporate business organization. The gain realized or loss sustained by the stockholder shall be treated as capital gain or loss
subject to regular income tax rates under the Tax Code, and not to the Capital Gain Tax on the sale of shares.

65. Using the above data, if the taxpayer is a corporation, taxable income in 2012 is

a. P194,000
b. P230,000
c. P330,000
d. P294,000

Taxable Income from business P140,000

Net Capital Gain 90,000
Taxable Income 230,000

Long-term capital gain P46,000

Gains from Receipt of Liquidating Dividend:
Amount received 150,000
Cost of shares surrendered 100,000 50,000
Total capital gains 96,000
Less: Short-term capital loss 6,000
Net Capital Gain 90,000

66. Which of the following are elements of impact of taxation?

I. Levy
II. Imposition
III. Assessment
IV. Collection

a. I and II
b. I, II, and III
c. III and IV
d. I, II, III, and IV

67. Which of the aspects of taxation is (are) administrative in nature?

I. Levy
II. Assessment
III. Collection

a. I only
b. I and II
c. II and III
d. III only
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68. Which of the following statements is correct?

a. The power of taxation must first be expressly granted either by law or by the constitution for the State to validly exercise it.
b. The power of taxation and police power may be exercised simultaneously.
c. The Philippine government may subject the land where embassies of foreign governments are located to real estate taxes.
d. Government owned and controlled corporations are exempted from taxes because it would be impractical for the government to be
taxing itself.

69. Which of the following is correct?

a. A Filipino who stayed in USA for more than 180 days is a non-resident citizen
b. An American who stayed in the Philippines for more than 180 days is a resident alien who is engaged in business in the Philippines.
c. A Filipino who stayed in the Philippines for more than 180 days is a resident citizen.
d. An American who stayed in the Philippines for an aggregate period of 183 days during the calendar year is a non-resident alien
engaged in business in the Philippines.

70. A, reported the following for the year 2015:

Gross Income P5,000,000
Cost of Sales 3,000,000
Salaries of employees, net of P100,000 withholding tax and P50,000 SSS, Medicare, and Pag-IBIG premiums contributions 800,000
Fringe benefits given to rank and file employees 300,000
Fringe benefits given to managerial employees 136,000
Representation and entertainment expenses (all business connected) 100,000
Rent expense 120,000
Donation to religious and charitable institutions 500,000

The amount that A will report as net income before exemptions is

a. P2,894,000
b. P2,997,000
c. P3,054,600
d. P3,051,000

Gross Income P5,000,000

Less: Allowed Deduction
Salaries of employees P950,000
Fringe benefits given to rank and file employees 300,000
Fringe benefits given to managerial employees 200,000
Representation and entertainment expenses 40,000
Rent Expense 120,000 1,610,000
Net Income before deducting charitable contributions 3,390,000
Less: Allowed Charitable Contributions 339,000
Taxable Net Income 3,051,000

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