One of the following losses cannot be deducted from gross income:

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a. To construct a bigger warehouse, a corporation demolished an old house which
had a construction cost of P2 M and a book value of P300,000.
b. Demolition of a building existing on land purchased, where the corporation had no
use for the building at the time of purchase and it was its intention to remove the
building in order to build its factory.

c. A corporation retired its machinery from the business because of the increase in
the cost of production and the failure of the machinery to meet the desired number of
units of production.
d. A Corp. ascertained that its B Corp. stocks are worthless because of the total
insolvency f B Corp.

Gross benefits received by officials and employees of public and private entities shall
be excluded from gross income provided that the total exemption shall not exceed
P90,000. The exclusion shall not apply to: *

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a. 13th month pay

b. Productivity incentives.
c. Christmas Bonus
d. Basic salary and other allowances

Cedric Corp had a net revenues of P2,000,000 and a cost of service of 1,000,000. The
actual entertainment, amusement and recreation expense amounted to P40,000. The
deductible "EAR" Expense is: *

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a. 5,000
b. 10,000
c. 20,000
d. 40,000

Norie Corp entered into a memorandum of agreement with STI high school, a public
secondary school, by contributing its services to the "Adopt a school program", a
priority program designated by the NEDA. The agreed value fixed in the MOA for the
construction of the public school building was P2,000,000. Norie Corp was able to
complete the building at a total cost of P1,600,000. Norie Corp shall be allowed to
deduct: *

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a. 3,000,000
b. 2,400,000
c. 2,000,000
d. 1,600,000

All of the following are false, except: *

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a. Documentary stamp tax is a non-deductible tax.
b. Return of capital is not an income.
c. Interest paid on preferred stock is deductible from gross income of the paying
corporation.
d. An expense which is necessary but not ordinary is deductible from gross income

April, a florist, borrowed 2,000 from Mary Grace. To pay her debt, she arranged Mary
Grace's flowers. The cancellation of indebtedness may amount to *

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a. Payment of income
b. Capital Contribution
c. Gift
d. Donation

In case of conflict between the tax code and the Philippine Accounting Standards
(PAS) *

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a. PAS shall prevail

b. Tax code shall prevail

c. Whichever is more stricter

d. The taxpayer may choose between the two
Hikmatyar and Jebsen owner of Lovers HJs resto built a 200,000 worth of facility for
the convenience of their PWD customers. Additionally, they also built a lactation
station at a cost of 100,000 pesos. Compute the total allowable deduction. *

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a. 200,000
b. 300,000
c. 400,000
d. 500,000

The loss of property, to be allowed as a deduction, must be declared and filed with the
BIR within how many days? *

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a. 15
b. 30

c. 45
d. 60

The following are special allowable deduction except: *

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a. Additional productivity incentive bonus expense

b. 15% discounts to senior citizens on sale of goods and services
c. Cost of facilities improvements for persons with disability
d. Transfers to reserves of funds of taxable cooperatives

Research and Development Costs may be amortized over a period of: *

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a. Less than 60 months

b. Not less than 60 months
c. more than 60 months
d. not more than 60 months
The following are common to the inherent power of taxation, power of eminent domain
and police power, except for which of the following? *

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a. They are necessary attributes of sovereign

b. They interfere with private rights and property
c. They affect all persons or the public
d. They are legislative in implementation

The basic community tax of P5.00 of an individual is: *

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a. property tax
b. direct tax
c. national tax
d. ad valorem tax

It is an aspect of taxation that is administrative in character and the power to exercise

it is vested on the Department of Finance *

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a. Levying
b. Collection
c. Imposition
d. Legislation

This is a deductible interest expense *

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a. Interest on deposits paid by authorized banks of the BSP to depositors, if it is

shown that the tax on such interest was withheld and paid

b. Interest paid on indebtedness between related tax payers

c. Interest paid on preferred stock
d. Interest paid when there is no stipulation for the payment thereof
Amounts receivable by the estate of the deceased, his executor or administrator as an
insurance under a policy taken by the decedent upon his own life is *

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a. Excluded from gross income

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

This is not a requisite for business expense to be deductible *

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a. It must be evidenced by supporting documents

b. It must be paid during the taxable year
c. It must be incurred in the pursuit of the business
d. It must be ordinary and necessary

Which statement is wrong? *

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a. The power of taxation may be exercised by the government, its political

subdivision, and public utilities
b. Generally, there is no limit on the amount of tax that may be imposed

c. The money contributed as tax becomes part of the public funds

d. The power of tax is subject to certain constitutional limitations

The interest expense of a domestic corporation on a bank loan in connection with the
purchase of a production equipment *

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a. Is not deductible from gross income of the borrower - corporation

b. Is deductible from the gross income of the borrower - corporation during the year
or it may be capitalized as part of cost of the equipment

c. Is deductible only for a period of five years from the date of purchase
d. Is deductible only if the taxpayer uses the cash method of accounting
The proceeds received under a life insurance endowment contract is not considered
part of gross income *

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a. If is so stated in the life insurance policy

b. If the price for the endowment policy was not fully paid
c. Where payment is made as a result of the death of the insured
d. Where the beneficiary was not the one who took out the endowment contract

WMSU Corp. put up a qualified retirement plan. The following amounts were paid for
the first three years of the plan’s operation: ( See table) The pension expense for the
5th year is: *

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a. 30, 000
b. 36, 000
c. 58,000
d. 64,000

Below shows Therese’s income starting from year 2012. (See table) Compute the
outstanding NOLCO for the year 2016 *

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a. 0
b. 10,000
c. 30,000
d. 50,000
e. Some other answer

Norman was bumped by a car owned by Jhoanna while he was on his way to WMSU.
Jhoanna gave him P10,000 for his medical treatment and 15,000 to compensate him
of the damages received on account of such injury. Furthermore, Norman asked
Jhoanna to give him an additional 50,000 because he cannot work well due to the
accident that had happen. How much would be the total exclusion from Jhoanna’s
gross income? *

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a. 10,000
b. 25,000

c. 75,000
d. None

Angelie and Rel-Jen Company pays the following compensation to its employees:
(See table) The deductible compensation expense is: *

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a. 1,400,000

b. 1,405,000
c. 1,495,000
d. 1,505,000
Edrrick engaged in business incurred a partial loss of property as follows: (See table)
The deductible loss for asset 1 is *

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a. 120,000
b. 70,000
c. 30,000
d. 80,000

Eddrick engaged in business incurred a partial loss of property as follows: (See table)
The deductible loss for asset 2 is *

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a. 90,000
b. 160,000
c. 240,000
d. 300,000

Any amount subsequently received on account of a bad debt previously charged off
and allowed as a deduction from gross income in prior years must be included in
gross income in the taxable year in w/c received. This is *

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a. Severance test
b. Life-blood theory
c. Destination of income test
d. Equitable doctrine of tax benefit

A took out a life insurance policy of P1,000,000 naming his wife as beneficiary. The
policy provides that the insurance company will pay A the amount of P1,000,000 after
the 25th year of the policy and his beneficiary, should he die before this date. The
premiums paid on the policy is P700,000. If A outlived the policy and received the
proceeds of P1,000,000, such proceeds will be: *

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a. Taxable in full
b. Exempt from income tax
c. Partly taxable, partly exempt

d. subject to final tax

Using the preceding no., if A dies and his beneficiary received the proceeds of
P1,000,000, such proceeds will be *

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a. Taxable in full
b. Partly taxable, partly exempt
c. Exempt from income tax

d. subject to final tax

This is not deductible from gross income *

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a. Transportation expenses from the main office to the branch

b. Transportation expenses from home to the office and from the office back to home

c. Travel expenses on business trips

d. Travel expenses while away from home in the pursuit of trade, business or
profession
1. Taxpayer is required to report income for the tax year in which payments are

actually or constructively received while expenses are deducted in the year paid *

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a. Accrual basis
b. Cash Basis

c. Crop year basis

d. Installment method

2. Edmarie uses accrual method of accounting. She owns a land which she leased to

Ahmed for 2 years at an annual rental of P100,000. On July 1, 2020, she received

P200,000 from Ahmed representing the rental covering the period July 1, 2020 to

June 30, 2022. In 2020, Edmarie will report an income subject to tax of: *

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a. P50,000
b. 200,000

c. 100,000
d. 50,000
3. Which of the following statements is false? In installment method of reporting

income – *

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a. If the property sold is not a subject of mortgage, the selling price is equivalent
to the amount of contract price
b. The initial payment included the excess of mortgage over cost, if any.
c. The gain in sale is computed by subtracting the book value from the selling
price of the property if the property is a capital asset

d. An installment payment of tax may also be made even if the asset is subject to
capital gains tax

4. 2. In 2009, Madeline sold a piece of land which had a cost of P1M for a selling

price of P4M. The salecalled for an assumption by the buyer of a mortgage on the

land of P1.5M, cash of P500,000 on the date of sale and installment payments of

P500,000 every year thereafter. The land is an ordinary asset. The income to be

reported in 2009 under the installment method of reporting *

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a. P500,000
b. P750,000
c. P375,000
d. P1,000,000
5. Which of the following statements is not correct? Those who make a casual sale

or disposition of personal property on the installment plan may elect the installment

basis of reporting income if *

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a. The personal property sold is not of a kind which would be included in the
inventory.
b. The selling price exceeds P1,000
c. The sale is in installment
d. The initial payments do not exceed 25% of the contract price.

6. A revenue expenditure is *

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a. Usually incurred in the acquisition, betterment or permanent improvement of
the asset
b. Capitalized and the cost is recovered through annual depreciation
c. Ordinarily to benefit more than one accounting period
d. To benefit one accounting period and is a deduction from gross income in the
year paid or incurred.

7. Which of the following statements is not correct? *

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a. The optional standard deduction is an amount equal to forty percent (40%) of

the Gross income from business or practice of profession of the taxpayer.

b. The optional standard deduction is not available against compensation income

arising out of an employer-employee relationship
c. The election of Optional Standard Deduction is irrevocable for the taxable year
for which the choice is made.
d. Unless the taxpayer signifies in his return his intention he shall be considered
as having availed of the itemized deduction.

8. Statement 1 - The cost of leasehold improvements shall be deductible from gross

income of the paying corporation. Statement 2 - Contributions by the employer to a

pension trust for past service cost is deductible in full in the year that the employer

made the contributions. *

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a. True, True
b. True, False

c. False, True
d. False, False

9. Joshua sold his warehouse building to Shandy. The property was acquired by him

in 2012 from P250,000. At the time of sale, its accumulated depreciation was
P50,000. The terms of the sale are as follows: (See image) The income to be

reported by Joshua 2019 is – *

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a. P45,000

b. 90,000
c. 200,000
d. None

10. The income to be reported by Joshua is 2020 is – *

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a. P200,000
b. 155,000

c. 45,000
d. None

11. Ms. Peddings leased a 300 sq. meter of idle land to WMSU, a proprietary

educational institution, for a period of twenty (20) years effective January 1 2013.
The lease contract provides that WMSU will erect a building thereon to be used as a

classroom, which it did on the lot of Ms. Peddings. The agreement provides also that

the building shall become the property of the lessor at the end of the lease. The

building was completed on June 30, 2015 at a cost of P1,800,000. The estimated life

of the leasehold improvement is thirty (30) years. It was further agreed that WMSU

will pay the real estate tax on the land assessed at P3,000 annually. On January

2,2013, WMSU paid Ms. Peddings P120,000 consisting of rental covering the two (2)

year period (24 months) from 2013 to 2014.The rent income to reported by Ms.

Peddings in 2013 *

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a. 60,000

b. 123,000
c. 120,000
d. 63,000
12. The income to be reported by Ms. Peddings in 2015 under spread out method

is *

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a. 84,429
b. 105,857
c. 81,429

d. 21,429

13. The income to be reported by Ms. Peddings in 2015 under outright method is *

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a. 60,000
b. 63,000
c. 1,860,000

d. 1,863,000

14. Which of the following statements is wrong on leasehold improvement? *

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a. The amount of the improvement is not taxable to the lessor if he will pay the
lessee whatever is the book value of the improvement at the expiration of the
lease contract
b. The amounts due on the lessor such as the realty taxes shall be deductible
expenses to the lessee if they are assumed by the latter.
c. As a general rule, the lessor will pay lesser income tax if he avails of the
spread-out method rather than take the outright method in reporting income on
the improvement.
d. A lessor shall consistently apply accrual method of accounting
regardless of the prepayments in rents received from the lessee.

15. Erica leased a house to Zia for a period of 11 years starting January 1, 2012 at
an annual rental of P12,000. Observing the provisions of the contract, Zia
constructed a fence which shall become the property of Erica at the expiration of the
lease. The construction was completed on January 1, 2015 at a cost of P1,000,000
with an estimated useful life of 20 years.It is stipulated in the contract that the lessee
will pay to the government the P1,500 annual rental property tax on the land starting
in 2012. Assuming that on January 1, 2012, Zia paid P24,000 to Erica covering the
lease contract for two years, how much income is to be reported by Erica in 2012? *
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a. P12,000
b. 13,500
c. 24,000

d. 25,500

16. How much income is to be reported by Erica in 2015 under the outright

method? *

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a. P13,500
b. 1,500
c. P1,013,500

d. 1,000,000

17. How much income is to be reported by Erica in 2015 under the spread-out

method? *
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a. P13,500

b. 1,500
c. 1,013,500
d. 88,500

18. How much is the deductible expense of the lessee in 2015? *

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a. P138,500
b. 63,500

c. 125,000
d. 13,500

19. In the number 17 above, assuming that due to the fault of the lessee, the lease

contract was terminated on January 1, 2017, how much income is to be reported by

lessor in 2017? *

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a. P763,500

b. 750,000
c. 88,500
d. 1,013,500
20. Banks are authorized by the government to collect taxes. This practice highlights

the principle of *

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A. Administrative feasibility

B. Fiscal adequacy
C. Privity of relationship
D. Theoretical justice

21. What is the concept of minimizing payment of taxes where the producer of goods

absorbs the amount of tax and then recovers the taxes paid by improving the

process of production? *

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A. Capitalization
B. Transformation

C. Shifting
D. Avoidance

22. Mr. A, a farmer, had the following data for the year: (see image) Using cash

method of accounting, the income is: *

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a. 205,000
b. 208,000
c. 395,000

d. 202,000

Correct answer

a. 205,000

23. Using accrual method of accounting, the income is: *

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a. 205,000
b. 208,000

c. 395,000
d. 202,000

24 If an individual performs services for a creditor who in consideration thereof

cancels the debt, the cancellation of indebtedness may amount, to *

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a. A gift
b. A donation
c. A capital contribution
d. A payment of income

25. Congress passed a law which granted tax amnesty to those who have not paid

their income taxes in 2010 but did not provide for the refund to those who paid. Is the

law valid? *

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a. No, this will encourage taxpayers not to pay their taxes
b. Yes, Congress has the sole discretion whom to tax

c. No, the grant of amnesty is the sole prerogative of the President

d. Yes, Congress provided for a valid classification