2011 Bar Exam Questions That Are Applicable To The Cpa Board Exams For BLT

2011 BAR EXAM QUESTIONS THAT ARE APPLICABLE TO THE CPA BOARD EXAMS for BLT
Compiled by: Prof. James Domingo, CPA
2011 BAR EXAM QUESTIONS

THAT ARE APPLICABLE TO THE
CPA BOARD EXAMS
For BLT
Compiled by: Prof. James Cristopher D. Domingo, CPA
BUSINESS LAW
1. Can future inheritance be the subject of a contract of sale?
A. No, since it will put the predecessor at the risk of harm from a tempted buyer,
contrary to public policy.
B. Yes, since the death of the decedent is certain to occur.
C. No, since the seller owns no inheritance while his predecessor lives.
D. Yes, but on the condition that the amount of the inheritance can only be
ascertained after the obligations of the estate have been paid.
2. Upon the proposal of a third person, a new debtor substituted the original
debtor without the latters consent. The creditor accepted the substitution. Later,
however, the new debtor became insolvent and defaulted in his obligation. What
is the effect of the new debtors default upon the original debtor?
A. The original debtor is freed of liability since novation took place and this
relieved him of his obligation.
B. The original debtor shall pay or perform the obligation with recourse to the
new debtor.
C. The original debtor remains liable since he gave no consent to the
substitution.
D. The original debtor shall pay or perform 50% of the obligation to avoid unjust
enrichment on his part.
3. Lennie bought a business class ticket from Alta Airlines. As she checked in,
the manager downgraded her to economy on the ground that a Congressman
had to be accommodated in the business class. Lennie suffered the discomfort
and embarrassment of the downgrade. She sued the airlines for quasi-delict but
Alta Airlines countered that, since her travel was governed by a contract between
them, no quasi-delict could arise. Is the airline correct?
A. No, the breach of contract may in fact be tortious as when it is tainted as in
this case with arbitrariness, gross bad faith, and malice.
B. No, denying Lennie the comfort and amenities of the business class as
provided in the ticket is a tortious act.
C. Yes, since the facts show a breach of contract, not a quasi-delict.
D. Yes, since quasi-delict presupposes the absence of a pre-existing contractual
relation between the parties.
4. When one exercises a right recognized by law, knowing that he thereby

causes an injustice to another, the latter is entitled to recover damages. This is
known as the principle of
A. res ipsa loquitur.
B. damnum absque injuria.
C. vicarious liability.
D. abuse of rights.
5. The liability of the partners, including industrial partners for partnership

contracts entered into in its name and for its account, when all partnership assets
have been exhausted is
A. Pro-rata.
B. Joint.
C. Solidary.
D. Voluntary.
6. When bilateral contracts are vitiated with vices of consent, they are rendered
A. rescissible.
B. void.
C. unenforceable.
D. voidable.
7. An agent, authorized by a special power of attorney to sell a land belonging

to the principal succeeded in selling the same to a buyer according to the
instructions given the agent. The agent executed the deed of absolute sale on
behalf of his principal two days after the principal died, an event that neither the
agent nor the buyer knew at the time of the sale. What is the standing of the
sale?
A. Voidable.
B. Valid.
C. Void.
D. Unenforceable.
8. Solomon sold his coconut plantation to Aragon, Inc. for P100 million, payable
in installments of P10 million per month with 6% interest per annum. Solomon
married Lorna after 5 months and they chose conjugal partnership of gains to
govern their property relations. When they married, Aragon had an unpaid
balance of P50 million plus interest in Solomons favor. To whom will Aragons
monthly payments go after the marriage?
A. The principal shall go to the conjugal partnership but the interests to Solomon.
B. Both principal and interests shall go to Solomon since they are his exclusive
properties.
C. Both principal and interests shall go to the conjugal partnership since these
become due after the marriage.
D. The principal shall go to Solomon but the interests to the conjugal partnership.
9. May a spouse freely donate communal or conjugal property without the

consent of the other?
A. Absolutely not, since the spouses co-own such property.
B. Yes, for properties that the family may spare, regardless of value.
C. Yes, provided the donation is moderate and intended for charity or family
rejoicing.
D. Yes, in a donation mortis causa that the donor may still revoke in his lifetime.
10. Contracts take effect only between the parties or their assigns and heirs,
except where the rights and obligations arising from the contract are not
transmissible by their nature, by stipulation, or by provision of law. In the latter
case, the assigns or the heirs are not bound by the contracts. This is known as
the principle of
A. Relativity of contracts.
B. Freedom to stipulate.
C. Mutuality of contracts.
D. Obligatory force of contracts.
11. A buyer ordered 5,000 apples from the seller at P20 per apple. The seller
delivered 6,000 apples. What are the rights and obligations of the buyer?
A. He can accept all 6,000 apples and pay the seller at P20 per apple.
B. He can accept all 6,000 apples and pay a lesser price for the 1,000 excess
apples.
C. He can keep the 6,000 apples without paying for the 1,000 excess since the
seller delivered them anyway.
D. He can cancel the whole transaction since the seller violated the terms of their
agreement.
12. Lino entered into a contract to sell with Ramon, undertaking to convey to the
latter one of the five lots he owns, without specifying which lot it was, for the price
of P1 million. Later, the parties could not agree which of five lots he owned Lino
undertook to sell to Ramon. What is the standing of the contract?
A. Unenforceable.
B. Voidable.
C. Rescissible.
D. Void.
13. Knowing that the car had a hidden crack in the engine, X sold it to Y without
informing the latter about it. In any event, the deed of sale expressly stipulated
that X was not liable for hidden defects. Does Y have the right to demand from X
a reimbursement of what he spent to repair the engine plus damages?
A. Yes. X is liable whether or not he was aware of the hidden defect.
B. Yes, since the defect was not hidden; X knew of it but he acted in bad faith in
not disclosing the fact to Y.
C. No, because Y is in estoppel, having changed engine without prior demand.
D. No, because Y waived the warranty against hidden defects.
14. Acme Cannery produced sardines in cans known as Sards. Mylene bought
a can of Sards from a store, ate it, and suffered from poisoning caused by a
noxious substance found in the sardines. Mylene filed a case for damages
against Acme. Which of the following defenses will hold?
A. The expiry date of the Sards was clearly printed on its can, still the store sold
and Mylene bought it.
B. Mylene must have detected the noxious substance in the sardines by smell,
yet she still ate it.
C. Acme had no transaction with Mylene; she bought the Sards from a store,
not directly from Acme.
D. Acme enjoys the presumption of safeness of its canning procedure and
Mylene has not overcome such presumption.
15. Asiong borrowed P1 million from a bank, secured by a mortgage on his land.
Without his consent, his friend Boyong paid the whole loan. Since Asiong
benefited from the payment, can Boyong compel the bank to subrogate him in its
right as mortgagee of Asiong's land?
A. No, but the bank can foreclose and pay Boyong back.
B. No, since Boyong paid for Asiongs loan without his approval.
C. Yes, since a change of creditor took place by novation with the banks
consent.
D. Yes, since it is but right that Boyong be able to get back his money and, if not,
to foreclose the mortgage in the manner of the bank.
16. Congress passed a law imposing taxes on income earned out of a particular
activity that was not previously taxed. The law, however, taxed incomes already
earned within the fiscal year when the law took effect. Is the law valid?
A. No, because laws are intended to be prospective, not retroactive.
B. No, the law is arbitrary in that it taxes income that has already been spent.
C. Yes, since tax laws are the lifeblood of the nation.
D. Yes, tax laws are an exception; they can be given retroactive effect.
17. Rudolf borrowed P1 million from Rodrigo and Fernando who acted as
solidary creditors. When the loan matured, Rodrigo wrote a letter to Rudolf,
demanding payment of the loan directly to him. Before Rudolf could comply,
Fernando went to see him personally to collect and he paid him. Did Rudolf
make a valid payment?
A. No, since Rudolf should have split the payment between Rodrigo and
Fernando.
B. No, since Rodrigo, the other solidary creditor, already made a prior demand
for payment from Rudolf.
C. Yes, since the payment covers the whole obligation.
D. Yes, since Fernando was a solidary creditor, payment to him extinguished the
obligation.
18. Allan bought Billys property through Carlos, an agent empowered with a
special power of attorney (SPA) to sell the same. When Allan was ready to pay
as scheduled, Billy called, directing Allan to pay directly to him. On learning of
this, Carlos, Billy's agent, told Allan to pay through him as his SPA provided and
to protect his commission. Faced with two claimants, Allan consigned the
payment in court. Billy protested, contending that the consignation is ineffective
since no tender of payment was made to him. Is he correct?
A. No, since consignation without tender of payment is allowed in the face of the
conflicting claims on the plaintiff.
B. Yes, as owner of the property sold, Billy can demand payment directly to
himself.
C. Yes, since Allan made no announcement of the tender.
D. Yes, a tender of payment is required for a valid consignation.
19. X sold Y 100 sacks of rice that Y was to pick up from Xs rice mill on a
particular date. Y did not, however, appear on the agreed date to take delivery of
the rice. After one week, X automatically rescinded the sale without notarial
notice to Y. Is the rescission valid?
A. Yes, automatic rescission is allowed since, having the character of movables
and consumables, rice can easily deteriorate.
B. No, the buyer is entitled to a customary 30-day extension of his obligation to
take delivery of the goods.
C. No, since there was no express agreement regarding automatic rescission.
D. No, the seller should first determine that Y was not justified in failing to appear.
20. X bought a land from Y, paying him cash. Since they were friends, they did
not execute any document of sale. After 7 years, the heirs of X asked Y to
execute a deed of absolute sale to formalize the verbal sale to their father.
Unwilling to do so, Xs heirs filed an action for specific performance against Y.
Will their action prosper?
A. No, after more than 6 years, the action to enforce the verbal agreement has
already elapsed.
B. No, since the sale cannot under the Statute of Frauds be enforced.
C. Yes, since X bought the land and paid Y for it.
D. Yes, after full payment, the action became imprescriptible.
21. Roy and Carlos both undertook a contract to deliver to Sam in Manila a boat
docked in Subic. Before they could deliver it, however, the boat sank in a storm.
The contract provides that fortuitous event shall not exempt Roy and Carlos from
their obligation. Owing to the loss of the motor boat, such obligation is deemed
converted into one of indemnity for damages. Is the liability of Roy and Carlos
joint or solidary?
A. Neither solidary nor joint since they cannot waive the defense of fortuitous
event to which they are entitled.
B. Solidary or joint upon the discretion of Sam.
C. Solidary since Roy and Carlos failed to perform their obligation to deliver the
motor boat.
D. Joint since the conversion of their liability to one of indemnity for damages
made it joint.
22. Joanne married James, a person with no known relatives. Through James'
hard work, he and his wife Joane prospered. When James died, his estate alone
amounted to P100 million. If, in his will, James designates Joanne as his only
heir, what will be the free portion of his estate.
A. Joanne gets all; estate has no free portion left.
B. Joanne gets 1/2; the other half is free portion.
C. Joanne gets 1/3; the remaining 2/3 is free portion.
D. Joanne gets 1/4; the remaining 3/4 is free portion.
23. A warranty inherent in a contract of sale, whether or not mentioned in it, is

known as the
A. warranty on quality.
B. warranty against hidden defects.
C. warranty against eviction.
D. warranty in merchantability.
24. X, who was abroad, phoned his brother, Y, authorizing him to sell Xs parcel
of land in Pasay. X sent the title to Y by courier service. Acting for his brother, Y
executed a notarized deed of absolute sale of the land to Z after receiving
payment. What is the status of the sale?
A. Valid, since a notarized deed of absolute sale covered the transaction and full
payment was made.
B. Void, since X should have authorized agent Y in writing to sell the land.
C. Valid, since Y was truly his brother Xs agent and entrusted with the title
needed to effect the sale.
D. Valid, since the buyer could file an action to compel X to execute a deed of
sale.
25. In a true pacto de retro sale, the title and ownership of the property sold are
immediately vested in the vendee a retro subject only to the resolutory condition
of repurchase by the vendor a retro within the stipulated period. This is known as
A. equitable mortgage.
B. conventional redemption.
C. legal redemption.
D. equity of redemption.
26. A natural obligation under the New Civil Code of the Philippines is one which
A. the obligor has a moral obligation to do, otherwise entitling the obligee to
damages.
B. refers to an obligation in writing to do or not to do.
C. the obligee may enforce through the court if violated by the obligor.
D. cannot be judicially enforced but authorizes the obligee to retain the obligors
payment or performance.
27. The husband assumed sole administration of the familys mango plantation
since his wife worked abroad. Subsequently, without his wifes knowledge, the
husband entered into an antichretic transaction with a company, giving it
possession and management of the plantation with power to harvest and sell the
fruits and to apply the proceeds to the payment of a loan he got. What is the
standing of the contract?
A. It is void in the absence of the wifes consent.
B. It is void absent an authorization from the court.
C. The transaction is void and can neither be ratified by the wife nor authorized
by the court.
D. It is considered a continuing offer by the parties, perfected only upon the wifes
acceptance or the courts authorization.
28. When the donor gives donations without reserving sufficient funds for his
support or for the support of his dependents, his donations are
A. Rescissible, since it results in economic lesion of more than 25% of the value
of his properties.
B. Voidable, since his consent to the donation is vitiated by mindless kindness.
C. Void, since it amounts to wanton expenditure beyond his means.
D. Reducible to the extent that the donations impaired the support due to himself
and his dependents.
29. Anne owed Bessy P1 million due on October 1, 2011 but failed to pay her on
due date. Bessy sent a demand letter to Anne giving her 5 days from receipt
within which to pay. Two days after receipt of the letter, Anne personally offered
to pay Bessy in manager's check but the latter refused to accept the same. The
5 days lapsed. May Annes obligation be considered extinguished?
A. Yes, since Bessys refusal of the managers check, which is presumed funded,
amounts to a satisfaction of the obligation.
B. No, since tender of payment even in cash, if refused, will not discharge the
obligation without proper consignation in court.
C. Yes, since Anne tendered payment of the full amount due.
D. No, since a managers check is not considered legal tender in the Philippines.
30. X borrowed money from a bank, secured by a mortgage on the land of Y, his
close friend. When the loan matured, Y offered to pay the bank but it refused
since Y was not the borrower. Is the banks action correct?
A. Yes, since X, the true borrower, did not give his consent to Ys offer to pay.
B. No, since anybody can discharge Xs obligation to his benefit.
C. No, since Y, the owner of the collateral, has an interest in the payment of the
obligation.
D. Yes, since it was X who has an obligation to the bank.
31. The right of a mortgagor in a judicial foreclosure to redeem the mortgaged

property after his default in the performance of the conditions of the mortgage but
before the sale of the mortgaged property or confirmation of the sale by the court,
is known as
A. accion publiciana.
B. equity of redemption.
C. pacto de retro.
D. right of redemption.
32. The presence of a vice of consent vitiates the consent of a party in a contract
and this renders the contract
A. Rescissible.
B. Unenforceable.
C. Voidable.
D. Void.
33. A writes a promissory note in favor of his creditor, B. It says: Subject to my

option, I promise to pay B Php1 Million or his order or give Php1 Million worth of
cement or to authorize him to sell my house worth Php1 Million. Signed, A. Is the
note negotiable?
A. No, because the exercise of the option to pay lies with A, the maker and
debtor.
B. No, because it authorizes the sale of collateral securities in case the note is
not paid at maturity.
C. Yes, because the note is really payable to B or his order, the other provisions
being merely optional.
D. Yes, because an election to require something to be done in lieu of payment of
money does not affect negotiability.
34. ABC Corp. increased its capital stocks from Php10 Million to Php15 Million
and, in the process, issued 1,000 new shares divided into Common Shares B
and Common Shares C. T, a stockholder owning 500 shares, insists on buying
the newly issued shares through a right of pre-emption. The company claims,
however, that its By-laws deny T any right of pre-emption. Is the corporation
correct?
A. No, since the By-Laws cannot deny a shareholder his right of pre-emption.
B. Yes, but the denial of his pre-emptive right extends only to 500 shares.
C. Yes, since the denial of the right under the By-laws is binding on T.
D. No, since pre-emptive rights are governed by the articles of incorporation.
35. M makes a promissory note that states: I, M, promise to pay Php5,000.00 to B

or bearer. Signed, M. M negotiated the note by delivery to B, B to N, and N to
O. B had known that M was bankrupt when M issued the note. Who would be
liable to O?
A. M and N since they may be assumed to know of M's bankruptcy
B. N, being O's immediate negotiator of a bearer note
C. B, M, and N, being indorsers by delivery of a bearer note
D. B, having known of M's bankruptcy
36. X Corp. operates a call center that received orders for pizzas on behalf of Y
Corp. which operates a chain of pizza restaurants. The two companies have the
same set of corporate officers. After 2 years, X Corp. dismissed its call agents
for no apparent reason. The agents filed a collective suit for illegal dismissal
against both X Corp. and Y Corp. based on the doctrine of piercing the veil of
corporate fiction. The latter set up the defense that the agents are in the employ
of X Corp. which is a separate juridical entity. Is this defense appropriate?
A. No, since the doctrine would apply, the two companies having the same set of
corporate officers.
B. No, the real employer is Y Corp., the pizza company, with X Corp. serving as
an arm for receiving its outside orders for pizzas.
C. Yes, it is not shown that one company completely dominates the finances,
policies, and business practices of the other.
D. Yes, since the two companies perform two distinct businesses.
37. A negotiable instrument can be indorsed by way of a restrictive indorsement,

which prohibits further negotiation and constitutes the indorsee as agent of the
indorser. As agent, the indorsee has the right, among others, to
A. demand payment of the instrument only.
B. notify the drawer of the payment of the instrument.
C. receive payment of the instrument.
D. instruct that payment be made to the drawee.
38. Under the Negotiable Instruments Law, a signature by procuration operates

as a notice that the agent has but a limited authority to sign. Thus, a person who
takes a bill that is drawn, accepted, or indorsed by procuration is duty-bound to
inquire into the extent of the agent's authority by:
A. examining the agents special power of attorney.
B. examining the bill to determine the extent of such authority.
C. asking the agent about the extent of such authority.
D. asking the principal about the extent of such authority.
39. Under the Negotiable Instruments Law, if the holder has a lien on the
instrument which arises either from a contract or by implication of law, he would
be a holder for value to the extent of
A. his successor's interest.
B. his predecessor's interest.
C. the lien in his favor.
D. the amount indicated on the instrument's face.
40. On Xs failure to pay his loan to ABC Bank, the latter foreclosed the Real
Estate Mortgage he executed in its favor. The auction sale was set for Dec. 1,
2010 with the notices of sale published as the law required. The sale was,
however, cancelled when Dec. 1, 2010 was declared a holiday and re-scheduled
to Jan. 10, 2011 without republication of notice. The auction sale then proceeded
on the new date. Under the circumstances, the auction sale is
A. rescissible.
B. unenforceable.
C. void.
D. voidable.
41. X executed a promissory note with a face value of Php50,000.00, payable to

the order of Y. Y indorsed the note to Z, to whom Y owed Php30,000.00. If X
has no defense at all against Y, for how much may Z collect from X?
A. Php20,000.00, as he is a holder for value to the extent of the difference
between Y's debt and the value of the note.
B. Php30,000.00, as he is a holder for value to the extent of his lien.
C. Php50,000.00, but with the obligation to hold Php20,000.00 for Y's benefit.
D. None, as Z's remedy is to run after his debtor, Y.
42. It is settled that neither par value nor book value is an accurate indicator of
the fair value of a share of stock of a corporation. As to unpaid subscriptions to
its shares of stock, as they are regarded as corporate assets, they should be
included in the
A. capital value.
B. book value.
C. par value.
D. market value.
43. P sold to M 10 grams of shabu worth Php5,000.00. As he had no money at

the time of the sale, M wrote a promissory note promising to pay P or his order
Php5,000. P then indorsed the note to X (who did not know about the shabu),
and X to Y. Unable to collect from P, Y then sued X on the note. X set up the
defense of illegality of consideration. Is he correct?
A. No, since X, being a subsequent indorser, warrants that the note is valid and
subsisting.
B. No, since X, a general indorser, warrants that the note is valid and subsisting.
C. Yes, since a void contract does not give rise to any right.
D. Yes, since the note was born of an illegal consideration which is a real
defense.
44. A holder in due course holds the instrument free from any defect of title of
prior parties and free from defenses available to prior parties among themselves.
An example of such a defense is A. fraud in inducement.
B. duress amounting to forgery.
C. fraud in esse contractus.
D. alteration.
45. In elections for the Board of Trustees of non-stock corporations, members

may cast as many votes as there are trustees to be elected but may not cast
more than one vote for one candidate. This is true A. unless set aside by the members in plenary session.
B. in every case even if the Board of Trustees resolves otherwise.
C. unless otherwise provided in the Articles of Incorporation or in the By-laws.
D. in every case even if the majority of the members decide otherwise during the
elections.
46. The rule is that the valuation of the shares of a stockholder who exercises
his appraisal rights is determined as of the day prior to the date on which the vote
was taken. This is true A. regardless of any depreciation or appreciation in the share's fair value.
B. regardless of any appreciation in the share's fair value.
C. regardless of any depreciation in the share's fair value.
D. only if there is no appreciation or depreciation in the share's fair value.
47. X, Co., a partnership, is composed of A (capitalist partner), B (capitalist

partner) and C (industrial partner). If you were partner A, who between B and C
would you have an insurable interest on, such that you may then insure him?
A. No one, as there is merely a partnership contract among A, B and C.
B. Both B and C, as they are your partners.
C. Only C, as he is an industrial partner.
D. Only B, as he is a capitalist partner.
48. X is the holder of an instrument payable to him (X) or his order, with Y as
maker. X then indorsed it as follows: Subject to no recourse, pay to Z. Signed,
X. When Z went to collect from Y, it turned out that Y's signature was forged. Z
now sues X for collection. Will it prosper?
A. Yes, because X, as a conditional indorser, warrants that the note is genuine.
B. Yes, because X, as a qualified indorser, warrants that the note is genuine.
C. No, because X made a qualified indorsement.
D. No, because a qualified indorsement does not include the warranty of
genuineness.
49. A bill of exchange has T for its drawee, U as drawer, and F as holder. When
F went to T for presentment, F learned that T is only 15 years old. F wants to
recover from U but the latter insists that a notice of dishonor must first be made,
the instrument being a bill of exchange. Is he correct?
A. Yes, since a notice of dishonor is essential to charging the drawer.
B. No, since T can waive the requirement of notice of dishonor.
C. No, since F can treat U as maker due to the minority of T, the drawee.
D. Yes, since in a bill of exchange, notice of dishonor is at all times required.
50. X, drawee of a bill of exchange, wrote the words: Accepted, with promise to
make payment within two days. Signed, X. The drawer questioned the
acceptance as invalid. Is the acceptance valid?
A. Yes, because the acceptance is in reality a clear assent to the order of the
drawer to pay.
B. Yes, because the form of the acceptance is really immaterial.
C. No, because the acceptance must be a clear assent to the order of the drawer
to pay.
D. No, because the document must not express that the drawee will perform his
promise within two days.
51. D, debtor of C, wrote a promissory note payable to the order of C. C's

brother, M, misrepresenting himself as Cs agent, obtained the note from D, then
negotiated it to N after forging C's signature. N indorsed it to E, who indorsed it to
F, a holder in due course. May F recover from E?
A. No, since the forgery of C's signature results in the discharge of E.
B. Yes, since only the forged signature is inoperative and E is bound as indorser.
C. No, since the signature of C, the payee, was forged.
D. Yes, since the signature of C is immaterial, he being the payee.
52. A material alteration of an instrument without the assent of all parties liable
thereon results in its avoidance, EXCEPT against a
A. prior indorsee.
B. subsequent acceptor.
C. subsequent indorser.
D. prior acceptor.
10
53. X constituted a chattel mortgage on a car (valued at Php1 Million pesos) to

secure a P500,000.00 loan. For the mortgage to be valid, X should have
A. the right to mortgage the car to the extent of half its value.
B. ownership of the car.
C. unqualified free disposal of his car.
D. registered the car in his name.
54. B borrowed Php1 million from L and offered to him his BMW car worth Php1
Million as collateral. B then executed a promissory note that reads: I, B, promise
to pay L or bearer the amount of Php1 Million and to keep my BMW car (loan
collateral) free from any other encumbrance. Signed, B. Is this note negotiable?
A. Yes, since it is payable to bearer.
B. Yes, since it contains an unconditional promise to pay a sum certain in money.
C. No, since the promise to just pay a sum of money is unclear.
D. No, since it contains a promise to do an act in addition to the payment of
money.
55. EFG Foundation, Inc., a non-profit organization, scheduled an election for its
six-member Board of Trustees. X, Y and Z, who are minority members of the
foundation, wish to exercise cumulative voting in order to protect their interest,
although the Foundation's Articles and By-laws are silent on the matter. As to
each of the three, what is the maximum number of votes that he/she can cast?
A. 6
B. 9
C. 12
D. 3
56. If the drawer and the drawee are the same person, the holder may present
the instrument for payment without need of a previous presentment for
acceptance. In such a case, the holder treats it as a
A. non-negotiable instrument.
B. promissory note.
C. letter of credit.
D. check.
57. D draws a bill of exchange that states: One month from date, pay to B or his
order Php100,000.00. Signed, D. The drawee named in the bill is E. B
negotiated the bill to M, M to N, N to O, and O to P. Due to non-acceptance and
after proceedings for dishonor were made, P asked O to pay, which O did. From
whom may O recover?
A. B, being the payee
B. N, as indorser to O
C. E, being the drawee
D. D, being the drawer
58. Any agreement binding upon the holder to extend the time of payment or to
postpone the holder's right to enforce the instrument results in the discharge of
the party secondarily liable unless made with the latter's consent. This
agreement refers to one which the holder made with the
A. principal debtor.
B. principal creditor.
C. secondary creditor.
D. secondary debtor.
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59. A bill of exchange has D as drawer, E as drawee and F as payee. The bill
was then indorsed to G, G to H, and H to I. I, the current holder presented the
bill to E for acceptance. E accepted but, as it later turned out, D is a fictitious
person. Is E freed from liability?
A. No, since by accepting, E admits the existence of the drawer.
B. No, since by accepting, E warrants that he is solvent.
C. Yes, if E was not aware of that fact at the time of acceptance.
D. Yes, since a bill of exchange with a fictitious drawer is void and inexistent.
60. Due to his debt to C, D wrote a promissory note which is payable to the order
of C. C's brother, M, misrepresenting himself as agent of C, obtained the note
from D. M then negotiated the note to N after forging the signature of C. May N
enforce the note against D?
A. Yes, since D is the principal debtor.
B. No, since the signature of C was forged.
C. No, since it is C who can enforce it, the note being payable to the order of C.
D. Yes, since D, as maker, is primarily liable on the note.
61. T Corp. has a corporate term of 20 years under its Articles of Incorporation or
from June 1, 1980 to June 1, 2000. On June 1, 1991 it amended its Articles of
Incorporation to extend its life by 15 years from June 1, 1980 to June 1, 2015.
The SEC approved this amendment. On June 1, 2011, however, T Corp decided
to shorten its term by 1 year or until June 1, 2014. Both the 1991 and 2011
amendments were approved by majority vote of its Board of Directors and ratified
in a special meeting by its stockholders representing at least 2/3 of its
outstanding capital stock. The SEC, however, disapproved the 2011 amendment
on the ground that it cannot be made earlier than 5 years prior to the expiration
date of the corporate term, which is June 1, 2014. Is this SEC disapproval
correct?
A. No, since the 5-year rule on amendment of corporate term applies only to
extension, not to shortening, of term.
B. Yes, any amendment affecting corporate term cannot be made earlier than 5
years prior to the corporations expiration date.
C. No, since a corporation can in fact have a corporate life of 50 years.
D. Yes, the amendment to shorten corporate term cannot be made earlier than 5
years prior to the corporations expiration date.
62.X is a director in T Corp. who was elected to a 1-year term on Feb. 1, 2010.
On April 11, 2010, X resigned and was replaced by R, who assumed as director
on May 17, 2010. On Nov. 21, 2010, R died. S was then elected in his place.
Until which time should S serve as director?
A. April 11, 2011.
B. Feb. 1, 2011.
C. May 17, 2011.
D. Nov. 21, 2011.
63. M, the maker, issued a promissory note to P, the payee which states: I, M,
promise to pay P or order the amount of Php1 Million. Signed, M. P negotiated
the note by indorsement to N, then N to O also by indorsement, and O to Q,
again by indorsement. But before O indorsed the note to Q, O's wife wrote the
figure 2 on the note after Php1 without O's knowledge, making it appear that
the note is for Php12 Million. For how much is O liable to Q?
A. Php1 Million since it is the original tenor of the note.
B. Php1 Million since he warrants that the note is genuine and in all respects
what it purports to be.
C. Php12 Million since he warrants his solvency and that he has a good title to
the note.
D. Php12 Million since he warrants that the note is genuine and in all respects
what it purports to be.
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64. X Corp., whose business purpose is to manufacture and sell vehicles,

invested its funds in Y Corp., an investment firm, through a resolution of its Board
of Directors. The investment grew tremendously on account of Y Corp.'s
excellent business judgment. But a minority stockholder in X Corp. assails the
investment as ultra vires. Is he right and, if so, what is the status of the
investment?
A. Yes, it is an ultra vires act of the corporation itself but voidable only, subject to
stockholders ratification.
B. Yes, it is an ultra vires act of its Board of Directors and thus void.
C. Yes, it is an ultra vires act of its Board of Directors but voidable only, subject to
stockholders ratification.
D. Yes, it is an ultra vires act of the corporation itself and, consequently, void.
65. Notice of dishonor is not required to be made in all cases. One instance
where such notice is not necessary is when the indorser is the one to whom the
instrument is suppose to be presented for payment. The rationale here is that the
indorser
A. already knows of the dishonor and it makes no sense to notify him of it.
B. is bound to make the acceptance in all cases.
C. has no reason to expect the dishonor of the instrument.
D. must be made to account for all his actions.
66. The Corporation Code sanctions a contract between two or more

corporations which have interlocking directors, provided there is no fraud that
attends it and it is fair and reasonable under the circumstances. The interest of
an interlocking director in one corporation may be either substantial or nominal. It
is nominal if his interest:
A. does not exceed 25% of the outstanding capital stock.
B. exceeds 25% of the outstanding capital stock.
C. exceeds 20% of the outstanding capital stock.
D. does not exceed 20% of the outstanding capital stock.
67. In case of disagreement between the corporation and a withdrawing
stockholder who exercises his appraisal right regarding the fair value of his
shares, a three-member group shall by majority vote resolve the issue with
finality. May the wife of the withdrawing stockholder be named to the threemember
group?
A. No, the wife of the withdrawing shareholder is not a disinterested person.
B. Yes, since she could best protect her husband's shareholdings.
C. Yes, since the rules do not discriminate against wives.
D. No, since the stockholder himself should sit in the three-member group.
68. Which of the following indorsers expressly warrants in negotiating an
instrument that 1) it is genuine and true; 2) he has a good title to it; 3) all prior
parties have capacity to negotiate; and 4) it is valid and subsisting at the time of
his indorsement?
A. The irregular indorser.
B. The regular indorser.
C. The general indorser.
D. The qualified indorser.
69. Forgery of bills of exchange may be subdivided into, a) forgery of an
indorsement on the bill and b) forgery of the drawer's signature, which may either
be with acceptance by the drawee, or
A. with acceptance but the bill is paid by the drawee.
B. without acceptance but the bill is paid by the drawer.
C. without acceptance but the bill is paid by the drawee.
D. with acceptance but the bill is paid by the drawer.
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70. X found a check on the street, drawn by Y against ABC Bank, with Z as
payee. X forged Z's signature as an indorser, then indorsed it personally and
delivered it to DEF Bank. The latter, in turn, indorsed it to ABC Bank which
charged it to the Ys account. Y later sued ABC Bank but it set up the forgery as
its defense. Will it prosper?
A. No, since the payee's signature has been forged.
B. No, since Ys remedy is to run after the forger, X.
C. Yes, since forgery is only a personal defense.
D. Yes, since ABC Bank is bound to know the signature of Y, its client.
71. The rule is that no stock dividend shall be issued without the approval of
stockholders representing at least 2/3 of the outstanding capital stock at a regular
or special meeting called for the purpose. As to other forms of dividends:
A. a mere majority of the entire Board of Directors applies.
B. a mere majority of the quorum of the Board of Directors applies.
C. a mere majority of the votes of stockholders representing the outstanding
capital stock applies.
D. the same rule of 2/3 votes applies.
72. X, at Ys request, executed a Real Estate Mortgage (REM) on his (Xs) land
to secure Y's loan from Z. Z successfully foreclosed the REM when Y defaulted
on the loan but half of Y's obligation remained unpaid. May Z sue X to enforce
his right to the deficiency?
A. Yes, but solidarily with Y.
B. Yes, since Xs is deemed to warrant that his land would cover the whole
obligation.
C. No, since it is the buyer at the auction sale who should answer for the
deficiency.
D. No, because X is not Zs debtor.
73. Can a drawee who accepts a materially altered check recover from the holder
and the drawer?
A. No, he cannot recover from either of them.
B. Yes from both of them.
C. Yes but only from the drawer.
D. Yes but only from the holder.
74. The rule is that the intentional cancellation of a person secondarily liable
results in the discharge of the latter. With respect to an indorser, the holder's right
to cancel his signature is:
A. without limitation.
B. not limited to the case where the indorsement is necessary to his title.
C. limited to the case where the indorsement is not necessary to his title.
D. limited to the case where the indorsement is necessary to his title.
75. Several American doctors wanted to set up a group clinic in the Philippines
so they could render modern medical services. If the clinic is to be incorporated
under our laws, what is the required foreign equity participation in such a
corporation?
A. 40%
B. 0%
C. 60%
D. 70%
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76. X executed a promissory note in favor of Y by way of accommodation. It

says: Pay to Y or order the amount of Php50,000.00. Signed, X. Y then
indorsed the note to Z, and Z to T. When T sought collection from Y, the latter
countered as indorser that there should have been a presentment first to the
maker who dishonors it. Is Y correct?
A. No, since Y is the real debtor and thus, there is no need for presentment for
payment and dishonor by the maker.
B. Yes, since as an indorser who is secondarily liable, there must first be
presentment for payment and dishonor by the maker.
C. No, since the absolute rule is that there is no need for presentment for
payment and dishonor to hold an indorser liable.
D. Yes, since the secondary liability of Y and Z would only arise after
presentment for payment and dishonor by the maker.
77. The Board of Directors of XYZ Corp. unanimously passed a Resolution

approving the taking of steps that in reality amounted to willful tax evasion. On
discovering this, the government filed tax evasion charges against all the
companys members of the board of directors. The directors invoked the defense
that they have no personal liability, being mere directors of a fictional being. Are
they correct?
A. No, since as a rule only natural persons like the members of the board of
directors can commit corporate crimes.
B. Yes, since it is the corporation that did not pay the tax and it has a personality
distinct from its directors.
C. Yes, since the directors officially and collectively performed acts that are
imputable only to the corporation.
D. No, since the law makes directors of the corporation solidarily liable for gross
negligence and bad faith in the discharge of their duties.
78. A, the proprietor of a fleet of ten taxicabs, decides to adopt, as his business
name, A Transport Co., Inc. May this be allowed?
A. No, it would be deceptive since he is a proprietor, not a corporation.
B. No, since A is a generic name, not suitable for registration.
C. Yes, since his line of business is public transportation.
D. Yes, since such name would give his business a corporate identity.
79. The Articles of Incorporation must be accompanied by a Treasurer's Affidavit

certifying under oath, among others, that the total subscription paid is:
A. not less than P25,000.00.
B. not more than P5,000.00.
C. RIGHT ANSWER not less than P5,000.00.
D. not more than P25,000.00.
80. In a special meeting called for the purpose, 2/3 of the stockholders
representing the outstanding capital stock in X. Co. authorized the company's
Board of Directors to amend its By-laws. By majority vote, the Board then
approved the amendment. Is this amendment valid?
A. No since the stockholders cannot delegate their right to amend the By-laws to
the Board.
B. Yes since the majority votes in the Board was sufficient to amend the By-laws.
C. No, because the voting in the Board should have been by majority of a
quorum.
D. Yes since the votes of 2/3 of the stockholders and majority of the Board were
secured.
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81. A promissory note states, on its face: I, X, promise to pay Y the amount of
Php 5,000.00 five days after completion of the on-going construction of my
house. Signed, X. Is the note negotiable?
A. Yes, since it is payable at a fixed period after the occurrence of a specified
event.
B. No, since it is payable at a fixed period after the occurrence of an event which
may not happen.
C. Yes, since it is payable at a fixed period or determinable future time.
D. No, since it should be payable at a fixed period before the occurrence of a
specified event.
82. P sold to M a pair of gecko (tuko) for Php50,000.00. M then issued a
promissory note to P promising to pay the money within 90 days. Unknown to P
and M, a law was passed a month before the sale that prohibits and declares
void any agreement to sell gecko in the country. If X acquired the note in good
faith and for value, may he enforce payment on it?
A. No, since the law declared void the contract on which the promissory note was
founded.
B. No, since it was not X who bought the gecko.
C. Yes, since he is a holder in due course of a note which is distinct from the sale
of gecko.
D. Yes, since he is a holder in due course and P and M were not aware of the law
that prohibited the sale of gecko.
83. P authorized A to sign a bill of exchange in his (Ps) name. The bill reads:
Pay to B or order the sum of Php1 million. Signed, A (for and in behalf of P).
The bill was drawn on P. B indorsed the bill to C, C to D, and D to E. May E treat
the bill as a promissory note?
A. No, because the instrument is payable to order and has been indorsed several
times.
B. Yes, because the drawer and drawee are one and the same person.
C. No, because the instrument is a bill of exchange.
D. Yes, because A was only an agent of P.
84. Z wrote out an instrument that states: Pay to X the amount of Php1 Million
for collection only. Signed, Z. X indorsed it to his creditor, Y, to whom he owed
Php1 million. Y now wants to collect and satisfy X's debt through the Php1
million on the check. May he validly do so?
A. Yes, since the indorsement to Y is for Php1 Million.
B. No, since Z is not a party to the loan between X and Y.
C. No, since X is merely an agent of Z, his only right being to collect.
D. Yes, since X owed Y Php1 Million.
85. A law was passed disqualifying former members of Congress from sitting in
the Board of Directors of government-owned or controlled corporations. Because
of this, the Board of Directors of ABC Corp., a government-owned and controlled
corporation, disqualified C, a former Congressman, from continuing to sit as one
of its members. C objected, however, insisting that under the Corporation Code
members of the board of directors of corporations may only be removed by vote
of stockholders holding 2/3 of its outstanding capital stock in a regular or special
meeting called for that purpose. Is C correct?
A. Yes, since the new law cannot be applied to members of the board of directors
already elected prior to its passage.
B. No, since the disqualification takes effect by operation of law, it is sufficient
that he was declared no longer a member of the board.
C. Yes, since the provisions of the Corporation Code applies as well to
government-owned and controlled corporations.
D. No, since the board has the power to oust him even without the new law.
16
86. In a signature by procuration, the principal is bound only in case the agent
acted within the actual limits of his authority. The signature of the agent in such a
case operates as notice that he has
A. a qualified authority to sign.
B. a limited authority to sign.
C. a special authority to sign.
D. full authority to sign.
87. A bill of exchange states on its face: One (1) month after sight, pay to the
order of Mr. R the amount of Php50,000.00, chargeable to the account of Mr. S.
Signed, Mr. T. Mr. S, the drawee, accepted the bill upon presentment by writing
on it the words I shall pay Php30,000.00 three (3) months after sight. May he
accept under such terms, which varies the command in the bill of exchange?
A. Yes, since a drawee accepts according to the tenor of his acceptance.
B. No, since, once he accepts, a drawee is liable according to the tenor of the
bill.
C. Yes, provided the drawer and payee agree to the acceptance.
D. No, since he is bound as drawee to accept the bill according to its tenor.
88. May the indorsee of a promissory note indorsed to him for deposit file a suit
against the indorser?
A. Yes, as long as the indorser received value for the restrictive indorsement.
B. Yes, as long as the indorser received value for the conditional indorsement.
C. Yes, whether or not the indorser received value for the conditional
indorsement.
D. Yes, whether or not the indorser received value for the restrictive indorsement.
89. X issued a check in favor of his creditor, Y. It reads: Pay to Y the amount of
Seven Thousand Hundred Pesos (Php700,000.00). Signed, X. What amount
should be construed as true in such a case?
A. Php700,000.00.
B. Php700.00.
C. Php7,000.00.
D. Php700,100.00.
90. The Articles of Incorporation of ABC Transport Co., a public utility, provides
for ten (10) members in its Board of Directors. What is the prescribed minimum
number of Filipino citizens in its Board?
A. 10
B. 6
C. 7
D. 5
91. P authorized A to sign a negotiable instrument in his (Ps) name. It reads:

Pay to B or order the sum of Php1 million. Signed, A (for and in behalf of P).
The instrument shows that it was drawn on P. B then indorsed to C, C to D, and
D to E. E then treated it as a bill of exchange. Is presentment for acceptance
necessary in this case?
A. No, since the drawer and drawee are the same person.
B. No, since the bill is non-negotiable, the drawer and drawee being the same
person.
C. Yes, since the bill is payable to order, presentment is required for acceptance.
D. Yes, in order to hold all persons liable on the bill.
17
92. The corporate term of a stock corporation is that which is stated in its
Articles of Incorporation. It may be extended or shortened by an amendment of
the Articles when approved by majority of its Board of Directors and:
A. approved and ratified by at least 2/3 of all stockholders.
B. approved by at least 2/3 of the stockholders representing the outstanding
capital stock.
C. ratified by at least 2/3 of all stockholders.
D. ratified by at least 2/3 of the stockholders representing the outstanding capital
stock.
TAXATION
93. There is no taxable income until such income is recognized. Taxable income
is recognized when the
A. taxpayer fails to include the income in his income tax return.
B. income has been actually received in money or its equivalent.
C. income has been received, either actually or constructively.
D. transaction that is the source of the income is consummated.
94. Keyrand, Inc., a Philippine corporation, sold through the local stock exchange
10,000 PLDT shares that it bought 2 years ago. Keyrand sold the shares for P2
million and realized a net gain of P200,000.00. How shall it pay tax on the
transaction?
A. It shall declare a P2 million gross income in its income tax return, deducting its
cost of acquisition as an expense.
B. It shall report the P200,000.00 in its corporate income tax return adjusted by
the holding period.
C. It shall pay 5% tax on the first P100,000.00 of the P200,000.00 and 10% tax
on the remaining P100,000.00.
D. It shall pay a tax of one-half of 1% of the P2 million gross sales.
95. Which theory in taxation states that without taxes, a government would be
paralyzed for lack of power to activate and operate it, resulting in its destruction?
A. Power to destroy theory
B. Lifeblood theory
C. Sumptuary theory
D. Symbiotic doctrine
96. The spouses Helena and Federico wanted to donate a parcel of land to their
son Dondon who is getting married in December, 2011. The parcel of land has a
zonal valuation of P420,000.00. What is the most efficient mode of donating the
property?
A. The spouses should first donate in 2011 a portion of the property valued at
P20,000.00 then spread the P400,000.00 equally for 2012, 2013, 2014 and 2015.
B. Spread the donation over a period of 5 years by the spouses donating
P100,000.00 each year from 2011 to 2015.
C. The spouses should each donate a P110,000.00 portion of the value of the
property in 2011 then each should donate P100,000.00 in 2012.
D. The spouses should each donate a P100,000.00 portion of the value of the
property in 2011, and another P100,000.00 each in 2012. Then, in 2013, Helena
should donate the remaining P20,000.00.
18
97. Mia, a compensation income earner, filed her income tax return for the taxable
year 2007 on March 30, 2008. On May 20, 2011, Mia received an assessment
notice and letter of demand covering the taxable year 2007 but the postmark on
the envelope shows April 10, 2011. Her return is not a false and fraudulent
return. Can Mia raise the defense of prescription?
A. No. The 3 year prescriptive period started to run on April 15, 2008, hence, it
has not yet expired on April 10, 2011.
B. Yes. The 3 year prescriptive period started to run on April 15, 2008, hence, it
had already expired by May 20, 2011.
C. No. The prescriptive period started to run on March 30, 2008, hence, the 3
year period expired on April 10, 2011.
D. Yes. Since the 3-year prescriptive period started to run on March 30, 2008, it
already expired by May 20, 2011.
98. Double taxation in its general sense means taxing the same subject twice
during the same taxing period. In this sense, double taxation
A. violates substantive due process.
B. does not violate substantive due process.
C. violates the right to equal protection.
D. does not violate the right to equal protection.
99. The payor of passive income subject to final tax is required to withhold the
tax from the payment due the recipient. The withholding of the tax has the effect
of
A. a final settlement of the tax liability on the income.
B. a credit from the recipient's income tax liability.
C. consummating the transaction resulting in an income.
D. a deduction in the recipient's income tax return.
100. Guidant Resources Corporation, a corporation registered in Norway, has a 50

MW electric power plant in San Jose, Batangas. Aside from Guidant's income
from its power plant, which among the following is considered as part of its
income from sources within the Philippines?
A. Gains from the sale to an Ilocos Norte power plant of generators bought from
the United States.
B. Interests earned on its dollar deposits in a Philippine bank under the
Expanded Foreign Currency Deposit System.
C. Dividends from a two-year old Norwegian subsidiary with operations in
Zambia but derives 60% of its gross income from the Philippines.
D. Royalties from the use in Brazil of generator sets designed in the Philippines
by its engineers.
101. Tong Siok, a Chinese billionaire and a Canadian resident, died and left assets
in China valued at P80 billion and in the Philippines assets valued at P20 billion.
For Philippine estate tax purposes the allowable deductions for expenses,
losses, indebtedness, and taxes, property previously taxed, transfers for public
use, and the share of his surviving spouse in their conjugal partnership amounted
to P15 billion. Tong's gross estate for Philippine estate tax purposes is
A. P20 billion.
B. P5 billion.
C. P100 billion.
D. P85 billion.
19
102. Anktryd, Inc., bought a parcel of land in 2009 for P7 million as part of its
inventory of real properties. In 2010, it sold the land for P12 million which was its
zonal valuation. In the same year, it incurred a loss of P6 million for selling
another parcel of land in its inventory. These were the only transactions it had in
its real estate business. Which of the following is the applicable tax treatment?
A. Anktryd shall be subject to a tax of 6% of P12 million.
B. Anktryd could deduct its P6 million loss from its P5 million gain.
C. Anktryd's gain of P5 million shall be subject to the holding period.
D. Anktryd's P6 million loss could not be deducted from its P5 million gain.
103. Aplets Corporation is registered under the laws of the Virgin Islands. It has
extensive operations in Southeast Asia. In the Philippines, Its products are
imported and sold at a mark-up by its exclusive distributor, Kim's Trading, Inc.
The BIR compiled a record of all the imports of Kim from Aplets and imposed a
tax on Aplets net income derived from its exports to Kim. Is the BIR correct?
A. Yes. Aplets is a non-resident foreign corporation engaged in trade or business
in the Philippines.
B. No. The tax should have been computed on the basis of gross revenues and
not net income.
C. No. Aplets is a non-resident foreign corporation not engaged in trade or
business in the Philippines.
D. Yes. Aplets is doing business in the Philippines through its exclusive distributor
Kim's Trading. Inc.
104. In 2009, Spratz, Inc.s net profit before tax was P35 million while its operating
expenses was P31 million. In 2010, its net profit before tax was P40 million and
its operating expenses was P38 million. It did not declare dividends for 2009 and
2010. And it has no proposed capital expenditures for 2011 and the immediate
future. May Spratz be subject to the improperly accumulated tax on its retained
profits for 2009 and 2010?
A. Yes, since the accumulated amounts are reasonable for operations in relation
to what it usually needed annually.
B. Yes, since the accumulation is not reasonably necessary for the immediate
needs of the business.
C. No, because there is no showing that the taxpayer's 2009 and 2010 net profit
before tax exceeded its paid-up capital.
D. No, because the taxpayer is not shown to be a publicly-listed corporation, a
bank, or an insurance company.
105. The actual effort exerted by the government to effect the exaction of what is
due from the taxpayer is known as
A. assessment.
B. levy.
C. payment.
D. collection.
106. Although the power of taxation is basically legislative in character, it is NOT

the function of Congress to
A. fix with certainty the amount of taxes.
B. collect the tax levied under the law.
C. identify who should collect the tax.
D. determine who should be subject to the tax.
20
107. Passive income includes income derived from an activity in which the earner
does not have any substantial participation. This type of income is
A. usually subject to a final tax.
B. exempt from income taxation.
C. taxable only if earned by a citizen.
D. included in the income tax return.
108. In 2010, Juliet Ulbod earned P500,000.00 as income from her beauty parlor
and received P250,000.00 as Christmas gift from her spinster aunt. She had no
other receipts for the year. She spent P150,000.00 for the operation of her
beauty parlor. For tax purposes, her gross income for 2010 is
A. P750,000.00.
B. P500,000.00.
C. P350,000.00.
D. P600,000.00.
109. Exempted from donors taxation are gifts made

A. for the use of the barangay.
B. in consideration of marriage.
C. to a school which is a stock corporation.
D. to a for-profit government corporation.
110. Federico, a Filipino citizen, migrated to the United States some six years ago
and got a permanent resident status or green card. He should pay his Philippine
income taxes on
A. the gains derived from the sale in California, U.S.A. of jewelry he purchased in
the Philippines.
B. the proceeds he received from a Philippine insurance company as the sole
beneficiary of life insurance taken by his father who died recently.
C. the gains derived from the sale in the New York Stock Exchange of shares of
stock in PLDT, a Philippine corporation.
D. dividends received from a two year old foreign corporation whose gross
income was derived solely from Philippine sources.
111. An example of a tax where the concept of progressivity finds application is

the
A. income tax on individuals.
B. excise tax on petroleum products.
C. value-added tax on certain articles.
D. amusement tax on boxing exhibitions.
112. A corporation may change its taxable year to calendar or fiscal year in filing
its annual income tax return, provided
A. it seeks prior BIR approval of its proposed change in accounting period.
B. it simultaneously seeks BIR approval of its new accounting period.
C. it should change its accounting period two years prior to changing its taxable
year.
D. its constitution and by-laws authorizes the change.
21
113. What is the rule on the taxability of income that a government educational
institution derives from its school operations? Such income is
A. subject to 10% tax on its net taxable income as if it is a proprietary educational
institution.
B. Exempt from income taxation if it is actually, directly, and exclusively used for
educational purposes.
C. subject to the ordinary income tax rates with respect to incomes derived from
educational activities.
D. Exempt from income taxation in the same manner as government-owned and
controlled corporations.
114. Which among the following reduces the gross estate (not the net estate) of a
citizen of the Philippines for purposes of estate taxation?
A. Transfers for public use
B. Property previously taxed
C. Standard deduction of P1 million
D. Capital of the surviving spouse
115. Ka Pedring Matibag, a sole proprietor, buys and sells kumot at kulambo
both of which are subject to value-added tax. Since he is using the calendar year
as his taxable year, his taxable quarters end on the last day of March, June,
September, and December. When should Ka Pedring file the VAT quarterly
return for his gross sales or receipts for the period of June 1 to September 30?
A. Within 25 days from September 30
B. Within 45 days from September 30
C. Within 15 days from September 30
D. Within 30 days from September 30
116. Don Fortunato, a widower, died in May, 2011. In his will, he left his estate of
P100 million to his four children. He named his compadre, Don Epitacio, to be
the administrator of the estate. When the BIR sent a demand letter to Don
Epitacio for the payment of the estate tax, he refused to pay claiming that he did
not benefit from the estate, he not being an heir. Forthwith, he resigned as
administrator. As a result of the resignation, who may be held liable for the
payment of the estate tax?
A. Don Epitacio since the tax became due prior to his resignation.
B. The eldest child who would be reimbursed by the others.
C. All the four children, the tax to be divided equally among them.
D. The person designated by the will as the one liable.
117. On July 31, 2011, Esperanza received a preliminary assessment notice from
the BIR demanding that she pays P180,000.00 deficiency income taxes on her
2009 income. How many days from July 31, 2011 should Esperanza respond to
the notice?
A. 180 days.
B. 30 days.
C. 60 days.
D. 15 days.
118. The BIR could not avail itself of the remedy of levy and distraint to implement,
through collection, an assessment that has become final, executory, and
demandable where
A. the subject of the assessment is an income tax.
B. the amount of the tax involved does not exceed P100.00.
C. the corporate taxpayer has no other uncollected tax liability.
D. the taxpayer is an individual compensation income earner.
22
119. Alain Descartes, a French citizen permanently residing in the Philippines,

received several items during the taxable year. Which among the following is
NOT subject to Philippine income taxation?
A. Consultancy fees received for designing a computer program and installing
the same in the Shanghai facility of a Chinese firm.
B. Interests from his deposits in a local bank of foreign currency earned abroad
converted to Philippine pesos.
C. Dividends received from an American corporation which derived 60% of its
annual gross receipts from Philippine sources for the past 7 years.
D. Gains derived from the sale of his condominium unit located in The Fort,
Taguig City to another resident alien.
120. Income is considered realized for tax purposes when

A. it is recognized as revenue under accounting standards even if the law does
not do so.
B. the taxpayer retires from the business without approval from the BIR.
C. the taxpayer has been paid and has received in cash or near cash the taxable
income.
D. the earning process is complete or virtually complete and an exchange has
taken place.
121. Which among the following circumstances negates the prima facie
presumption of correctness of a BIR assessment?
A. The BIR assessment was seasonably protested within 30 days from receipt.
B. No preliminary assessment notice was issued prior to the assessment notice.
C. Proof that the assessment is utterly without foundation, arbitrary, and
capricious.
D. The BIR did not include a formal letter of demand to pay the alleged
deficiency.
122. On March 30, 2005 Miguel Foods, Inc. received a notice of assessment and
a letter of demand on its April 15, 2002 final adjustment return from the BIR.
Miguel Foods then filed a request for reinvestigation together with the requisite
supporting documents on April 25, 2005. On June 2, 2005, the BIR issued a final
assessment reducing the amount of the tax demanded. Since Miguel Foods was
satisfied with the reduction, it did not do anything anymore. On April 15, 2010 the
BIR garnished the corporation's bank deposits to answer for the tax liability. Was
the BIR action proper?
A. Yes. The BIR has 5 years from the filing of the protest within which to collect.
B. Yes. The BIR has 5 years from the issuance of the final assessment within
which to collect.
C. No. The taxpayer did not apply for a compromise.
D. No. Without the taxpayers prior authority, the BIR action violated the Bank
Deposit Secrecy Law.
123. Which among the following taxpayers is required to use only the calendar
year for tax purposes?
A. Partnership exclusively for the design of government infrastructure projects
considered as practice of civil engineering.
B. Joint-stock company formed for the purpose of undertaking construction
projects.
C. Business partnership engaged in energy operations under a service contract
with the government.
D. Joint account (cuentas en participacion) engaged in the trading of mineral
ores.
23
124. Spanflex Intl Inc. received a notice of assessment from the BIR. It
seasonably filed a protest with all the necessary supporting documents but the
BIR failed to act on the protest. Thirty days from the lapse of 180 days from the
filing of its protest, Spanflex still has not elevated the matter to the CTA. What
remedy, if any, can Spanflex take?
A. It may file a motion to admit appeal if it could prove that its failure to appeal
was due to the negligence of counsel.
B. It may no longer appeal since there is no BIR decision from which it could
appeal.
C. It may wait for the final decision of the BIR on his protest and appeal it to the
CTA within 30 days from receipt of such decision.
D. None. Its right to appeal to the CTA has prescribed.
125. Gerardo died on July 31, 2011. His estate tax return should be filed within
A. six months from filing of the notice of death.
B. sixty days from the appointment of an administrator.
C. six months from the time he died on July 31, 2011.
D. sixty days from the time he died on July 31, 2011.
126. Income from dealings in property (real, personal, or mixed) is the gain or loss
derived
A. only from the cash sales of property.
B. from cash and gratuitous receipts of property.
C. from sale and lease of property.
D. only from the sale of property.
127. In March 2009, Tonette, who is fond of jewelries, bought a diamond ring for
P750,000.00, a bracelet for P250,000.00, a necklace for P500,000.00, and a
brooch for P500,000.00. Tonette derives income from the exercise of her
profession as a licensed CPA. In October 2009, Tonette sold her diamond ring,
bracelet, and necklace for only P1.25 million incurring a loss of P250,000.00.
She used the P1.25 million to buy a solo diamond ring in November 2009 which
she sold for P1.5 million in September 2010. Tonette had no other transaction in
jewelry in 2010. Which among the following describes the tax implications
arising from the above transactions?
A. Tonette may deduct his 2009 loss only from her 2009 professional income.
B. Tonette may carry over and deduct her 2009 loss only from her 2010 gain.
C. Tonette may carry over and deduct her 2009 loss from her 2010 professional
income as well as from her gain.
D. Tonette may not deduct her 2009 loss from both her 2010 professional income
and her gain.
128. Anion, Inc. received a notice of assessment and a letter from the BIR
demanding the payment of P3 million pesos in deficiency income taxes for the
taxable year 2008. The financial statements of the company show that it has
been suffering financial reverses from the year 2009 up to the present. Its asset
position shows that it could pay only P500,000.00 which it offered as a
compromise to the BIR. Which among the following may the BIR require to
enable it to enter into a compromise with Anion, Inc.?
A. Anion must show it has faithfully paid taxes before 2009.
B. Anion must promise to pay its deficiency when financially able.
C. Anion must waive its right to the secrecy of its bank deposits.
D. Anion must immediately deposit the P500,000.00 with the BIR.
24
129. Dondon and Helena were legally separated. They had six minor children, all
qualified to be claimed as additional exemptions for income tax purposes. The
court awarded custody of two of the children to Dondon and three to Helena, with
Dondon directed to provide full financial support for them as well. The court
awarded the 6th child to Dondon's father with Dondon also providing full financial
support. Assuming that only Dondon is gainfully employed while Helena is
not, for how many children could Dondon claim additional exemptions when he
files his income tax return?
A. Six children.
B. Five children.
C. Three children.
D. Two children.
130. Political campaign contributions are NOT deductible from gross income
A. if they are not reported to the Commission on Elections.
B. if the candidate supported wins the election because of possible corruption.
C. since they do not help earn the income from which they are to be deducted.
D. since such amounts are not considered as income of the candidate to whom
given.
131. When a BIR decision affirming an assessment is appealed to the CTA, the
BIR's power to garnish the taxpayer's bank deposits
A. is suspended to await the finality of such decision.
B. is suspended given that the CTA can reverse BIR decisions when prejudicial
to the taxpayer.
C. is not suspended because only final decisions of the BIR are subject to
appeal.
D. is not suspended since the continued existence of government depends on
tax revenues.
132. The power to tax is the power to destroy. Is this always so?
A. No. The Executive Branch may decide not to enforce a tax law which it
believes to be confiscatory.
B. Yes. The tax collectors should enforce a tax law even if it results to the
destruction of the property rights of a taxpayer.
C. Yes. Tax laws should always be enforced because without taxes the very
existence of the State is endangered.
D. No. The Supreme Court may nullify a tax law, hence, property rights are not
affected.
133. Jeopardy assessment is a valid ground to compromise a tax liability

A. involving deficiency income taxes only, but not for other taxes.
B. because of doubt as to the validity of the assessment.
C. if the compromise amount does not exceed 10% of the basic tax.
D. only when there is an approval of the National Evaluation Board.
134. Zygomite Minerals, Inc., a corporation registered and holding office in
Australia, not operating in the Philippines, may be subject to Philippine income
taxation on
A. gains it derived from sale in Australia of an ore crusher it bought from the
Philippines with the proceeds converted to pesos.
B. gains it derived from sale in Australia of shares of stock of Philex Mining
Corporation, a Philippine corporation.
C. dividends earned from investment in a foreign corporation that derived 40% of
its gross income from Philippine sources.
D. interests derived from its dollar deposits in a Philippine bank under the
Expanded Foreign Currency Deposit System.
25
135. As a general rule, within what period must a taxpayer elevate to the Court of
Tax Appeals a denial of his application for refund of income tax overpayment?
A. Within 30 days from receipt of the Commissioners denial of his application for
refund.
B. Within 30 days from receipt of the denial which must not exceed 2 years from
payment of income tax.
C. Within 2 years from payment of the income taxes sought to be refunded.
D. Within 30 days from receipt of the denial or within two years from payment.
136. Celia donated P110,000.00 to her friend Victoria who was getting married.
Celia gave no other gift during the calendar year. What is the donor's tax
implication on Celias donation?
A. The P100,000.00 portion of the donation is exempt since given in
consideration of marriage.
B. A P10,000.00 portion of the donation is exempt being a donation in
consideration of marriage.
C. Celia shall pay a 30% donor's tax on the P110,000.00 donation.
D. The P100,000.00 portion of the donation is exempt under the rate schedule for
donor's tax.
137. Levox Corporation wanted to donate P5 million as prize money for the world
professional billiard championship to be held in the Philippines. Since the Billiard
Sports Confederation of the Philippines does not recognize the event, it was held
under the auspices of the International Professional Billiards Association, Inc. Is
Levox subject to the donor's tax on its donation?
A. No, so long as the donated money goes directly to the winners and not
through the association.
B. Yes, since the national sports association for billiards does not sanction the
event.
C. No, because it is donated as prize for an international competition under the
billiards association.
D. Yes, but only that part that exceeds the first P100,000.00 of total Levox
donations for the calendar year.
138. What is the effect on the tax liability of a taxpayer who does not protest an
assessment for deficiency taxes?
A. The taxpayer may appeal his liability to the CTA since the assessment is a
final decision of the Commissioner on the matter.
B. The BIR could already enforce the collection of the taxpayer's liability if it could
secure authority from the CTA.
C. The taxpayer's liability becomes fixed and subject to collection as the
assessment becomes final and collectible.
D. The taxpayer's liability remains suspended for 180 days from the expiration of
the period to protest.
139. A non-stock, non-profit school always had cash flow problems, resulting in
failure to recruit well-trained administrative personnel to effectively manage the
school. In 2010, Don Leon donated P100 million pesos to the school, provided
the money shall be used solely for paying the salaries, wages, and benefits of
administrative personnel. The donation represents less than 10% of Don Leon's
taxable income for the year. Is he subject to donor's taxes?
A. No, since the donation is actually, directly, and exclusively used for
B. Yes, because the donation is to be wholly used for administration purposes.
C. Yes, since he did not obtain the requisite NGO certification before he made
the donation.
D. No, because the donation does not exceed 10% of his taxable income for
2010.
26
140. There is prima facie evidence of a false or fraudulent return where the
A. tax return was amended after a notice of assessment was issued.
B. tax return was filed beyond the reglementary period.
C. taxpayer changed his address without notifying the BIR.
D. deductions claimed exceed by 30% the actual deductions.
141. The proceeds received under a life insurance endowment contract is NOT
considered part of gross income
A. if it is so stated in the life insurance endowment 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.
142. The excess of allowable deductions over gross income of the business in a
taxable year is known as
A. net operating loss.
B. ordinary loss.
C. net deductible loss.
D. NOLCO.
143. No action shall be taken by the BIR on the taxpayers disputed issues until
the taxpayer has paid the deficiency taxes
A. when the assessment was issued against a false and fraudulent return.
B. if there was a failure to pay the deficiency tax within 60 days from BIR
demand.
C. if the Regional Trial Court issues a writ of preliminary injunction to enjoin the
BIR.
D. attributable to the undisputed issues in the assessment notice.
144. Ka Tato owns a parcel of land in San Jose, Batangas declared for real
property taxation, as agricultural. In 1990, he used the land for a poultry feed
processing plant but continued to declare the property as agricultural. In March
2011, the local tax assessor discovered Ka Tatos change of use of his land and
informed the local treasurer who demanded payment of deficiency real property
taxes from 1990 to 2011. Has the action prescribed?
A. No, the deficiency taxes may be collected within five years from when they fell
due.
B. No. The deficiency taxes for the period 1990 up to 2011 may still be collected
within 10 years from March 2011.
C. Yes. More than 10 years had lapsed for the period 1990 up to 2000, hence
the right to collect the deficiency taxes has prescribed.
D. Yes. More than 5 years had lapsed for the collection of the deficiency taxes
for the period 1990 up to 2005.
145. Pierre de Savigny, a Frenchman, arrived in the Philippines on January 1,

2010 and continued to live and engage in business in the Philippines. He went
on a tour of Southeast Asia from August 1 to November 5, 2010. He returned to
the Philippines on November 6, 2010 and stayed until April 15, 2011 when he
returned to France. He earned during his stay in the Philippines a gross income
of P3 million from his investments in the country. For the year 2010, Pierres
taxable status is that of
A. a non-resident alien not engaged in trade or business in the Philippines.
B. a non-resident alien engaged in trade or business in the Philippines.
C. a resident alien not engaged in trade or business in the Philippines.
D. a resident alien engaged in trade or business in the Philippines.
27
146. Lualhati Educational Foundation, Inc., a stock educational institution

organized for profit, decided to lease for commercial use a 1,500 sq. m. portion of
its school. The school actually, directly, and exclusively used the rents for the
maintenance of its school buildings, including payment of janitorial services. Is
the leased portion subject to real property tax?
A. Yes, since Lualhati is a stock and for profit educational institution.
B. No, since the school actually, directly, and exclusively used the rents for
C. No, but it may be subject to income taxation on the rents it receives.
D. Yes, since the leased portion is not actually, directly, and exclusively used for
147. What should the BIR do when the prescriptive period for the assessment of a
tax deficiency is about to prescribe but the taxpayer has not yet complied with the
BIR requirements for the production of books of accounts and other records to
substantiate the claimed deductions, exemptions or credits?
A. Call the taxpayer to a conference to explain the delay.
B. Immediately conduct an investigation of the taxpayer's activities.
C. Issue a jeopardy assessment coupled with a letter of demand.
D. Issue a notice of constructive distraint to protect government interest.
148. Money collected from taxation shall not be paid to any religious dignitary
EXCEPT when
A. the religious dignitary is assigned to the Philippine Army.
B. it is paid by a local government unit.
C. the payment is passed in audit by the COA.
D. it is part of a lawmakers pork barrel.
149. The taxpayer seasonably filed his protest together with all the supporting
documents. It is already July 31, 2011, or 180 days from submission of the
protest but the BIR Commissioner has not yet decided his protest. Desirous of
an early resolution of his protested assessment, the taxpayer should file his
appeal to the Court of Tax Appeals not later than
A. August 31, 2011.
B. August 30, 2011.
C. August 15, 2011.
D. August 1, 2011.
150. Which of the following are NOT usually imposed when there is a tax
amnesty?
A. Civil, criminal, and administrative penalties
B. Civil and criminal penalties
C. Civil and administrative penalties
D. Criminal and administrative penalties
151. Which among the following concepts of taxation is the basis for the situs of
income taxation?
A. Lifeblood doctrine of taxation
B. Symbiotic relation in taxation
C. Compensatory purpose of taxation
D. Sumptuary purpose of taxation
28
152. In Operation Kandado, the BIR temporarily closed business establishments,

including New Dynasty Corporation that failed to comply with VAT regulations.
New Dynasty contends that it should not be temporarily closed since it has a
valid and existing VAT registration, it faithfully issued VAT receipts, and filed the
proper VAT returns. The contention may be rejected if the BIR investigation
reveals that
A. the taxpayer has not been regularly filing its income tax returns for the past 4
years.
B. the taxpayer deliberately filed a false and fraudulent return with deliberate
intention to evade taxes.
C. the taxpayer used falsified documents to support its application for refund of
taxes.
D. there was an understatement of taxable sales or receipts by 30% or more for
the taxable quarter.
153. The head priest of the religious sect Tres Personas Solo Dios, as the
corporation sole, rented out a 5,000 sq. m. lot registered in its name for use as
school site of a school organized for profit. The sect used the rentals for the
support and upkeep of its priests. The rented lot is
A. not exempt from real property taxes because the user is organized for profit.
B. exempt from real property taxes since it is actually, directly, and exclusively
used for religious purposes.
C. not exempt from real property taxes since it is the rents, not the land, that is
used for religious purposes.
D. exempt from real property taxes since it is actually, directly, and exclusively
used for educational purposes.
End of Exam
Prayer to
ST. JUDE THADDEUS

O Glorious St. Jude Thaddeus, by those sublime privileges which so
ennobled thee in thy lifetime relationship, according to the flesh with Our
Lord Jesus Christ and the apostolate; by that glory which, as thy reward of thy
labors and martyrdom, thou dost now enjoy in heaven; obtain for us from the
Giver of every good, all the graces we need, to enable us to profit greatly, by
that divinely inspired doctrine, which thou has handed down to us in thy
Epistle; that is, to build the edifice of perfection, upon the foundation of faith,
praying through the grace of the Holy Spirit; to keep ourselves always in the
love of God, looking for the mercy of Jesus Christ unto life everlasting; and to
help by every available means, those who go astray. Thus we shall exalt the
glory, the dominion, the authority of Him, who is able to preserve us without
sin, and keep us without blemish and in gladness unto the coming of Our Lord
Jesus Christ, God our Savior, Amen.
[Visit the St.Jude Parish (near CEU and San Beda) every Thursdays for the weekly Novena and offer
a candle.]
29

2011 Bar Exam Questions That Are Applicable To The Cpa Board Exams For BLT

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2011 BAR EXAM QUESTIONS THAT ARE APPLICABLE TO THE CPA BOARD EXAMS for BLT

Compiled by: Prof. James Domingo, CPA