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TAXATION

1. A, an American singer, was engaged to sing for one week at the Western Philippines
Plaza after which she returned to USA. For income tax purposes, she shall be
classified as:
a. Resident alien
b. Nonresident alien engaged in trade or business.
c. Nonresident alien not engaged in trade or business.
d. Resident citizen.
SUGGESTED ANSWER: C
2. A taxpayer, single has the following dependents who live with him:
a. Jimy, brother 23 years old taking up Engineering course.
b. Dea, sister married.
c. Jome adopted child, gainfully employed.
d. Apol, not related to taxpayer, 65years old, qualified senior citizen.
SUGGESTED ANSWER: D
3. A taxpayer is married nonresident alien engaged in business in the Philippines with
two (2) qualified dependent childred. His country gives a nonresident Filipino with
income therefrom a basic personal exemption of P4,000. He is entitled to total
personal exemptions of:
a. P54,000
b. P32,000
c. P28,000
d. P48,000
SUGGESTED ANSWER: A
4. One of the following is not a qualified dependent for income tax purposes.
a. Illegitimate child, 16 years old, living in the United States due to his studies.
b. Senior citizen, not related to the taxpayer, with a yearly income of P60,000, living
with and taken cared of by the taxpayer.
c. Legitimate child, 21 years old, with a monthly income of P2,000, living with the
taxpayer in Manila.
d. Brother, 24 years old, incapable of self support because of physical disability.
SUGGESTED ANSWER: D
5. E, Resident Filipino taxpayer single supporting three minor (illegitimate) children one
of them living abroad showed the following data for taxable year:
Salary from ABC Co. (net of P40,000 withholding tax) P350,000
Professional fee from various schools (net of 10% withholding tax) 135,000
Expenses incurred-practice of profession (Living expenses including
Tuition fees of children 25% thereof) 80,000
Health and/or hospitalization insurance Premium paid 5,000
How much personal exemption may Mr. E claim?
a. P25,000
b. P50,000
c. P75,000
d. P100,000

SUGGESTED ANSWER: D

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6. How much is Mr. E taxable income?


a. P380,000
b. P355,000
c. P350,000
d. P330,000

SUGGESTED ANSWER: A

7. Mr. L, a cemetery lot dealer sold real properties to different buyers as follows:

Selling Price Cost


House & Lot P2,000,000 P1,250,000
Farm Lot 800,000 300,000
Cemetery Lot 45,000 20,000
The house and lot were sold to acquire a condominium unit for Mr L new principal
place of residence. What is Mr. L capital gains tax?

a. P170,700 c. P 48,000
b. P168,000 d. P 50,700

e. SUGGESTED ANSWER: C

8. In June 2005, J received a piece of land fairly valued at P1,000,000 from his wealthy
best friend as a birthday gift. Since J had no use of the said donated land he
immediately sold it to G for only P500,000. What is the total tax liability of J?

a. P30,000 c. P210,000
b. P60,000 d. P360,00
e.

f. SUGGESTED ANSWER: B

9. Mr. S, an individual calendar-year taxpayer purchased 100 shares of Core Co.


common stock for P15,000 on December 15, 2012 and an additional 100 shares for
P13,000 on December 30, 2012. On January 3, 2012, S sold the shares purchased on
December 15, 2012 for P13,000. What amount of loss from the sale of Cores stock is
deductible on Mr. S 2012and 2013 income tax returns?
g.

h. 2012 i. 2013
a. P 0 j. P 0
b. P 0 k. P 2,000
c. P1,000 l. P 1,000
n.
d. P2,000 m. P 0

o. SUGGESTED ANSWER: A

10. Mr. O received the following in December:


p.

q. Thirteenth month pay r. 15,000


s. Christmas bonus t. 15,000
u. Monetized vacation leave for 5 days v. 10,000
w.
x. The taxable compensation income of Jose is:

a. P40,000 c. P25,000
b. P 0 d. P20,000
e.

f. SUGGESTED ANSWER: B

g.
h.

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11. Lessor had the following information for the given taxable year.
j.
k. Cost of leasehold improvement l. P1,000
,000
m. Annual rent n. 100
,000
o.
p. The estimate life of leasehold improvement is 50 years. The term of the lease is
40 years. At the end of the twentieth (20 th) year, the lease was terminated for valid
causes done by the lessee.
q.
r. What is the taxable income to be reported by the lessor at the end of the 20th year?

a. P100,000 c. P605,000
b. P120,000 d. P700,000

e. SUGGESTED ANSWER: C

12. What is the allowable deduction of lessee on the 20th year?


a. P600,000
b. P625,000
c. P100,000
d. P500,000

f. SUGGESTED ANSWER: B

13. Mr. A, a non-resident alien stockholder, received a dividend income of P300,000 in


2014 from a foreign corporation doing business in the Philippines. The gross income
of the foreign corporation from within and without the Philippines for three years
preceding 2014 are as follows:
g.

h. Source of income i. 2011 j. 2012 k. 2013


l. From within the m. P16,0 n. P12,000,0 o. P14,000,0
Philippines 00,000 00 00
p. From without the q. 18,0 r. 14,000,0 s. 16,000,0
Philippines 00,000 00 00
t. u. v. w.
x. How much of the dividend income received by Mr. A is considered income from
sources within the Philippines?

a. Zero c. P300,000
b. P150,000 d. P270,000

e. SUGGESTED ANSWER: A

14. Mr. C, a widower, has two sons by his previous marriage. C lives with Mrs. J who is
legally married to Mr. J. They have a child named Jill. The children are all minors and
not gainfully employed. How much personal exemption can Mr. C claim?

a. P50,000 c. P100,000
b. P75,000 d. P125,000

e. SUGGESTED ANSWER: C

15. K sold for P10M her Baguio rest house with FMV of P12M to buy a new principal
residence. If K utilized P8M of the proceeds of the sale in acquiring a new principal
residence, the capital gains tax payable is

a. P720,000 c. P144,000
b. P600,000 d. P120,000

e. SUGGESTED ANSWER: A

f.
g.

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16. Z is a Filipino immigrant living in the United States for more than 10 years. He is
retired and he came back to the Philippines as a balikbayan. Every time he comes to
the Philippines, he stays here for about a month. He regularly receives a pension from
his former employer in the United States, amounting to US$1,000 a month. While in
the Philippines, with his pension pay from his former employer, he purchased three
condominium units in Makati which he is renting out for P15,000 a month each. Does
the US$1,000 pension become taxable because he is now in the Philippines?
a. Yes, Income received in the Philippines by non-resident citizens is taxable.
b. Yes, Income received in the Philippines or abroad by non-resident citizens is
taxable.
c. No, Income earned abroad by non-resident citizens are no longer taxable in the
Philippines.
d. No, the pension is exempt from taxation being one of the exclusions from gross
income.

j. SUGGESTED ANSWER: C

17. K sold for P10M her Baguio rest house with FMV of P12M to buy new principal
residence. If K utilized P8M of the proceeds of the sale in acquiring a new principal
residence, the capital gains tax payable is

a. P720,000 c. P144,000
b. P600,000 d. P120,000

e. SUGGESTED ANSWER: A

18. Skylar sold his bachelors pad for P1,200,000 to acquire a two bedroom loft at
Princeville condominium for P3,200,000 with a fair market of P3,500,000. How
much is the capital gains tax?

a. P72,000 c. P210,000
b. P192,000 d. Zero

e. SUGGESTED ANSWER: A

19. In the preceding number, a sale of principal residence to purchase a new principal
residence shall be exempt from tax if done:
a. Once every 10 years and reported to BIR within 18 months from sale;
b. Once every 18 years and reported to BIR within 10 months from sale;
c. Once every 10 years and reported to BIR within 2 months from sale;
d. Once very 10 years and reported to BIR within 1 month from sale.\

f. SUGGESTED ANSWER: D

20. Dondon and Helen 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 6 th child to
Dondons 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.

g. SUGGESTED ANSWER: D
h. Page 5
i.
21. 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.

j. SUGGESTED ANSWER: D

22. 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

k. SUGGESTED ANSWER: B

23. 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 operations 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

l. SUGGESTED ANSWER: B

24. 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 derived income from the exercise of her profession as a
licensed CPA. In October 2009, Tonette sold her diamond ring, bracelet, and necklace
for only P1.2 million incurring a loss of P250,000.00. She used the 1.125 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.

m. SUGGESTED ANSWER: B

n.

o.

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25. Aragorn Inc. had the following items of income and expenses:
s.
t. Gross Receipts u. P500,0
00
v. Cost of services, salary of personnel directly engaged in w. 250,00
business 0
x. Dividends received y. 25,00
0
z.
aa. The dividends were received from a domestic corporation. The general and
administrative expenses include cost of utilized facilities cost of supplies of P25,000
and P15,000, respectively. What amount should be reported as gross income for
minimum corporate income tax purpose?

a. P210,000 c. P250,000
b. P235,000 d. P275,000

e. SUGGESTED ANSWER: A

26. In 2013 Cable Corp., a calendar-year corporation, contributed P80,000 to a qualified


charitable organization. Cables 2013 net income was P820,000. In 2013, what
amount can Cable deduct as charitable contributions?

a. P80,000 c. P41,000
b. P45,000 d. P51,000

e. SUGGESTED ANSWER: B

27. Patricia was injured in a vehicle accident in 2012. He incurred and paid medical
expenses of P10,000 and legal fees of P5,000 during that year. In 2015, he recovered
P35,000 as settlement from the insurance company which insured the car owned by
the other party involved in the accident. From the above payments and transactions,
the amount of income taxable to Patricia in 2015 is:

a. P20,000 c. P35,000
b. P25,000 d. P 0

e. SUGGESTED ANSWER: D

28. To be allowed as a valid deduction, charitable and other contribution must not
exceed:
a. 5% of taxable after charitable contribution, income of individuals
b. 10% of taxable income after charitable contribution, in case of individuals
c. 5% of taxable income before charitable of contribution, in case of individuals.
d. 10% of taxable income before charitable contribution, in case of individuals.

f. SUGGESTED ANSWER: D

29. In computing net income, no deduction shall in any case be allowed in respect to,
except:
a. Personal, living or family expenses.
b. Any amount paid out for new buildings or for permanent improvements, or
betterment made to increase the value of any property or estate.
c. Any amount expanded in restoring property or in making good the exhausting
thereof which an allowance is or has been made.
d. Premiums paid on any life insurance policy covering the life of any officer or
employee, when the immediate family members of such employee are directly the
beneficiary.

g. SUGGESTED ANSWER: D

h.
i.
j.
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l.

30. SFI Inc, (SFI) has been in business for the past 10 years. For the year, it decided to
establish a pension fund for its employees. The pertinent data of the fund are us
follow:
m.

n. Past Service Cost (lump sum payment) o. P1,000,


000
p. Present Service Cost q. 100,
000
r.

s. How much allowable deduction for pension cost SFI could claim?

a. P1,000,000 c. P 200,000
b. P1,100,000 d. P 100,000

e. SUGGESTED ANSWER: C

31. Assuming the same facts in number 30, the allowable deduction of SFI fro pension
after 10 years.

a. P1,000,000 c. P 200,000
b. P1,100,000 d. P 100,000

e. SUGGESTED ANSWER: D

32. Mr. R was retired by his employer corporation and paid P1,000,000 as a retirement
gratuity without any deduction for withholding tax. The corporation became bankrupt
the following year. Can the BIR subject the P1,000,000 retirement gratuity to income
tax?
f.

g. 1st Answer: No, if the retirement gratuity was paid based on a reasonable pension
where Mr. R was at least 50 years old and has served the corporation for more than 10
years.
h. 2nd Answer: No, If Mr. R was forced by the corporation to retire beyond Mr. Rs
control.
a. Both answer are wrong
b. Both answer are correct
c. 1st answer is correct, 2nd answer is wrong
d. 1st answer is wrong, 2nd answer is correct

i. SUGGESTED ANSWER: B

33. Which of the following does not represent compensation income?


a. Honorarium as a guest speaker
b. Emergency leave pay
c. Vacation and sick leave pay
d. Gratuitous condonation of obligation

j. SUGGESTED ANSWER: D

34. Noel Santos is a very bright computer science graduate. He was hired by Hewlett
Packard. To entice him to accept the offer for employment, he was offered the
arrangement that part of his compensation would be an insurance policy with a face
value of P20 Million. The parents of Noel are made the beneficiaries of the insurance
policy. Will the proceeds of the insurance form part of the income of the parents of
Noel and be subject to income tax?
a. Yes, the proceeds of the insurance form part of the gross income of the parents of
Noel and be subject to income tax.
b. Yes, the proceeds of the insurance form part of the income of the parents of Noel
and be subject to final withholding tax.
c. No, the proceeds of the life insurance do not form part of the gross income being
exclusion therefrom.
d. No, the proceeds of the insurance do not form part of the gross income of the
parents of Noel being irrevocable beneficiaries.

k. SUGGESTED ANSWER: C

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35. A domestic corporation made a borrowing from ABC bank thereby incurring a
business connected interest expense of P60,000 for taxable year 2009. During the
same year, the corporation earned an interest income subject to final tax in the amount
of P100,000. The deductible interest is

a. P27,000
b. P33,000
c. P60,000
d. P 0
e.

f. SUGGESTED ANSWER: A

36. For the calendar year:


g.
h. Tax payer is a citizen of the Philippines who is single had

i. Capital gain on sale of bonds held for 2 months j. P


45,000
k. Capital gain on sale directly to buyer of shares of m.
l. domestic corporation held for 16 months n. 120,00
0
o. Capital loss on sale of family car held for 5 years p. 80,00
0
q. Capital loss on sale of land in the Philippines held for 3 s.
years t. 60,00
r. on a selling price of P800,000 0
u. Net capital loss in preceding year (net taxable income of the w. 20,00
year 0
v. was P30,000)
x.
y. The net capital gain in 2006 was:

a. P50,000
b. P 5,000
c. Zero
d. Some other amount
e.

f. SUGGESTED ANSWER: C

37. Which among the following fringe benefits is taxable?


a. Those benefits which are given to rank and file employees.
b. Contributions of the employer for the benefit of the employee to retirement,
insurance and hospitalization benefit plans.
c. Benefits given to supervisory employees under a collective bargaining agreement.
d. De minimis benefits.

g. SUGGESTED ANSWER: C

38. In the year, Calendar de Amor Corporation gave the following fringe benefits to its
employees
h.
i. To managerial employees P1,020,000
j. To rank and file employees . 5,000,000
k.
l. The allowable deduction from the gross income of the corporation for the fringe
benefits given to employees is
a. P2,000,000
b. P1,500,000
c. P6,500,000
d. P7,000,000
e.

f. SUGGESTED ANSWER: C

g.

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39. Royal Mining is a VAT-registered domestic mining entity. One of its products is silver
being sold to Bangko Sentral ng Pilipinas. It filed a claim with the BIR for tax refund
on the ground that under Section 106 of the NIRC, sales of precious metal to Bangko
Sentral ng Pilipinas are considred export sales subject zero-rated VAT. Is Royal
Minings claim for refund Meritorious?
a. Yes, sale of precious metal to Bangko Sentral ng Pilipinas are deemed zero-rated
transactions.
b. Yes, sale of precious metal to Bangko Sentral ng Pilipinas is deemed an exempt
sale.
c. No, sale of gold to Bangko Sentral ng Pilipinas is zero-rated transaction not silver.
d. No, sale of precious metal to Bangko Sentral ng Pilipinas is creditable not
refundable.

i. SUGGESTED ANSWER: C
j.
40. Congress enacts a law imposing a 5% tax on gross receipts of common carriers. The
law does not define the term gross receipts. Express Transport, Inc., bus company
plying the Manila Baguio route, has time deposits with ABC Bank. In 2005, Express
Transport earned P1 million interest, after deducting the 20% final withholding tax
from its time deposits with the bank. The BIR wants to collect a 5% gross receipts tax
on the interest income of Express Transport without deducting the 20% final
withholding tax. Is the BIR correct?
a. Yes, gross receipts means cash collected whether actually or constructively
without any deductions.
b. Yes, gross receipts means all cash collection actually received without any
deductions.
c. No, gross receipts means actual receipts after deducting of withholding tax.
d. No, gross receipts means actual receipts after deducting tax credits.

k. SUGGESTED ANSWER: A

41. A, operates a convenience store, from which the gross receipts from sales, and
payments on purchases from VAT-registered supplies, were as follows:
l.

m. Sales of processed food items n. P280,0


00
o. Sales of non-food items p. 220,00
0
q. Purchases of processed food items r. 100,00
0
s. Purchases of non-food items t. 80,00
0
u. Salaries of helpers v. 48,00
w.
0

x. The percentage tax (tax due) is (above amounts are net of taxes)
a. P15,000 c. P50,000
b. P32,000 d. P27,200
e. SUGGESTED ANSWER: A

f.
g.
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42. Using the preceding number, if A opted to be registered under the VAT scheme, the
VAT payable is
a. P15,000
b. P32,000
c. P38,400
d. P27,200

r. SUGGESTED ANSWER: C

43. C, As a manufacturer of cooking oil, had the following selected transactions in a


month, taxes not included:
s.

t. Sales u. P880,0
00
v. Purchases: w.
x. of packaging materials from VAT supplies y. 88,00
0
z. of services from VAT contractors aa. 33,00
0
ab. of machinery from VAT contractors ac. 220,00
0
ad. from farmers: ae.
af. Corn ag. 140,00
0
ah. Coconut ai. 160,00
aj.
0

ak. The VAT payable is

a. P23,900
b. P52,680
c. P44,500
d. P49,400
e.
f. SUGGESTED ANSWER: B

44. Which of the following transactions is exempt from value-added-tax?


a. Sale of books, newspaper and magazines.
b. Sale of work of art.
c. Sale of literary works
d. Sale of musical composition

g. SUGGESTED ANSWER: A
h.
45. Which of the following transaction is subject to value-added-tax?
a. Services subject to other percentage tax.
b. Educational services duly approved by Department of Education, CHED and
TESDA or those operated by the Government.
c. Sale of coal and natural gas.
d. Lending activities by credit cooperatives.

i. SUGGESTED ANSWER: C

46. Sale of raw materials or packing materials to export-oriented enterprises is considered


export sales when export sales of such enterprise
a. Exceed 50% of total annual production
b. Exceed 33 1/3% of total annual production
c. Exceed 66 2/3% of total annual production
d. Exceed 70% of total annual production

j. SUGGESTED ANSWER: D
k.
l.
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47. Which of the following lessors of residential units is/are subject to VAT?
o.

p. A B C
D
q. No. of apartments units 20 15 10
10
r. Monthly rent/unit P11,000 P12,800 P13,000
P14,000
s.

a. B and D
b. C and D
c. B, C and D
d. D only
48.

49.
50. SUGGESTED ANSWER: D
51.
52. In the third quarter of 2012, a taxpayer engaged in the sale of services whose annual
gross receipts do not exceed P1,919,500 has the following data
53.

54. Accounts receivable, beginning of the quarter 55. P


50,000
56. Sales during the quarter 57. 100,00
0
58. Accounts receivable, end of the quarter 59. 75,00
0
60. Purchase of supplies, total invoice amount 61. 11,20
62.
0

63. The percentage tax due for the quarter is


a. P2,250
b. P3,000
c. P7,500
d. P6,500

64. SUGGESTED ANSWER: A

65. One of the following is not subject to the 3% percentage tax


a. International air carrier doing business in the Philippines
b. International shipping carrier doing business in the Philippines
c. Domestic carriers and keepers of garage
d. Franchise grantee of electric utilities
66. SUGGESTED ANSWER: D
e.
67. A promoted a world boxing championship in Manila featuring B, a Filipino
champion. Gate receipts amounted to P3,000,000 and additional receipts from
televisions coverage was P2,000,000. The amusement tax due is
a. None
b. P500,000
c. P300,000
d. P900,000

f. SUGGESTED ANSWER: A

g.

h.