MASTER IN BUSINESS LAW AND TAXATION

EASY
E1. The primary purpose of taxation is:
a. To enforce contribution from its subject for private purpose
b. To raise revenue for the government
c. To achieve economic and social stability
d. To regulate the conduct of business or profession

ANS: B.

E2. This theory underscores that taxes are indispensable to the existence of the state.
a. Doctrine of equitable recoupment c. The benefit received theory
b. The lifeblood doctrine d. The Holmes Doctrine

ANS: B

E3. Which of the following statements is not correct?

a. A partnership contract is not conveyed by the Statute of Frauds
b. A limited partner shall not be bound by the obligations of the partnership.
c. A limited partner who takes part in the control of the business shall be liable as a general partner.
d. A stipulation which excludes a partner from sharing in the profits or loss is void.

ANS: A

E4. That tax laws should be certain and consider the taxpayer’s ability to pay denotes
a. Fiscal adequacy c. Theoretical justice
b. Administrative feasibility d. Compatibility with economic objectives

ANS: C

E5. S offers to sell his house to B for P100,000. B asks him if he would accept P80,000. Which of the following is correct?
a. B’s response is more of inquiry, the P100,000 offer of S is still in force
b. B’s response is a rejection of the P100,000 offer, and there is no offer for P80,000 because it is too indefinite to
be an offer
c. B’s response is a counter offer effectively terminating the P100,000 offer and instigating an offer for P80,000
d. Because of ambiguity, both offers are terminated by operation of law
ANS: A

E6. Which of the following contracts is not valid?

a. Mutual promise to marry entered into orally
b. Sale of immovable property orally entered into
c. One of the parties in a contract is incapable of giving consent
d. None of the above

ANS: D

E7. Choose the situation which illustrates best the minimum requirement of the law to corporate formation:
Authorized Capital Subscribed Capital Paid-in Capital
A. P150,000 P 35,000 P15,000
B. P600,000 P150,000 P37,500
C. P 50,000 P 12,500 P 3,125
D. P 60,000 P 30,000 P 5,000

ANS: B

AVERAGE
A1. In a contract of sale executed by S and b, it appears S sold his motor vehicle to B and B bought it for P10,000. It
turned out however, S has three motor vehicles. Gallant valued P80,000; Hi-Ace van valued P70,000; and a Jeep valued
P60,000. Which of the following is correct?
a. The parties can ask for annulment of contract
b. There is no contract
c. The parties can ask for interpretation because the word Motor vehicle is ambiguous
d. The contract shall be reformed because there was a mistake

ANS: B.

A2. In order that a stipulation in favor to third person in a contract would be valid and binding upon the parties thereto,
three of the requisites are mentioned in the following enumeration. Which of them is not a requisite?
a. There must be an existing agency between either of the contracting parties and the third person
b. The third person communicated his acceptance to the obligor before it’s revocation
c. The contracting parties must have clearly and deliberately conferred a favor upon that third person
d. There must be stipulation in favor of a third person

ANS: A

A3. “A”, bachelor lawyer, raped W twice. Upon learning this, “F” the father of W, was able to force A to marry W under
pain of being sued in court and dibarred from the practice of his law profession. Which statement is correct?
a. The defective marriage may, however, be ratified
b. There was no defect, the marriage was perfectly valid
c. The marriage may be annulled on the ground of threat of intimidation
d. The marriage may be annulled on the ground of force or violence

ANS: B

A4. G was appointed guardian of S, the latter being 16 years old. S sold his parcel of land in writing to B valued at
P100,000 for P75,000, suffering lesion by 1/4 of the value. What is the status of the contract?
a. Voidable
b. Enforceable
c. Unenforceable
d. Rescissible

ANS: A

A5. Ron, who died during the year, has the following income in 2010:

Proceeds of life insurance P 1,000,000

Death benefits received from SSS 200,000
Separation benefit from employer 800,000
Salary accruing before death 50,000

Compute the total exclusion from gross income.

ANS: P2,000,000

A6. Jane sold his shares in BB Company, a closely held corporation, directly to a buyer. The shares have book value of
P300,000 but were sold for P250,000. Jane cost these shares P100,000. The capital gains tax on the sale is

ANS: P10,000
A7. Raymond sold his old residence on fear of a ghost that looks like him. The selling price was P2,000,000. He
immediately acquired a new residence utilizing the whole proceeds of his old residence which were exempt from capital
gains tax. While dressing for a date one day, he saw the same ghost on the mirror. This prompt him to sell his new
residence at a P600,000 discount from its P2,400,000 fair value. Raymond immediately reacquired another residence for
P2,000,000 beside the residence of his boy friend at Tomay, La Trinidad Benguet.
Compute the capital gains tax on the sale of the second residence.

ANS: P144,000

DIFFICULT

D1. Phil Co. raised its total outstanding shares by 40% to 70,000,000. This was made by conducting an initial public
offering through the Philippine Stock Exchange. The IPO shares were offered and sold for P20 per share. The stock
transaction tax is

ANS: P8,000,000

D2. Remy was unjustly assessed by the BIR. The following relates to Remy’s protest:

Date of receipt of final assessment November 12, 2009

Date protest was filed to the BIR December 8, 2009
Date supporting documents were submitted January 26, 2010
Date of denial was received June 5, 2010

Which of the following statement regarding deadlines is false?

a) The last day to file protest is December 12, 2009.
b) The last day to submit supporting documents is February 6, 2010.
c) The last day to appeal to the CTA is on July 22, 2010.
d) If the BIR should not act on the protest until the lapse of 180 days from the submission of the supporting
documents, the taxpayer should appeal to the CTA within 30 days from the lapse of the 180 day period.

ANS: C

D3. Kelly, realty dealer, sold the following properties during 2010:

Properties sold Holding period Gain/(Loss)

Principal residence Long-term P 800,000
Stocks sold directly to buyer Short-term 200,000
Personal car Long-term ( 40,000)
Office equipments Long-term 50,000
Bonds, held as investment Short-term 80,000

Compute the net capital gains subject to regular tax.

ANS: P60,000

D4. Which of the following instruments is not negotiable for the reason that the instrument is not payable at a
determinable future time?
a. “On the death of X, I promise to pay to the order of B P1,000.
(Sgd.) A”
b. “ On or before October 30, 2010, I promise to pay B or his order P 1,000.
(Sgd.) A”
c. “Sixty days after sight, I promise to pay to the order of B P 1,000.
(Sgd.) A”
d. “Ten days before the death of X, I promise to pay B or his order.
(Sgd.) A”

ANS: D.

D5. A, B and C secured a loan from X. The promissory note which evidences the obligation states: “ I promise to pay” and
signed by A, B and C. The obligation is:
a. Joint c. Divisible
 b. Solidary d. Indivisible

ANS: B

D6. The books of the taxpayer shows the following for 2011:

Interest expense P 200,000

Interest income, net of final tax 80,000
Interest income from notes 20,000

The deductible interest expense is

ANS: P167,000

D7. Horacio, Inc. provided the following benefits to its employees for the calendar quarter ending March 31, 2011:
 Granted the use of a residential unit with fair market value of P10,000,000 for the use of its president. The unit has
rental value of P34,000 per month.
 Purchased a P680,000 car and transferred title to its VP for finance.
 De minimis benefits granted to all employees, P400,000.
 Benefits given to rank and file employees, P800,000.

Compute the fringe benefit tax expense for the quarter.

ANS: P344,000

FINALS

BLT1. To call a meeting for the purpose of removing a director of a corporation the required votes of the stockholders is:
A. majority of the stockholders present C. 2/3 of the outstanding capital stock
B. ¾ of the outstanding capital stock D. majority of the outstanding capital stock

ANS: D

BLT2. All except one are instances when the right to vote by proxy is explicitly provided for:
A. election of the board of directors or trustees C. pledged or mortgaged share
B. voting in case of joint ownership of stock D. voting in a board meeting

ANS: D

BLT3. Rural Bank of Gumaca, Inc. (RBG) shows the following receipts during a quarter:

Interest income from more than 5 year loans P 1,000,000

Interest income from less than 5 year loans 6,000,000
Gain on sale of ROPA 400,000
Rental income from ROPA 200,000
Service fees 800,000
Dividend income 100,000

Assuming RBG is not a cooperative bank, compute the gross receipt tax.

ANS: P408,000

BLT4. Wendy shows the following input VAT during a quarter:

Deferred input VAT P 150,000

Allocation of current input VAT:
- Regular sales P 200,000
- Zero-rated sales 300,000
- Sales to the government 100,000
- Exempt sales 50,000
 Compute the creditable input VAT.

ANS: P650,000

BLT5. Maturity of an undated negotiable instrument issued payable 30 days after sight is computed from:
A. date of issue C. date of first presentation for acceptance
B. date of last indorsement D. date of first indorsement

ANS: C.

BLT6. The stipulation in a contract to the effect that the debtor should remain as a servant in the house and in the
service of her creditor so long as she had not paid her debt is void because it is:
a. Contrary to good customs.
b. Contrary to public policy.
c. Contrary to law and morality.
d. Contrary to obligations of contracts rule.

ANS: C.

BLT7. As regards to corporate by-laws, which of the following rules in not correct?
A. To amend or repeal the by-laws, majority of the Board of Directors and of the outstanding capital stock is needed.
B. To revoke the power delegated to the Board of Directors to adopt new by-laws, 2/3 of the outstanding capital stock or
of its members is needed.
C. To delegate to the Board of Directors or trustees the power to amend or repeal the by-laws, 2/3 of the outstanding
capital stock is needed.
D. To adopt by-laws, majority of the outstanding capital stock is needed.

ANS: B.

BLT8. The power to sue and be sued as a corporate power is more specifically classified as:
A. Incidental power B. Express power C. Implied power D. Discretionary power

ANS: A.

BLT9. Mr. and Mrs. Boromeo got married on February 14, 2001. The spouses stipulated the conjugal partnership of gains
for their property relation.

Mr. Boromeo died leaving the following properties:

 P800,000 cash inclusive of Mr. Boromeo’s P200,000 SSS benefits
 P200,000 claim from insolvent persons, from the salary of Mr. Boromeo accruing after marriage
 P400,000 second hand car, inherited by Mrs. Boromeo in 2000
 P2,000,000 house and lot, purchased out of Mr. Boromeo’s salary savings
 P300,000 pieces of jewelry, inherited by Mr. Boromeo from his father
 P500,000 agricultural land purchased by Mrs. Boromeo out of her PCSO winnings during the marriage

Compute Mr. Boromeo’s gross estate.

ANS: P3,600,000

BLT10. Which of the following is non-negotiable?

A. “I promise to pay to the order of Mr. Samonte the sum of P10,000 at the BPI Dapitan”;
B. “I promise to pay to the order of Mr. Samonte the sum of P10,000 and to deliver one-fourth of the rice harvest of
my farm”
C. “I promise to pay Mr. Samonte or bearer the sum of P10,000 in Philippine pesos or US dollars at the option of the
holder”
D. “I promise to pay Mr. Samonte or bearer the sum of P10,000 on or before December 25, 2007”.
ANS: B.

BLT11. On November 1, 2010, Gwen died leaving the following properties:

Agricultural land, inherited February 2, 2008 P 1,200,000

House and lot 2,000,000
Cash 2,800,000
Car 500,000
Other personal properties 1,000,000
Total properties P 7,500,000

Mortgage on the agricultural land P 500,000

Other indebtedness 1,200,000
Deductible expenses and losses 400,000
Total ordinary deductions P 2,100,000

Gwen paid P300,000 in the mortgage before his death. The prior estate paid the estate tax on the agricultural which
was then valued at P1,000,000.

Compute the vanishing deduction.

ANS: P302,400

BLT12. The following except one are valid considerations in a subscription agreement relative to the stocks of a
corporation:
A. Intangible property
B. Previous corporate obligations
C. Outstanding shares in exchange for stocks in the event of reclassification or conversion.
D. Promissory notes

ANS: D

BLT13. If the act of the corporation is not within its express, implied or incidental powers but is not contrary to law,
morals, public policy, the same may be ratified by:
A. The stockholders holding two-thirds of the voting power;
B. Majority vote of all members of the Board;
C. The stockholders holding one-half of the voting power;
D. Majority vote of the board of directors present.

ANS: A

BLT14. All are books to be kept or maintained by the corporation except one:
A. Books of all business transactions
B. Books of minutes of the corporate officers’ meeting
C. Books of minutes of the meetings of the board of directors
D. Stock and transfer book for stock corporations

ANS: B.

BLT15. 1st Statement – If after the second auction sale, the thing pledged is not sold, the pledgee can appropriate the
thing pledged.
2nd Statement – In sale at public auction, the pledgor or owner may bid and shall have a better right if he should
offer the same terms as the highest bidder.
A. Both statements are wrong. C. Both statements are correct.
B. Correct, Wrong. D. Wrong, Correct

ANS: C.

BLT16. The income effect of taxation is exhibited in

a. Forward shifting of tax c. Percentage taxes
 b. Value added tax d. Transformation

ANS: D.

BLT17. This is the equitable right of stockholders to subscribe to newly issued shares of the corporation in proportion to
their present shares in order to maintain their equity in the corporation.

ANS: Pre-emptive Right

BLT18. A,B,C,D,E, and F, Filipino citizens, X,Y,Z, American citizens, and R and S Japanese citizens agreed to form a
domestic corporation with an authorized capital stock of P1,000,000.00 divided into one hundred thousand
(100,000) shares with a par value of P10.00 per share. B subscribed for 2,000 shares and he paid P12,000.00. X
subscribed for 5,000 shares and he issued a promissory note in the amount of P30,000.00.00 F joined the group but
he did not subscribed for any number of shares. Can the aforementioned persons validly form a domestic
corporation-

a. Yes, provided majority of them are resident of the Philippines.

b. Yes, because majority of them are Filipino citizens.
c. Yes, provided they will subscribed for at least 25% of the authorized capital stock.
d. No, because foreigners cannot be incorporators of a domestic corporation.

ANS: A

BLT19. Which of the following is subject to value added tax?

a. Importation of grapes and apples
b. Sale of husked rice, corn grits and molasses
c. Sale of fire wood and charcoal
d. Sale of seaweeds

ANS: C.

BLT20. All of the following entities are VAT-exempt, except?

a. Tagbilaran University, a proprietary educational institution
b. Notre Dame, a proprietary hospital
c. Bank of the Philippine Islands, a commercial bank
d. Philippine Airlines, a domestic air carrier

ANS; D

BLT21. Which is subject to VAT?

a. Life insurance companies
b. International air or sea carrier
c. Agricultural, credit or multi-purpose cooperative
d. Operators of hotels, motels and inns

ANS: D.

BLT22. Which is not subject to output VAT?

a. Direct export sales of goods
b. Cessation of status as VAT taxpayer with respect to all goods or properties on hand
c. Sale of residential dwelling for P2,800,000
d. Sale of residential lot for P1,500,000

ANS: D

BLT23. Which is not a transaction deemed sales?

a. Withdrawal of goods by the proprietor for personal use
b. Retirement from or cessation of business
c. Declaring business properties as property dividends
d. Corporate merger or consolidation
ANS: D.

BLT24. Which is not a zero-rated sale of goods or service?

a. Transmission of messages message originating from the Philippines to abroad other than news services, embassies
and diplomatic calls.
b. Sale of gold to the Bangko Sentral ng Pilipinas
c. Sale of electricity from hydropower and solar power plants
d. Transport of passengers by air or sea from Philippines to abroad

ANS: A

BLT25. Which is correct statement?

a. If the monthly aggregate acquisition cost of capital goods exceeds P1,000,000, the input VAT shall be allocated
over a period of 60 months starting from the month of purchase.
b. The export sales of non-VAT taxpayers are exempt from VAT.
c. The excess of input VAT over standard input VAT on government sales is a taxable gain subject to income tax.
d. Monthly VAT is due 25 days from the end of each month with the quarterly VAT payable 20 days from the end of
each quarter.

ANS: B.

CLINCHERS

C1. Gross income is reported partially in each taxable year in proportion to collections made in such period as it bears to
the total contract price refers to:
a. Crop year basis method c. Accrual method
b. Percentage of completion method d. Instalment sales method

ANS: D.

C2. Can B demand for a certificate of stock of 1,200 shares-

a. No, because certificate of stock shall be issued only after payment of the full amount of the subscription;
b. No, because the 800 shares subscribed by him are already delinquent;
c. Yes, because he can surrender the 800 shares to the corporation and limit his subscription to 1,200 shares only.
d. Yes, because he has paid P12,000.00 representing the full value of 1,200 shares.

ANS: A.

C3. Is the payment of X for his subscription valid?

a. Yes, provided the promissory note is converted to cash on its maturity;
b. Yes, as long as the other incorporators shall accept his promissory note;
c. No, because only actual cash paid to the corporation can be valid payment;
d. No, because shares of stock shall not be issued in exchange of promissory note.

ANS: D

C4. Statement 1: Estate tax is a transfer tax. It is also an excise tax as to object of taxation.
Statement 2: Estate tax is levied on the heir receiving the property and not on the decedent.
a. Only statement 1 is correct. c. Both statements are correct.
b. Only statement 2 is correct. d. Both statements are not correct.

ANS: A.

C5. Statement 1: The estate of nonresident alien is not taxable with Philippines estatetax if the properties are
located outside the Philippines at date of death.
Statement 2: The estate of nonresident alien is reduced by indentifiable esxpenses incurred within to arrive at
the amount of net estate.

a. Only statement 1 is correct. c. Both statements are correct.

b. Only statement 2 is correct. d. Both statements are not correct.
ANS: C.

C6. The rule of reciprocity as to whether the intangible property with situs within is to be included in the gross estate is
applicable to the estate if

a. resident citizen c. nonresident citizen

b. resident alien d. nonresiden alien

ANS: D

C7. Non-resident decedent can claim deduction for

a. Transfer for public purpose
b. Medical expenses
c. Family home
d. Standard deduction

ANS: A

C8. Under the Negotiable Instruments Law, this is any consideration sufficient to support a contract. This may be an
antecedent or pre-existing debt:
A. Cause B. Exchange C. Value D. Consideraton

ANS: D.

C9. All are advantages of forming a corporation except one:

A. The free and ready transferability of ownership.
B. The shareholders are not liable for the debts of the business.
C. Continuity of existence because of the power of succession.
D. Corporate form involves double taxation on corporate income.

ANS: D.

C10. Statement 1: Not all the net estate is subject to estate tax.
Statement 2: The first P200,000 of the net estate is exempt from estate tax.

a. Only statement 1 is correct. c. Both statments are correct.

b. Only statement 2 is correct. d. Both statments are not correct.

ANS: C.