CPAR

CPA Review School of the Philippines

FINAL PRE-BOARD EXAMINATION Saturday, September 16, 2017
Taxation 9:30 AM to 12:00 PM

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

1. ABC Corporation was dissolved, and liquidating dividends were declared and paid to the stockholders.
What tax consequence follows?
a. ABC Corporation should deduct a final tax of 10% from the dividends
b. The stockholders should declare their gain from their investment and pay income tax at
ordinary rates
c. The dividends are exempt from tax
d. ABC Corporation should withhold a 10% creditable tax

2. MGC Corporation secured an income tax holiday for 5 years as a pioneer industry. On the fourth year of
the tax holiday, MGC Corporation declared and paid cash dividends to its stockholders, all of whom are
individuals. Are the dividends taxable?
a. The dividends are taxable, the tax exemption of MGC Corporation does not extend to its
stockholders
b. The dividends are tax exempt because of MGC Corporation’s income tax holiday
c. The dividends are taxable if they exceeded 50% of MGC Corporation’s retained earnings
d. The dividends are exempt if paid before the end of MGC Corporation fiscal year

3. Mr. Alas sells shoes in Makati through a retail store. He pays the vat on his gross sales to the BIR and the
municipal license tax based on the same gross sales to the City of Makati. He comes to you for advice
because he thinks he is being subjected to double taxation. What advice will you give him?
a. Yes, there is double taxation and its oppressive
b. The City of Makati does not have this power
c. Yes, there is double taxation, and this is illegal in the Philippines
d. Double taxation is allowed where one tax is imposed by the national government and the other
by the local government

4. Congress passed a sin tax law that increased the tax rates on cigarettes by 1,000%. The law was thought
to be sufficient to drive many cigarette companies out of business and was questioned in court by a
cigarette company that would go out of business because it would not be able to pay the increased tax.
The cigarette company is
a. Wrong because taxes are the lifeblood of the government
b. Wrong because the law recognizes that the power to tax is the power to destroy
c. Correct because no government can deprive a person of his livelihood
d. Correct because Congress, in this case, exceeded its power to tax

5. In 2010, Mr. Planton sent his sister Helen $1,000 via a telegraphic transfer the Bank of P.I. The
bank remittance clerk made a mistake and credited Helen with $1,000,000 which she promptly withdrew.
The bank demanded the return of the mistakenly credited excess, but Helen refused. The BIR entered the
picture and investigated Helen. Would the BIR be correct if it determines that Helen earned taxable income
under these facts?
a. No, she had no income because she had no right to the mistakenly credited funds
b. Yes, income is income regardless of the source
c. No, it was not her fault that the funds in excess of $1,000 were credited to her
d. No, the funds in excess of $1,000 were in effect donated to her

6. The Municipality of San Isidro passed an ordinance imposing a tax on installation managers. At the time,
there was only one installation manager in the municipality, thus, only he would be liable for the tax. Is
the law constitutional?
a. It is unconstitutional because it clearly discriminates against this person
b. It is unconstitutional for lack of legal basis
c. It is constitutional as it applies to all persons in that class
d. It is constitutional because the power to tax is the power to destroy

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7. XYZ Corporation manufactures glass panels and is almost at the point of insolvency. It has no more cash
and all it has are unsold glass panels. It received an assessment from the BIR for deficiency income taxes.
It wants to pay but due to lack of cash, it seeks permission to pay in kind with glass panels. Should the
BIR grant the requested permission?
a. It should grant permission to make payment convenient to taxpayers
b. It should not grant permission because a tax is generally a pecuniary burden
c. It should grant permission, otherwise, XYZ Corporation would not be able to pay
d. It should not grant permission because the government does not have the storage facilities for
glass panels.

8. PRT Corporation purchased a residential house and lot with a swimming pool in an upscale subdivision
and required the company president to stay there without paying rent; it reasoned out that the company
president must maintain a certain image and be able to entertain guest at the house to promote the
company’s business. The company president declared that because they are childless, he and his wife
would very well live in a smaller house. Was there a taxable fringe benefit?
a. There was no taxable fringe benefit since it was for the convenience of the employer and was
necessary for its business
b. There was a taxable fringe benefit since the stay at the house was for free
c. There was a taxable fringe benefit because the house was very luxurious
d. There was no taxable fringe benefit because the company president was only required to stay
there and did not demand free housing

9. Pheleco is a power generation and distribution company operating mainly from the City of Taguig. It owns
electric poles, which it also rents out to other companies that use poles such as telephone and cable
companies. Taguig passed an ordinance imposing a fee equivalent to 1% of the annual rental for these
poles. Pheleco questioned the legality of the ordinance on the ground that it imposes an income tax which
local government units are prohibited from imposing. Rule on the validity of the ordinance
a. The ordinance is void, the fee is based on rental income and is therefore a tax on income
b. The ordinance is valid as a legitimate exercise of police power to regulate electric poles
c. The ordinance is void, 1% of annual rentals is excessive and oppressive
d. The ordinance is valid; an LGU may impose tax on income

10. Aleta sued Boboy for breach of promise to marry. Boboy lost the case and duly paid the court’s award
that included among others, PHP 100,000 as moral damages for the mental anguish Aleta suffered. Did
Aleta earn a taxable income?
a. She had a taxable income of PHP 100,000 since income is income from whatever source
b. She had no taxable income because it was a donation
c. She had taxable income since she made a profit
d. She had no taxable income since moral damages are compensatory

11. Mr. A was preparing his income tax return and had some doubt on whether a commission he earned should
be declared for the current year or for the succeeding year. He sought the opinion of his lawyer who
advised him to report the commission in the succeeding year. He heeded his lawyer’s advice and reported
the commission in the succeeding year. The lawyer’s advice turned out to be wrong. In Mr. A’s petition
against the BIR assessment, the court ruled against Mr. A. Is Mr. A guilty of fraud?
a. Mr. A is not guilty of fraud as he simply followed the advice of his lawyer
b. Mr. A is guilty of fraud, he deliberately did not report the commission in the current year when
he should have done so
c. Mr. A’s lawyer should pay the tax for giving wrong advices
d. Mr. A is guilty for failing to consult his accountant

12. Which of the following statements is not correct?

a. In case of doubt, statues levying taxes are construed strictly against the government
b. The construction of a statue made by his predecessor is not binding upon the successor, if
thereafter he becomes satisfied that a different construction should be given
c. The reversal of a ruling shall not generally be given retroactive application, if said reversal will
be prejudicial to the taxpayer
d. A memorandum circular promulgated by the CIR that imposes penalty for violation of certain
rules need not be published in a newspaper of general circulation or official gazette because it
has the force and effect of law

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13. Which statement below expresses the lifeblood theory
a. The assess taxes must be enforced by the government
b. The underlying basis of taxation is government necessity for without taxation, a government
can neither exist nor endure
c. Taxation is an arbitrary method of exaction by those who are in the seat of power
d. The power of taxation is an inherent power of the sovereign to impose burdens upon subjects
and objects “within its jurisdiction for the purpose of raising revenues”

14. Which statement is wrong?

a. The power of taxation may be exercised by the government, its political subdivision and public
utilities
b. Generally, there is no limit on the amount of tax that may be imposed
c. The money contributed as tax becomes part of the public funds
d. The power of tax is subject to certain constitutional limitations

15. The Philippines adopted the semi-global tax system, which means that
a. All taxable incomes, regardless of the nature of income, are added together to arrive at gross
income, and all allowable deductions are deducted from the gross income to arrive at the
taxable income
b. All income subject to final withholding taxes are liable to income tax under the schedular tax
system, while all ordinary income as well as income not subject to final withholding taxes are
liable to income tax under the global tax system
c. All taxable incomes are subject to final withholding taxes under the schedular tax system
d. All taxable income from sources within and without the Philippines are liable to income tax

16. Income from the performance of service is treated as income from within the Philippines, if
a. The payment of compensation for the service is made in the Philippines
b. The contract calling for the performance of service is made in the Philippines
c. The service is actually performed in the Philippines
d. The recipient of service income is a resident of the Philippines

17. For income tax purposes, the source of the service income is important for the taxpayer, who is a
a. Filipino citizen residing in Makati City, Philippines
b. Non-resident Filipino citizen working and residing in London, United Kingdom
c. Filipino citizen who is married to a Japanese citizen and residing in their family home located
in Fort Bonifacio, Taguig City, Philippines
d. Domestic corporation

18. Interest income of a domestic commercial bank derived from a peso loan to a domestic corporation in
2010 is
a. Subject to the 30% income tax based on its net taxable income
b. Subject to the 20% final withholding tax
c. Subject to the 7.5% final withholding tax
d. Subject to the 10% final withholding tax

19. A resident foreign corporation is one that is

a. Organized under the laws of the Philippines that does business in another country
b. Organized under the law of a foreign country that sets up a regional headquarter in the
Philippines doing product promotion and information dissemination
c. Organized under the laws of the Philippines that engages business in a special economic zone
d. Organized under the laws of a foreign country that engages in business in Makati City,
Philippines
20. An individual, who is a real estate dealer, sold a residential lot in Quezon City at a gain of PHP 100,000.
The sale is subject to income tax as follows:
a. 6% capital gains tax on the gain
b. 6% capital gains tax on the gross selling price or fair market value, whichever is higher
c. Ordinary income tax at the graduated rates of 5% to 32% of net taxable income
d. 30% income tax on net taxable income

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21. A resident Filipino citizen (not a dealer in securities) sold shares of stocks of a domestic corporation that
are listed and traded in the Philippine Stock Exchange
a. The sale is exempt from income tax but subject to the ½ of 1% stock transaction tax
b. The sale is subject to income tax computed at the graduated income ta rates of 5% to 32% on
net taxable income
c. The sale is subject to the stock transaction tax and income tax
d. The sale is both exempt from the stock transaction tax and income tax

22. The interest expense of a domestic corporation on a bank loan in connection with the purchase of a
production equipment
a. Is not deductible from gross income of the borrower—corporation
b. Is deductible from the gross income of the borrower—corporation during the year or it may be
capitalized as part of cost of the equipment
c. Is deductible only for a period of five years from date of purchase
d. Is deductible only if the taxpayer uses the cash method of accounting

23. All the items below are excluded from gross income, except
a. Gains from sale of long-term bonds, debentures, and indebtedness
b. Value of property received by a person as donation or inheritance
c. Retirement benefits received from the GSIS, SSS, or accredited retirement plan
d. Separation pay received by a retiring employee under a voluntary retirement program of the
corporate employer

24. Which statement is correct? A non-stock, non-profit charitable association that sells its agricultural
property is
a. Not required to file an income tax return, nor pay income tax on the transaction to the BIR,
provided the sales proceeds are invested in another real estate during the year
b. Required to pay the 6% capital gains tax on the gross selling price or fair market value,
whichever is higher
c. Mandated to pay the 30% regular corporate income tax on the gain from sale
d. Required to withhold the applicable expanded withholding tax rate on the transaction and
remit the same to the BIR

25. 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

26. 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 engaged in trading of mineral ores.

27. 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

28. Which among the following concepts of taxation is the basis for the situs of income taxation
a. Lifeblood doctrine of taxation c. Compensatory purpose of taxation
b. Symbiotic relation in taxation d. Sumptuary purpose of taxation

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 29. The municipal council passed an ordinance imposing an occupation tax on profession or occupation of a
“plant accountant”. A is the only person with such an occupation in the municipality. Which of the
following is correct?
a. A can successfully challenge the validity of the ordinance as being discriminatory since he is
the only adversely affected
b. The ordinance violates the constitutional rule of equality in taxation
c. The ordinance is a “class legislation” since it does not subject to occupation tax the other
accountants
d. The ordinance is valid exercise of the council’s power to enact laws to raise revenue under the
Local Government Code since the ordinance conforms to the uniformity clause

30. Jeanyless Sapoles, a student activist, wants to impugn the validity of a tax on text messages. Aside from
claiming that the law adversely affects her since she sends messages by text, what may she allege that
would strengthen her claim to the right to file a taxpayer suit?
a. That she is entitled to the return of the taxes collected from her in case the court nullifies the
tax measures
b. That tax money is being extracted and spent in violation of the constitutionality guaranteed
right of freedom of communication
c. That she is filing the case in behalf of a substantial number of taxpayers
d. That text messages are an important part of the lives of the people she represents

31. The government is said to be exempt from taxation. Which of the following is an exemption to this rule?
a. A contract entered into by the AFP and SM where SM furnishes the AFP with combat boots
b. A government employee buying 30 printers for office use
c. A contractor for the government claiming exemption from contractor’s tax
d. DSWD claiming tax exemption on goods donated by the LGU of Albay

32. A person cannot be allowed to deduct

a. Bad debts which have been ascertained to be worthless as it is very difficult to collect, and the
debtor has no more leviable properties
b. Interest expense incurred during the taxable year
c. Business expenses sustained in a transaction between related parties
d. Losses incurred not compensated for by insurance
For Questions Nos. 33 - 35:

The records of a taxpayer show the following in 2015:

Gross income PHP 8,000,000
Cost of sale of goods 4,000,000
Salaries of employees (net of payroll deductions) 2,000,000
Fringe benefits given to:
Rank and File employees 520,000
Managerial employees 680,000
Representation and entertainment expenses (business connected) 100,000
Rent expenses 200,000
Depreciation expenses 40,000
Bad debts expenses 20,000
Payroll deductions:
Creditable withholding tax of employees 100,000
SSS premiums contributions 20,000
Phihealth premiums contributions 10,000
Pag-Ibig premiums contributions 8,000
Union dues 2,000
Other Income:
Cash dividend received from:
1. Domestic corporations:
a. 70% of its income came from Philippine source 90,000
b. 30% of its income came from Philippine source 90,000
2. Resident foreign corporation:
a. 70% of its income came from Philippine source 40,000
b. 30 of its income came from Philippine source 40,000

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 3. Non-resident foreign corporations 20,000

33. If the taxpayer is a domestic corporation, its taxable income is

a. Php 4,100,000 b. Php 4,240,000 c. Php 4,420,000 d. Php 4,140,000

34. If the taxpayer is a resident alien, the taxable income before personal exemption is
a. Php 4,000,000 b. Php 4,140,000 c. Php 4,348,000 d. Php 4,068,000

35. If the taxpayer is a resident citizen, the final withholding tax is

a. Php 18,000 b. Php 9,000 c. Php 20,000 d. Php 20,800

ABC Corporation has the following sales during the month:

a. Sale to private entities subject to 12% vat P1,000,000
b. Sale to private entities subject to 0% vat 1,000,000
c. Sale to the government subjected to 5% final withholding vat 1,000,000
d. Sale of goods exempt from vat 1,000,000
The following input taxes were passed on by its vat suppliers:
i. On taxable goods (12%) 50,000
ii. On zero rated sales 30,000
iii. On sale to the government 40,000
iv. On sale of exempt goods 20,000
v. On depreciable capital goods not attributable to any specific
activity (monthly amortization) 200,000

36. The unrecoverable input vat which maybe recognized as cost or expense
a. P70,000 b. P160,000 c. P20,000 d. P90,000

37. Using the above data, the input vat which may be refunded
a. P30,000 P50,000 c. P80,000 d. P60,000

38. The total creditable input vat

a. P100,000 P180,000 c. P250,000 d. P170,000

39. Which of the following is subject to vat?

a. Importation of personal or household effects belonging to the residents of the Philippines returning
from abroad and non-resident citizen coming to settle in the Philippines where such goods were
subjected to customs duties
b. Importation of passengers or cargo vessel and aircrafts, including engine, equipment and spare parts
thereof for domestic or international transport operation
c. Importation of fuel, goods and supplies by persons engaged in international shipping or air transport
operations
d. Sale of real property not primarily held for sale to customers or held for lease in the ordinary course
of business

40. C, vat-registered person, imported machines to be used in the Philippines as follows:

Machines Purchase Price Purpose
1 P100,000 Personal use
2 200,000 Business use
3 300,000 For sale
The importations were subjected to 50% excise tax based on purchase price. Machine 3 was sold for
P1,000,000 (net of vat). How much is the vat paid on importation?
a. P108,000 b. P90,000 c. P54,000 d. 36,000

41. Using the above data, the vat payable is

a. P12,000 b. P30,000 c. P106,000 d. 84,000

42. Tax credit for foreign tax paid is allowed on

a. Donor’s tax paid by a non-resident foreign corporation c. Estate tax paid by a non-resident alien
b. Estate tax paid by a non-resident citizen d. Income tax paid by a resident alien

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43. The export sale of a vat-registered enterprise is
a. Exempt from the vat c. Subject to the 12% vat
b. Subject to the 0% vat d. Subject to percentage tax

44. Donor’s tax is a (an)

a. Progressive tax b. Proportional tax c. Property tax d. Excise tax

45. Which of the following is a stranger to the donor? If the donee is the
a. Grandfather of the donor’s great grandfather c. Grandson of the donor’s half-sister
b. Granddaughter of the sister of the donor’s mother d. Brother of the donor’s grandfather

46. Statement I – if the estate is settled extra-judicially, the estate tax return should be filed within 2 years from
date of death of decedent
Statement II – if the estate is settled judicially, the estate tax return should be filed within 5 years from death
of decedent
Statement III – The value-added tax return should be filed within 25 days from the close of the taxable month
Statement IV – The donor’s tax return is not required if the net gift does not exceed P100,000
a. All statements are true c. Only two statements are true
b. All statements are false d. Only one statement is true

47. Spouses A and B sold their family home, a capital asset for P5,000,000. It was acquired in 1980 at P2,000,000.
The fair market value as determined by the BIR is P6,000,000 but the fair market value as shown in the
schedule of values of the City Assessor is P5,500,000. Later, the spouses utilized P4,000,000 for the
acquisition of their new family home. The capital gains tax due is
a. P72,000 b. P60,000 c. P300,000 d. 360,000

48. Using the above data, the cost basis of the new family home is
a. P4,000,000 b. P1,600,000 c. P1,000,000 d. 400,000

49. Which of the following statements is not correct?

a. An article subject to excise tax maybe exempt from vat
b. An article subject to excise tax maybe subject to vat
c. A taxpayer may have two businesses where one is subject to vat and the other is subject to
percentage tax
d. Manufacturers and importers of goods are subject to excise tax

50. A citizen of the Philippines and a resident of Bacolod City died testate on April 19, 2013. Among his gross
estate are properties purchased from his father who died on April 4, 2009. What percentage of deduction will
be used in computing the amount of vanishing deduction?
a. 20% b. 40% c. 60% d. 0

51. Which one of the following is not allowed with presumptive input tax
a. Those engaged in the manufacturing of refined sugar
b. Those engaged in manufacturing packed noodles based instant meals
c. Those engaged in the processing of canned products
d. Those engaged in pasteurizing milk

52. Statement 1 – The gross estate includes properties located outside the Philippines of a resident alien
Statement 2 – The gross income includes income earned outside the Philippines of a resident citizen
a. True, true b. True, false c. False, true d. False, false

53. The gross receipts of A, a lessor from his residential units for the year, show (net of vat):
Monthly Rent/Unit No. of Units Total
PHP 10,000 20 PHP 2,400,000
12,000 10 1,440,000
14,000 6 840,000
16,000 10 1,920,000
The output vat is
a. Php 230,400 b. Php 331,200 c. Php 504,000 d. Php 792,000

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54. Mr. A files his ITR for 2007 on April 1, 2008 and paid the tax due thereon of P100,000. The BIR made an
assessment on April 15, 2011, which shows that the correct income tax due should have been P150,000
requiring payment on or before July 15, 2011. The assessment was received by Mr. A on June 1, 2011. Mr. A
can
a. Ignore the assessment because June 1, 2011 is beyond 3 years from April 1, 2008
b. Ignore the assessment because June 1, 2011 is beyond 3 years from April 15, 2008
c. Appeal to the CTA within 30 days from June 1, 2011
d. Dispute the assessment with the CIR within 30 days from June 1, 2011

55. A filed his income tax return for calendar year 2010 on March 20, 2011. When is the last day for the BIR to
collect, assuming A did not pay the tax due upon filing?
a. March 20, 2014 b. April 15, 2014 c. April 15, 2016 d. March 20, 2016

56. Using the above data, assuming A filed his income tax return on April 20, 2011 and the return is not
fraudulent, when is the last day for the BIR to make an assessment?
a. April 20, 2014 b. April 15, 2014 c. April 20, 2016 d. April 15, 2016

57. Using the above data, if the BIR issued a deficiency income tax on March 10, 2013, when is the last day for
the BIR to collect?
a. March 10, 2016 b. April 15, 2016 c. March 10, 2018 d. April 15, 2018

58. XYZ Corporation filed its income tax return and paid the tax due for calendar year 2014 showing a tax liability
of P175,000. However, upon audit, it was discovered that its income tax return was false or fraudulent because
it did not report other taxable income. Per investigation, the correct income tax due is P350,000. The
corporation was duly informed of this finding through a preliminary assessment notice. Failing to protest in
time against the preliminary assessment notice, a formal letter of demand and assessment notice was issued
on May 31, 2016 calling for payment of the deficiency income tax on or before July 15, 2016. The amount
due on July 15, 2016 is
a. P306,250 b. P437,500 c. P240,625 d. P612,500

Items 59 to 70

P. Nagpala, a good looking Filipino 19 years old, single, high school graduate from a remote province, brought
his 50 year-old mother and went to Manila in 2012 to try their luck here. He applied, and was hired, as a janitor
in Mapagpala Corporation. As soon as he was hired, he enrolled in the College of Accountancy. For the year
2012, he earned and incurred the following:
Salaries, net of SSS, PhilHealth contributions and
Union dues of P8,000, and withholding
tax of P10,000 P162,000
th
13 month pay and Christmas bonus 25,000
Tuition fee, board and lodging, and other living expenses 60,000
Money sent to his grandparents in the province 40,000

59. P. Nagpala’s income tax payable (refundable) for the taxable year 2012 is:
a. P4,900 b. P6,900 c. P10,500 d. P8,900

In 2013, P. Nagpala’s good looks and his being ambitious and hardworking caught the attention of Makiri, the
company president’s daughter. On February 14 of that year, Makiri treated P. Nagpala to snacks. She put a
tablet in his drinks which made P. Nagpala very much attracted to her. They went out often since then, and on
March 31, they got married because Makiri was already one month pregnant.

For their wedding, Makiri’s father gave them the following:

a. Cash of P500,000 and $100,000, which they invested as follows:
a. They deposited P300,000 in a long-term trust fund
b. They deposited P200,000 in a current account
c. They deposited the $100,000 in a bank authorized by the BSP to operate as an FCDU
b. P. Nagpala’s promotion – P. Nagpala was promoted, from janitor to accounting department staff
c. Mapagpala Corporation shares of stock worth P2M

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In December, P. Nagpala and Makiri counted the blessings they received during the year
a. The first baby, born on November 30, 2013: A baby boy
b. Their receipts/expenses
P.Nagpala Makiri Couple
Compensation income, net of
SSS/PhilHealth, Pag-Ibig contributions
of P10,000 and withholding tax
of P18,300 P211,700
th
13 month pay and midyear bonus 36,000
Rice subsidy 18,000
Medical benefit for P. Nagpala 10,000
Uniform/Clothing allowance 5,000
Laundry allowance 3,000
Rental value of the house and lot within the
company compound used by the couple
as residence. They are required to
reside therein so that P. Nagpala would be
available to the company anytime P180,000
Yield from the long-term trust fund, net 38,250
Interest, current account, net 6,400
Interest, dollar account, net 103,600
Dividend income, net 225,000
Income from practice of profession, net P540,000
Expenses, practice of profession 200,000

60. On account of donation by reason of marriage, the father of Makiri

a. Can claim a deduction of PHP 10,000 from the gifts made to P. Nagpala and Makiri
b. Can claim a deduction of PHP 20,000 from the gifts made to P. Nagpala and Makiri
c. Shall file the donor’s tax return within 30 days after the gift is made and the tax due thereon shall be
paid at the time of filing
d. Is not subject to donor’s tax on the first PHP 100,000 of his gross gifts to Makiri

61. Final taxes remitted by the couple’s payor for their income totaled
a. P44,562 b. P19,562 c. P35,000 d. P31,550

62. Income tax still due from the couple for the taxable year 2013:
a. P29,450 B. P9,950 c. P9,650 d. P23,540

In 2017, P. Nagpala passed the CPA Licensure Examination. He was promoted as the Accounting Manager in
the company’s Accounting Department. Makiri stopped working to have more time for her husband and three (3)
children (three more were born from 2014 to 2017, but the youngest died at the age of 3 months in 2017 while
the eldest lives with Makiri’s parents).

The year was a lucky year (financially) for the couple. They were able to buy a 2-storey commercial building. A
book about “Makiri’s Code” written by Makiri was published and became a bestseller. They were able to sell
one-half of their interest in the corporation to a friend at a gain of P300,000 (SP is PHP 1.3M). At year-end, they
computed their financial blessings:
a. Rental income – net of withholding tax P684,000
(Expenses – building rental business – P200,000)
b. Royalty income from the book, net 450,000
c. A brand new car, purchased by the company for P. Nagpala
(the car was registered in the name of P. Nagpala) – purchase cost 1,088,000
d. Other benefits given by the company to P. Nagpala:
Groceries for the family 40,800
Salary increase, P20,000 per month 240,000
Tuition fee, shouldered by the company when P. Nagpala
attended a computer crash course to learn about
the software being used in the company’s
accounting department 30,000

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For the taxable year 2017,

63. P. Nagpala may claim persona exemptions (basic and additional) of

a. P150,000 b. P125,000 c. P100,000 d. P75,000

64. Makiri’s taxable income is

a. P210,000 b. P192,000 c. P310,000 d. P460,000

65. The final taxes on the couple’s passive income and capital gain for 2017 totaled:
a. P 75,000 b. P50,000 c. P56,500 d. P62,500

66. The fringe benefit tax withheld by the company pertaining to the benefits given to P. Nagpala during the year
totaled:
a. P531,200 b. P545,317 c. P289,317 d. P275,200

In November 2018, while the couple were talking about having another child, P. Nagpala suffered a cardiac arrest
and died 3 days after, without any last will and testament. By year-end, the estate tax was paid, and the estate was
distributed to his legal heirs. Makiri went back to the practice of her profession and continued operating the
commercial building.

67. If an income tax return is to be filed for the 2018 income of P. Nagpala, how much personal and additional
exemptions may be claimed?
a. Php 20,000 b. Php 192,000 c. Php 75,000 d. Php 100,000

Later in November 2019, Makiri married P. Nansalo, the best friend of P. Nagpala. Unfortunately, the marriage
did not last long when Makiri died in January 2, 2021, one day after giving birth to their first child. Makiri left
the following:

Makiri P. Nansalo
a. Property owned before marriage PHP 2,000,000 PHP 3,000,000
b. Income of property in (a.) 500,000 750,000
c. Property acquired during marriage
1. By gratuitous title 1,900,000 2,200,000
2. By onerous title 4,000,000 2,000,000
d. Income of property in:
C-1 300,000 350,000
C-2 300,000 200,000
e. Proceeds of life insurance where the
beneficiary is:
1. Her mother – revocable 1,200,000
2. Her son – irrevocable 800,000
f. Receipt of proceeds of insurance on
property owned before the marriage
which were destroyed by fire
on March 31, 2021
FMV – March 31, 2021 2,200,000 2,800,000
Insurance Recovery 1,800,000 2,500,000
g. The property acquired during
marriage – by gratuitous title were
acquired thru inheritance:
FMV (time of inheritance), 4 ½
years ago 1,800,000
FMV (time of inheritance), 1 year
ago 2,400,000

Deductions claimed by the estate

a. Funeral expenses (40% was covered by a memorial plan) PHP 250,000
a. Unpaid mortgage on property acquired during marriage by onerous title:
1. By Makiri (used as family house) 800,000
2. By P. Nansalo (used as rest house) 200,000
3. Claims against the estate 100,000

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68. The exclusive property of Makiri is
a. Php 4,700,000 b. Php 2,200,000 c. Php 1,900,000 d. Php 3,400,000

69. The gross estate of Makiri is

a. Php 16,650,000 b. Php 16,750,000 c. Php 15,850,000 d. Php 15,950,000

70. The vanishing deduction is

a. Php 321,313 b. Php 317,015 c. Php 318,089 d. Php 331,891

The End!

SCHEDULAR INCOME TAX RATES – INDIVIDUALS:

Not over 10,000 5%
+10% of the excess over
Over P10,000 but not over P30,000 P500
P10,000
+15% of the excess over
Over P30,000 but not over P70,000 P2,500
P30,000
+20% of the excess over
Over P70,000 but not over P140,000 P8,500
P70,000
+25% of the excess over
Over P140,000 but not over P250,000 P22,500
P140,000
+30% of the excess over
Over P250,000 but not over P500,000 P50,000
P250,000
+32% of the excess over
Over P500,000 P125,000
P500,000

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