TAXATION LAW REVIEW

INCOME TAX EXERCISE

ALLOWABLE DEDUCTIONS

1.) Distinguish "Exclusion from Gross Income" from "Deductions From Gross Income". Give an example
of each.
2.) What is a capital expenditure and how is it differentiated from an ordinary expense?
3.) Explain if the following items are deductible from gross income for income tax purposes. Disregard
who is the person claiming the deduction:
A.) Reserve for bad debts;
B.) Worthless Securities
4.) What is meant by the Recapture Rule?
5.) PQR Corporation claimed as a deduction in its tax return the amount of P1,000,000 as bad debts. The
corporation was assessed by the Commissioner of Internal Revenue for deficiency taxes on the ground
that the debts cannot be considered worthless, hence, they do not qualify as bad debts. The company
asks for your advice on What factors will hold in determining whether or not the debts are bad debts?
Answer and explain briefly.