BUSINESS LAW AND TAXATION

OBLIGATIONS AND CONTRACTS

1. Which of the following is not correct?
a. A solidary creditor can assign his right even without the consent of the other creditors
b. Remission of the debt by any of the solidary creditors shall extinguish the obligation
c. If two or more solidary debtors offer to pay, the creditor may choose which offer to
accept
d. The debtor may pay any of the solidary creditors but if any demand has been made by
one of them, payment should be made to him

2. A borrowed Php 200,000 from solidary creditors B and C. On due date, B sent a letter to A
demanding payment of the loan directly to him, but before A could comply, C went to A to
collect and so A paid C. Did A make a valid payment?
a. Yes, because the debtor may pay any of the solidary creditors
b. No, because payment should be made to B
c. Yes, because any of the solidary creditors may demand payment of the whole obligation
d. No, because A should have split the payment because both creditors demanded payment.

3. Which of the following is correct?

a. The effect of a conditional obligation to give, once the condition has been fulfilled, shall
retroact to the day of the constitution of the obligation
b. If the obligation is unilateral, the fruits and interest during the pendency of the condition
shall be deemed to have been mutually compensated
c. If the obligation imposes reciprocal prestations upon the parties, the debtor shall
appropriate the fruits and interests received, unless from the nature and circumstances of
the obligation it should be inferred that the intention was different
d. In an obligation to do and not to do, the parties shall determine, in each case the
retroactive effect of the condition that has been complied with

4. A owes B P100,000 which is already due and demandable. Later, through violence and
intimidation, A forced B to sign a promissory note which reads “I promise to pay A P150,000
on April 10, 2012. Sgd. B”. On April 10, 2012, how much can A collect from B?
a. P50,000
b. P100,000
c. P150,000
d. d. P0

5. A, B and C are solidary debtors sharing at 1:2:3 of solidary creditors W and Y sharing at 1:2.
The obligation is P12,000. If B is a minor and C is insolvent and W condones the obligation
of A without the consent of Y, how much can W collect from A?
a. P8,000
b. b. P6,000
c. c. P2,000
d. d. P0

6. To be valid and enforceable, the following contracts should be in writing, except:

a. Contract to pay interest on loan
b. Contract of donation of real property
c. Contract giving authority to an agent to sell a piece of land
d. Contract made in consideration of marriage
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7. A, minor, sold the ring of his brother without authority. The ring has a fair market value of
P1M and selling price was P600,000. The contract is
a. Rescissible
b. Voidable
c. Unenforceable
d. Void

8. Which of the following is not correct in an obligation to give a specific thing?

a. To preserve or take care of the thing due
b. To deliver the thing itself
c. To deliver the fruits of the thing
d. To deliver the accessions and accessories

9. A is obliged to give B his specific car on December 31, 2010. There was no delivery and on
January 4, 2011 the garage of the car collapsed due to heavy rains and strong winds of
Typhoon Pining, and the car was totally destroyed. Is A still liable?
a. No, even if A was in default, he could plead impossibility of performance
b. Yes, because the contract is perfected
c. No, because there was no demand by B to deliver the car
d. Yes, the obligation to deliver the car is changed to pay the equivalent value because B is
in legal delay

10. A owes B P10,000. Later A paid B P7,000 leaving a balance of P3,000. C, a suitor of A
and intending to surprise A, paid B the sum of P10,000 thinking that A still owed B that
amount. C did this without knowledge of A. Which is correct?
a. C can recover P10,000 from A
b. C cannot recover anything from A
c. C can recover P10,000 from B
d. C can recover P3,000 from A

11. A owes B P10,000. With the consent of A and B, C pays B P5,000. Now B and C are the
creditors of A to the amount of P5,000 each. Suppose, A has only P5,000. Which is
correct?
a. B should be preferred
b. C should be preferred
c. B and C should be paid pro-rata
d. A may choose whom to pay

12. A is the guardian of B, a minor. B sold his land in writing to C valued at P1M for P.7M. The
sale is
a. Rescissible
b. Voidable
c. Unenforceable
d. Void

13. G was appointed as guardian of M, the latter being 17 years old. Later, without authority
from G, M sold G’s watch in writing to B valued at P100,000 for P70,000. Suffering lesion
by more than ¼ of the value, the contract is
a. Rescissible
b. Voidable
c. Unenforceable
d. Void
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14. Which of the following is enforceable?

a. Oral sale of immovable property for a price of P400
b. Oral sale of immovable property for a price of P10,000
c. Oral contract of loan for P1,000
d. Oral agreement made in consideration of marriage

15. A obtained an interest free loan of P50,000 from B evidenced by a promissory note payable
six months after date. At maturity A called B by phone to ask for an extension of one month
and offer to pay 20% interest on the loan. Enticed by the 20% interest, B agreed to the
extension of maturity. Which is correct?
a. The interest is a demandable interest by virtue of an agreement
b. The interest is unenforceable
c. The loan is valid but the interest is void
d. The loan and interest are both demandable

16. A is the listed owner of 10,000 shares with par value of P100/share in ABC Corporation.
ABC sued A for the payment of A’s indebtedness of P1M. A contends that such debt must be
compensated by his shares of stocks with the plaintiff corporation. The contention of A is
a. Valid due to legal compensation
b. Valid by virtue of judicial compensation
c. Untenable since he is not a creditor of the corporation
d. Automatically extinguished if the fair market value of the shares is P1M

ANSWER

1. A 5. B 9. C 13. C
2. B 6. B 10. D 14. C
3. A 7. C 11. A 15. C
4. A 8. C 12. B 16. C
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SALES
17. A sold to B his cow for P5,000. No date is fixed by the parties for the performance of their
respective obligations. The obligation of A is
a. To deliver the cow immediately as there is a perfected contract
b. To deliver the cow within the reasonable time from the perfection of the contract
c. To deliver the cow upon the payment by B of P5,000
d. To rescind the contract as there is no time fixed for the delivery and payment

18. S sold his piano to B for P200,000, payable in installment. A chattel mortgage was
constituted on the piano. B defaulted in two installment payments. S demanded payment of
the unpaid obligation amounting to P120,000 and a writ of attachment was issued and the
piano was sold for P100,000. Can A still recover the deficiency?
a. Yes, even without stipulation
b. Yes, only if stipulated that in case of foreclosure the buyer will pay any deficiency
c. No, even if stipulated
d. No, unless there is stipulation

19. S sold his car to B on installment and a chattel mortgage was constituted on the car. B
defaulted in two installment payments. S foreclosed the chattel mortgage and sold the car at a
public auction. If there is deficiency, can S recover the deficiency?
a. Yes, even without stipulation
b. Yes, if there is stipulation
c. No, even if there is stipulation
d. No, unless there is stipulation

ANSWER

17. C
18. A
19. C
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CREDIT TRANSACTIONS
20. Which of the following is not correct?
a. A movable or immovable property maybe the object of commodatum
b. The bailor in commodatum need not be the owner of the thing loaned
c. A stipulation that the bailee may make use of the fruits of the thing loaned is valid.
d. The bailor is obliged to pay for the ordinary expenses for the use and preservation of the
thing loaned

21. X borrowed money from Y. X constituted a real estate mortgage over his house to secure the
loan. It was stipulated that in case X could not pay the loan on time, the house would belong
to Y. Which is correct?
a. Y shall become owner of the house upon default by X by virtue of their written
agreement
b. Y shall become the owner of the house by virtue of the default of X
c. Y shall only enjoy the right of alienation over the land
d. Y shall be entitled to the right of appropriation of the land

22. B borrowed P100,000 from S secured by a chattel mortgage on B’s car. The debt is payable
in installment. When B defaulted in 2 installment payments, S foreclosed the chattel
mortgage and sold the car at a public auction. If there is excess, who is entitled to the excess?
a. S, even without stipulation
b. B, only if there is stipulation
c. S, unless there is stipulation
d. B, even without stipulation

23. B pledged his ring to S. B failed to pay his obligation. S sold the ring at a public auction. If
there is deficiency, can S recover the deficiency?
a. Yes, if there is stipulation
b. No, even if there is stipulation
c. Yes, even without stipulation
d. No, unless there is stipulation

ANSWER

20. D
21. C
22. D
23. B

AGENCY
24. The following are obligations of the agent, except
a. In the execution of the agency, the agent shall act in accordance with the instructions of
the principal
b. Shall be bound to advance the necessary funds, except when the principal is insolvent
c. Shall finish the business already begun on the death of the principal, should delay entail
any danger
d. In case a person declines an agency, he is bound to observe the diligence of a good father
of a family in the custody and preservation of the goods forwarded to him by the owner
until the latter should appoint an agent.

ANSWER : B
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PRIVATE CORPORATION
25. May not require stockholders approval
a. Declaration of cash dividend
b. Management contract
c. Increase of bonded indebtedness
d. Removal of a director

26. One of the following is a ground for the suspension or revocation of the certificate of
incorporation by the SEC
a. If the corporation has commenced its business transactions and afterwards ceased
operations continuously for a period of at least 5 years
b. If the corporation fails to commence and start to operate and the failure to operate is due
to causes beyond its control
c. If the corporation does not formally commence its business operation or transactions
within two years from date of issuance of certificate of incorporation
d. If the corporation has commenced its operations and subsequently become continuously
inoperative for two years

27. After ten years, five out of the nine incorporators who organized the corporation and signed
the articles of incorporation died. The corporation is
a. Dissolved as there will only be four left which is below the minimum of five
incorporators required by law
b. Dissolved as the Corporation Code requires that the incorporators be alive during the
operation of the business
c. Not dissolved as it still has forty years left in its term
d. Not dissolved as it enjoys the right of succession

ANSWER

25. A
26. A
27. D
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PARTNERSHIP
28. A person cannot be admitted into the partnership without the consent of
a. All the partners
b. Majority of the partners
c. 2/3 of the partners
d. Partners representing the controlling interest

29. On April 1, 2014, A and B entered into a contract of partnership for the purpose of buying
and selling textbooks, with the former as capitalist partner and the latter as industrial partner.
It was agreed that A shall contribute P100,000 to the common fund on May 2, 2014. Upon
the arrival of the designated date, A failed to deliver the contribution he promised. As a result
a. B should make a demand upon A for the delivery of his contribution to render A in
default
b. The contract of partnership becomes void because A failed to give his contribution to the
common fund
c. B can compel A to deliver his contribution with interest and damages without the
necessity of demand
d. The contract of partnership was never perfected because there was no delivery of
contributions by the partners

30. A, B and C formed a limited partnership with A as general partner, B as limited partner and
C as industrial partner. A and B contributed P50,000 each. The partnership failed and after
disposing all its assets to pay partnership debts, there still remains a note payable in the sum
of P15,000. Against whom can the creditor demand payment of the note of P15,000
a. Only A is liable to pay the P15,000 indebtedness
b. A and B are liable to pay P7,500 each
c. A and C are liable to pay P7,500 each
d. A, B and C are liable to pay P5,000 each

31. A, B, C and D are general partners contributing P20,000, P30,000, P50,000 and industry
respectively. At the time of liquidation, the partnership is indebted to Y for P50,000, to
partner A for P30,000 and to partner B for P20,000. If the assets of the partnership amount
only to P20,000, which of the following is correct?
a. Y can collect P20,000 from the partnership and from partners A, B and C at P10,000 each
b. After exhausting the assets of the partnership amounting to P20,000, Y can collect from
partners A, B, C and D at P7,500 each
c. Y can collect P20,000 from the partnership and P30,000 from either partners A or B or C
or D
d. If Y succeeds in collecting the P30,000 from the separate properties of the partners
concerned, partners A, B and C will be required to make additional contribution

ANSWER

28. A
29. C
30. C
31. B
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NEGOTIABLE INSTRUMENT
32. A promissory note reads “I promise to pay B or order P100,000. Sgd. A. B negotiated the
note to C, then C to D, D to E, E to F, F to G, G to H, then H to E all by special
indorsements. Which of the following is correct? If A dishonors the instrument
a. E should notify B, C, D, F, G and H to make them liable to him
b. If E notifies G and G notifies D, both D and G are liable to E
c. F, G and H are discharged because they are intervening parties
d. If E notifies C and C notifies B and D, the notice given by C inures to the benefit of E
making B and D liable to E

33. Using the preceding number, if E negotiates the note to I by special indorsement, which of
the following is correct?
a. F, G and H are not liable to I if I knows that the note was previously dishonored
b. If I is a holder in due course, all indorsers are liable to him
c. I can collect from E and E can collect from H
d. If I presents the note for payment and A again dishonors, I should notify all the indorsers
to make them liable to him

34. A promissory note reads “I promise to pay B or bearer P100,000. Sgd. A. B negotiated the
note to C by special indorsement, then C to D by blank indorsement, then D to E by delivery,
then E to F by delivery, which of the following is correct?
a. If F is a holder in due course, he can collect from either B, C, D or E if A will not pay
b. F can collect only from E if A will not pay
c. F can collect either from B, C or E but not from D if A will not pay
d. F cannot strike out the indorsement of the payee B but can strike out the indorsement of
C

35. Which of the following instruments is negotiable?

a. “Pay to the order of A or B the sum of P100,000.” Sgd. C and D
b. “I promise to pay to the order of A or B the sum of P100,000”. Sgd. C and D
c. “Pay to B or order the sum of P100,000 30 days after sight”. Sgd. A
d. “We promise to pay A and B the sum of P100,000”. Sgd. C and D

ANSWER

32. C
33. B
34. B
35. B
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INCOME TAX
36. ABC Restaurant Corporation provides 20% discount to senior citizens. It recorded the
following during the year:
CUSTOMERS
RegularSenior Citizens Totals
Receipts (net) Php 8,000,000 Php 1,000,000 Php 9,000,000
Cost of Services 5,000,000
Other deductible expenses 2,000,000

The regular and special itemized deductions deductible from gross income is
a. Php 2,000,000
b. Php 2,250,000
c. Php 7,000,000
d. Php 5,250,000

ANSWER : B
Regular itemized deduction P2,000,000
Special itemized deduction :
Senior citizen discount (P1M ÷ 80%) x 20% 250,000 P2,250,000

37. Using the above information, the taxable net income is

a. Php 2,000,000
b. Php 1,750,000
c. Php 1,000,000
d. Php 750,000

ANSWER : A

Gross receipts (P8,000,000 + P9,250,000

(P1,000,000 ÷ 80%)
Less : Cost of services _5,000,000
Gross income P4,250,000
Less : Regular itemized deduction P2,000,000
Special itemized deduction ___250,000 _2,250,000 P2,000,000
 Page 10

38. Healthy Drugs Incorporation had the following during the year:

CUSTOMERS
RegularSenior Citizens Totals
Gross Sales Php 8,000,000 Php 2,000,000 Php 10,000,000
Cost of Sales 5,000,000 1,000,000 6,000,000
Other deductible expenses 2,000,000

Healthy adopts a policy of giving senior citizens 25% discount. As a result, it granted Php
500,000 total senior citizens’ discount during the year. The taxable net income is
a. Php 1,500,000
b. Php 2,000,000
c. Php 1,600,000
d. Php 1,800,000

ANSWER : C

Gross sales (P8,000,000 + P2,000,000) P10,000,000

Less : Cost of sales (P5,000,000 + __6,000,000
P1,000,000)
Gross income P4,000,000
Less : Regular itemized deduction P2,000,000
Special itemized deduction
Senior citizen discount (P2,000,000 x 20%) __400,000 2,400,000 P1,600,000

39. ABC Corporation employs both regular and senior citizen employees and paid the following
compensation:
Regular employees - Php 800,000
Senior citizen employees:
a. With salary grade above poverty level - Php 200,000
b. With salary grade below poverty level - Php 100,000
The deductible compensation expense is
a. Php 1,100,000
b. Php 1,145,000
c. Php 1,115,000
d. Php 1,120,000

ANSWER : C

Regular employees P800,000

Senior citizen (P200,000 + P100,000) 300,000
Additional compensation expense (P100,000 x 15%) ___15,000 P1,115,000
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40. Using the above information, except that 20% of the regular employees are persons with
disability receiving a total compensation of Php 160,000, the deductible compensation
expense of the corporation is
a. Php 1,178,000
b. Php 1,155,000
c. Php 1,152,000
d. Php 1,192,000

ANSWER : B

Regular employees (P800,000 – P640,000

P160,000)
Regular employees with disability 160,000
Senior citizen (P200,000 + P100,000) 300,000
Additional compensation expense :
Senior citizen (P100,000 x 15%) 15,000
Person with disability (P160,000 x 25%) __40,000 P1,155,000

41. Which of the following is subject to income tax?

a. Salaries or emoluments received during a leave of absence
b. Terminal leave pay received by a government employee
c. Separation pay received by an employee who is separated due to cessation of the business
d. Monetized value of unutilized vacation leave credits of 10 days or less paid to an
employee during the year.

ANSWER : A

42. ABC Corporation entered into a memorandum of agreement with Andres Bonifacio High
School, a public secondary school, by contributing its services to the “Adopt a School
Program”, a priority program designated by the NEDA. The agreed value fixed in the MOA
for the construction of the public school building was Php 2,000,000. ABC Corporation was
able to complete the building at total cost of Php 1,600,00. ABC Corporation shall be
allowed to deduct
a. Php 2,000,000
b. Php 1,600,000
c. Php 3,000,000
d. Php 2,400,000

ANSWER : D

Regular itemized cont. expense P1,600,000

Special itemized cont. expense (P1,600,000 x 50%) ___800,000 P2,400,000
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43. ABC Corporation installed a lactation station for its nursing employees. ABC Corporation
secured a “Working Mother-Baby Friendly Certificate” from the Department of Health. It
incurred the following costs:
Remodelling of a space for the lactation station - Php 100,000
Tables and comfortable chairs 60,000
Manual and electric breast pumps 12,000
Supplies (sterile milk containers, soaps and others) 10,000
Refrigerator 20,000
ABC Corporation may claim as part of deduction
a. Php 202,000
b. Php 102,000
c. Php 404,000
d. Php 303,000

ANSWER : C

Remodeling of a space for lactation station P100,000

Tables and chairs 60,000
Manual and electric breast pumps 12,000
Supplies 10,000
Refrigerator __20,000 P202,000
Special itemized deduction (P202,000 x 100%) __202,000 P404,000

44. Atty. May Haligue rendered the following services during the year:

Gross receipts from legal fees Php 3,000,000

Value of 60-hour assistance to indigent clients 200,000
Value of other pro-bono services 250,000
Direct cost of services 1,200,000
Other deductible expenses 800,000

The net income (before personal exemption) of Atty. Haligue is

a. Php 1,000,000
b. Php 750,000
c. Php 820,000
d. Php 550,000

ANSWER : C

Gross receipts P3,000,000

Less : Direct cost __1,200,000
Gross Income P1,800,000
Less : Regular itemized deduction P800,000
Special itemized deduction :
Free legal service :
Actual P250,000
Limit (P1,800,000 x 10%) __180,000 180,000 980,000 P820,000
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45. ABC Corporation, to improve productivity, negotiated productivity incentive program

wherein the employees will receive productivity bonus equivalent to 40% of production cost
savings measured by an independent expert. ABC Corporation requires employees to
undergo studies through an “employee advancement study program” with the TESDA. All
employees who finished their special studies are required to remain at ABC Corporation for a
period of not less than 2 years. The following were determined during the year;
Total distributable productivity bonus - Php 1,000,000
Cost of Special Studies:
a. Supervisory employees 500,000
b. Rank & file employees 1,500,000 2,000,000
Total Php 3,000,000
The allowable deduction for the benefits given is
a. Php 4,500,000
b. Php 4,250,000
c. Php 3,000,000
d. Php 3,750,000

ANSWER : B

Total distributable productivity bonus P1,000,000

Cost of special studies
Supervisory employees 500,000
Rank & file employees 1,500,000
Special additional deductions
Productivity bonus (P1,000,000 x 500,000
50%)
Special studies (rank & file) (P1,500,000 x __750,000 P4,250,000
50%)

GENERAL PRINCIPLES
46. Which of the following statements is correct?
a. The power of taxation must first be expressly granted, either by law or by the constitution
for the State to validly exercise it
b. The power of taxation and police power may be exercised simultaneously
c. The Philippine government may subject the land where embassies of foreign
governments are located to real estate taxes
d. Government owned and controlled corporations are exempted from taxes because it
would be impractical for the government to be taxing itself

ANSWER : B

47. Which of the following is not a power vested in the Bureau of Internal Revenue?
a. The assessment and collection of all national internal revenue taxes, fees and charges
b. The enforcement of all forfeitures, penalties and fines
c. The granting of tax exemptions and other tax incentives to taxpayer
d. The execution of judgments in all cases decided in its favor by the Court of Tax Appeals
and the ordinary courts

ANSWER : C
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ESTATE TAX
48. Mrs. A died leaving 2,000 shares of stocks of ABC Corporation, a closely held corporation,
as part of her estate. The balance sheet of ABC Corporation is shown below together with the
fair values of its assets and liabilities:
F A I R V A L U E S
Book Values Assessed Values Zonal Values Independent Appraisal
Cash Php 2,000,000 Php 2,000,000
Equipment 1,000,000 1,200,000
Land A 4,000,000 5,000,000 Php 10,000,000 Php 12,000,000
Land B 4,000,000 4,400,000 8,000,000 7,000,000
Building A 2,000,000 4,800,000 6,000,000
Building B 1,000,000 4,000,000 3,900,000
Investment 3,000,000 2,600,000
Total Assets Php 17,000,000

Liabilities Php 7,000,000

Equity 10,000,000
Total Liabilities & Equity Php 17,000,000

Each share of stock of ABC Corporation has a par value of Php 1,000. Mrs. A purchased the
shares at Php 1,200/share. ABC Corporation has 20,000 shares outstanding. The shares of
stock shall be included in Mrs. A’s gross estate at
a. Php 2,920,000
b. Php 2,880,000
c. Php 2,000,000
d. Php 2,400,000

ANSWER : B

Cash P2,000,000
Equipment 1,200,000
Land A 12,000,000
Land B 8,000,000
Building A 6,000,000
Building B 4,000,000
Investment _2,600,000 P35,800,000
Less : Liabilities __7,000,000
P28,800,000
P28,800,000 ÷ 20,000 shares P1,440/share
P1,440 x 2,000 shares P2,880,000
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49. An inventory of Mr. A’s properties was taken two years after his death. He had the following
properties during the inventory taking:
Cash (20% from income of A’s properties after death) Php 4,000,000
Car (bought for Php 2M one day before A’s death) 1,200,000
House and Lot (FMV – Php 8M on A’s death) 10,000,000
Business interest (worth Php6M on A’s death) 7,000,000
The following expenses and losses were incurred by the estate:
Funeral expenses Php 800,000
Judicial expenses 400,000
Loss of pieces of jewelry (8 months after A’s death) 1,000,000
Obligations of A paid using his estate 2,000,000
The gross estate of A is
a. Php 23,200,000
b. Php 23,400,000
c. Php 22,200,000
d. Php 20,400,000

ANSWER : B

Cash (P4,000,000 x 80%) P3,200,000

Car 2,000,000
House and lot 8,000,000
Business Interest 6,000,000
Funeral expense 800,000
Judicial expense 400,000
Losses 1,000,000
Obligation 2,000,000 P23,400,000

50. A insured his life for P10M. in case A dies, the proceeds of the life insurance shall be:
a. Excluded from gross estate if the beneficiary is the estate, executor or administrator
whether revocable or irrevocable
b. Part of gross income if the beneficiary is a third person and the designation is revocable
c. Part of the gross estate if the beneficiary is a third person and the designation is
irrevocable
d. Excluded from gross income whether beneficiary is revocable or irrevocable

ANSWER : D

DONOR’S TAX
51. On April 19, 2015, Mr. A donated 1,000 shares of stock of ABC Corporation. ABC
Corporation shares are listed in the stock exchange. The following are the trading prices of
each share on April 19, 2015:
Opening price - Php 800
Highest trading price - 880
Lowest trading price - 760
Average trading price - 820
Last trading price - 840
The gross gift is
a. Php 820,000
b. Php 880,000
c. Php 800,000
d. Php 840,000

ANSWER : D
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VAT
52. The importation of the following is exempt from VAT, except
a. grapes, apples and oranges
b. poultry and livestock
c. race horse, fighting cocks and zoo animals
d. rice, corn and coffee beans

ANSWER : C

53. The importation of the following is subject to VAT, except

a. vegetables, cows and shrimps
b. logs, woods and abaca
c. . shells, corals and tobacco
d. cotton, orchids and bamboos

ANSWER : A

54. ABC Transport Corporation has land, sea and air transport operations. To improve its
services, which of the following importation is subject to vat?
a. 20 units of airconditioned buses
b. 12 units of life-saving, safety and rescue equipment for shipping transport operation
c. 10 airplanes
d. 5 ships

ANSWER : A

55. A, a vat taxpayer made a Php 100,000 sales to the government invoiced at Php 112,000
inclusive of output vat. A purchased the same for Php 90,000, net of Php 10,800 input vat.
The government effected payment, net of the 5% final vat. The entry to record the sale to the
government is
a. Cash Php 107,000
Standard Input Vat 5,000
Sales Php 100,000
Output vat 12,000

b. Cash Php 100,000

Standard Input Vat 5,000
Output Vat 7,000
Sales Php 100,000
Output vat 12,000

c. Cash Php 100,000

Standard Input Vat 5,000
Sales Php 100,000
Output vat 5,000

d. Cash Php 106,400

Standard Input vat 5,600
Sales Php 100,000
Output vat 12,000

ANSWER : A
 Page 17

56. Using the above information, the actual input vat that will be charged to cost or expense is
a. Php 3,800
b. Php 5,000
c. Php 7,000
d. Php 2,000

ANSWER : A

57. The ABC Corporation, a vat registered taxpayer sold to spouses H, a senior citizen and W a
person with disability, as follows (based on menu prices):
H W
2-pieces spicy chicken Php 150 Php 150
Siomai special 64
Sago – gulaman 64
Mushroom chicken soup 100 100
Tofu 64
Steamed kangkong 64
Buko pandan 70 70
Totals Php 448 Php 448

The output tax due is

a. Php 38.40
b. Php 48
c. Php 43.01
d. P0

ANSWER : A

Sale to :
Senior citizen Exempt
P W D (P448 ÷ 112%) x 80% x 12% __38.40 P38.40

58. Which of the following is not subject to VAT?

a. Non-life insurance premiums
b. Non-life reinsurance premiums
c. Non-life insurance commissions
d. Non-life reinsurance commissions

ANSWER : B
 Page 18

59. A, a VAT registered person had the following data for April 2015 (vat not included):
a. Export sale of feeds for animals
i. For human consumption P 1,500,000
ii. For race horses and fighting cocks 500,000
b. Domestic sale of feeds for animals
i. For human consumption 750,000
ii. For race horses and fighting cocks 250,000
c. Input tax which cannot be directly attributed to
any of the above sales 100,000
The output tax for April is
a. P30,000
b. P90,000
c. P60,000
d. P120,000

ANSWER : A
Race horses + fighting cocks P250,000
___x 12% P30,000

60. Using the above data, the vat still due (excess input tax) is
a. (P45,000)
b. (P20,000)
c. (P70,000)
d. P5,000

ANSWER : A
Output tax P30,000
2,250,000 _75,000 (P45,000)
Less : Input tax ( 3,000,000 𝑥 100,000)

61. A, a VAT registered taxpayer made the following acquisition of capital goods from VAT
registered suppliers (net of vat) during the quarter;
Date Cost Estimated Life
July 2 P1,500,000 8 years
10 500,000 2 years
August 5 400,000 3 years
20 500,000 4 years
September 10 500,000 4 years
15 600,000 6 years
The July 2 acquisition was retired in September. The input tax for July is
a. P4,275
b. P5,500
c. P63,000
d. P240,000

ANSWER : B
July 2 (P1,500,000 x 12%) ÷ 60 P3,000
July 10 (P 500,000 x 12%) ÷ 24 __2,500 P5,500
 Page 19

62. Which of the following is subject to vat?

a. Sale of passenger or cargo vessels and aircraft for domestic or international transport
operations
b. Sale of agricultural and marine food products in their original state
c. Sales by agricultural cooperatives duly registered with the Cooperative Development
Authority
d. Sale of fuel, goods and supplies by persons engaged in international shipping or air
transport operations

ANSWER : D

63. The following are exempt from vat, except

a. Services subject to percentage tax
b. Lease of residential units with a monthly rental not exceeding P12,800
c. Export sales
d. Services of banks and other non-banks financial intermediaries

ANSWER : C

64. Which of the following is not considered as transaction deemed sale?

a. Transfer, use or consumption not in the ordinary course of business of goods or
properties originally intended for sale or for use in the course of business
b. Distribution or transfer to shareholders or investors as share in the profits of the vat-
registered person or to creditors in payment of debt
c. Consignment of goods if actual sale is not made within 60 days following the date such
goods were consigned
d. Retirement from or cessation of business, with respect to capital goods existing as of such
retirement or cessation

ANSWER : D

65. Which of the following is subject to VAT?

a. Sale of residential lot valued at P2,000,000
b. Sale of residential house and lot valued at P2,500,000
c. Lease of residential units with a monthly rental per unit of P12,000 where the aggregate
rentals received during the year was P2,500,000
d. Lease of residential units with a monthly rental per unit of P15,000 where the aggregate
rentals received during the year is P1,800,000

ANSWER : A
 Page 20

OPT
66. On December 9, 2009, A borrowed Php 1,000,000 from ABC Bank payable within 10 years.
The loan pays an annual interest of Php 100,000 payable every December 9 beginning
December 9, 2010. On December 9, 2014, A pre-terminated the loan by repaying the
principal in full. The gross receipts tax still due from ABC Bank due to the pre-termination in
2014 is
a. Php 5,000
b. Php 25,000
c. Php 21,000
d. Php 16,000

ANSWER : C

Per year
Gross receipts P100,000
x 5% P5,000 x 5 years P25,000

Less : gross receipts tax paid P100,000

x 1% P1,000 x 4 years __4,000 P21,000

67. ABC Airlines, an international air carrier showed the following gross receipts:
Point of Origin Destination Gross Receipts
Philippines China P 2,000,000
Philippines Singapore 1,600,000
Singapore Japan 3,000,000
Twenty-five percent of the shipment from the Philippines to Singapore were later shipped
from Singapore to Japan. The percentage tax due is
a. P198,000
b. P186,000
c. P108,000
d. P96,000

ANSWER : D

Gross receipts :
Philippines to China P2,000,000
Philippines to Singapore (P1,600,000 x 75%) P1,200,000
Total P3,200,000
_ x 3% P96,000
 Page 21

FILING, PENALTIES & REMEDIES

68. A filed his ITR for 2014 on April 15, 2015 and will pay his tax liability in installment. The
return shows an income tax due of P100,000 and income tax withheld of P60,000. If A pays
the 2nd installment only on October 15, 2015, the amount to be paid (excluding compromise
penalty) is
a. P26,000
b. P35,000
c. P55,000
d. P37,500

ANSWER : C

Tax due, July 15, 2015 P50,000

Add : Penalty for late payment (P50,000 x 25%) 12,500
Interest (P50,000 x 20% x 3/12) 2,500
Due, Oct. 15, 2015 P65,000
Less : Excess CWT 10,000 P55,000

69. Tax credit for foreign tax paid is allowed on

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

ANSWER : B

70. DEF Corporation, due to financial incapacity requested that it be allowed to pay its income
tax liability per return for calendar year 2014, amounting to P1 million in four(4) equal
monthly installments starting April15, 2015. Its request has been duly approved. The tax due
for the second installment on May 15, 2015 is
a. P250,000
b. P254,167
c. P262,500
d. P300,000

ANSWER : C

Tax due – May 15, 2015 P250,000

Add : Interest (P750,000 x 20% x 1/12) __12,500 P262,500

-END-