Taxation Review

FATHER SATURNINO URIOS UNIVERSITY Midterm Examination

ACCOUNTANCY PROGRAM January 16, 2017

Name: _____________________________________________ Score:

MULTIPLE CHOICES
Instruction: Read each item carefully. Select the best answer from the choices given. Write the letter of your choice
on the space before each number. STRICTLY, NO ERASURES.

BEGIN

1. All of the following refers to “deduction” from gross income, except:

a. An immunity or privilege, a freedom from a charge or burden to which others are subjected.
b. A reduction of wealth of the taxpayer, other than personal expenses and capital expenditures, used in earning
the income.
c. A subtraction.
d. Interpreted strictly against the taxpayer.

2. During the audit conducted by the BIR, it was found that the rental income claimed by the corporation was not
subjected to expanded withholding tax. Accordingly, the claimed rental expense:
a. Is deductible from the gross income of the corporation, despite non-withholding of income tax by the
corporation.
b. Is deductible from the gross income of the corporation, provided that the 5% expanded withholding tax is paid
by the corporation during the audit.
c. Is not deductible from gross income of the corporation due to non-withholding of tax.
d. Is deductible, if it can be shown that the lessor has correctly reported the rental income in his tax return.

3. Which of the following statements is not correct?

a. The optional standard deduction is an amount equal to forty percent of the gross income from business or
practice of profession of the taxpayer.
b. The optional standard deduction is not available against compensation income arising out of an employer-
employee relationship.
c. The election of optional standard deduction is irrevocable for the taxable year for which the choice is made
d. Unless the taxpayer signifies in his return his intention, he shall be considered as having availed of the
itemized deduction.

4. The records of ABC corporation, organized in 2004 showed the following data for 2012:
Gross Income P 2,000,000
Less: Allowable business expenses
(other than bad debts) P 1,850,000
Bad debts written off 100,000 1,950,000
Taxable net income P 50,000

In 2013, 80% of the bad debts written off in 2012 was collected. Which of the following is correct?
a. There is a deficiency income tax of 24,000 for 2012.
b. The taxable net income should be corrected to P 130,000.
c. There is a taxable recovery amounting to P 80,000 in 2013.
d. The bad debts expense in 2012 should be reduced to P 20,000.

5. Papa Saka Baa University (PSBU) is a proprietary educational institution. It has the following selected information
for the taxable year 2015:
Tuition fees P 12,800,000
Miscellaneous fees 1,800,000
Interest on bank deposits 12,300
Rent Income 350,000
Salaries and bonuses, all personnel 7,500,000
Other operating expenses 3,500,000
Quarterly income tax payments 48,000
Additional school building was build and finished on April 1, 2015 at a cost of P 2,000,000 with a depreciable life
of 50 years. Assuming the university opted to claim the cost of construction as an outright expense, the income
tax payable was:
a. P 344,000 c. P 576,000
b. P 147,000 d. P 160,000

6. A taxpayer is allowed to use declining balance method in claiming depreciation. In such a case, the limitation is,
a. It should not exceed twice the rate in straightline method.
b. It should not exceed twice the rate in the sum-of-the-years digit method.
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c. It should not exceed the rate in straightline method.

d. It should not exceed the rate in the sum-of-the-years digit method

7. Which of the following is deductible from gross income even if the payment is not connected with business?
a. Contribution of the employer to the pension trust of the employee.
b. Charitable contributions
c. Income tax paid in foreign country
d. Travelling Expenses

8. In the conduct of her business in 2016, Kurdapia found it necessary to give gifts to the government officials with
whom she had official dealings as a form gratuity for their prompt response to her concern.
a. These gifts are deductible expenses subject to the substantiation rule; on the other hand, this gratuitous gifts
are taxable income of the officials.
b. The value of the gifts, if de minimis (of small value), are allowed to be deducted as expense, but not part of
the taxable income of the officials.
c. These gifts are deductible if found to be necessary and properly supported by receipts, however as a gift,
Kurdapya shall be subject to donor’s tax at 30% (stranger).
d. Irrespective of the value, the gifts are non-deductible.

9. Medusa borrowed money from Magdusaka Bank amounting to P 1,000,000 at an annual interest rate of 7%. He
invested the money in deposit substitutes earning an annual interest income of 8%. How much is the deductible
interest expense?
a. P 80,000 c. P 43,600
b. P 70,000 d. P 26,400

10. X Corporation owns 100% of Y Corporation. Y Corporation owns 100% of Z Corporation that has a net operating
loss in the previous year. Z Corporation is merged into Y Corporation. Which of the following statements is
correct?
a. Z Corporation’s net operating loss can no longer be used and carried over.
b. Z Corporation’s net operating loss is transferred to X Corporation as the latter owns 100% of Y Corporation,
the surviving corporation.
c. Z Corporation’s net operating loss is transferred to Y Corporation as the latter owns 100% of Z Corporation.
d. Z Corporation’s net operating loss can be used still by the corporation against its future earnings to the
exclusion of all other parties.

11. The following rules as to recognition of capital gains or losses from the disposition of personal property classified
as capital asset apply where the taxpayer is an individual. Which is the exception?
a. Depending on the holding period, the percentages of gain or loss is 100% if the capital asset has been held
for 12 months or less; and 50% if the capital asset has been held for more than 12 months.
b. Capital losses are deductible only to the extent of the capital gains; hence, the net capita; loss is not
deductible.
c. Ordinary losses are deductible from capital gains but net capital loss cannot be deducted from ordinary gains.
d. Net capital loss carry over in a taxable year should not exceed the capital gain in the year the loss was
incurred.

12. ABC, whose taxable year is the calendar year, provided the following acquisitions and disposals of its investments
in shares of stocks:
 September 21, 2016, purchased 100 shares of the common stock of XYZ Company for P 50,000.
 December 21, 2016, purchased 50 shares of substantially identical stocks for P 27,500 and on December
26, 2016, 25 additional shares of such stocks for P 11,250.
 January 2, 2017, it sold for P 40,000 the 100 shares purchased on September 21, 2016.
How much is the deductible loss?
a. P 10,000 c. P 2,500
b. P 7,500 d. None

13. Hala Company shows the following data during the taxable year:
Sales P 500,000
Interest income, net of final tax 24,000
Cost of Sales 300,000
Salary Expense 120,000
Interest Expense 60,000
Rent Expense 24,000
Advertising Expense 6,000
Depreciation Expense 5,000
NOLCO 50,000

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What is the correct amount of itemized deduction?

a. P 555,100 c. P 255,100
b. P 205,100 d. P 265,100

14. X borrowed the certificates of stock of Y to be used as security for a loan. Thereafter, the market price of the
shares zoomed up and X sold the said shares in the trading market. X returned the amount equivalent to the par
value of the shares to Y and pocketed the profit he made from the sale. This transaction is what known as:
a. Wash sale c. Insider trading
b. Short sale d. None of the foregoing

15. In year 2002, a taxpayer who was a citizen of the Philippines and was single, has the following data:
Capital gain on sale of bonds held for 20 months P 50,000
Capital gain on direct sale to buyer of shares of
domestic corporation held for 6 months 120,000
Capital loss on sale of family car held for 11 months 80,000
Capital loss on sale of land in the Philippines held for 3 years 60,000
Net capital loss in 2001 (net taxable income of the year was P 10,000) 20,000
The net capital loss carry-over from 2001 would have been:
a. P 40,000. d. P 10,000.
b. P 55,000. c. P 0.

16. Statement 1: Where an income tax return (e.g. in loan applications), and the individual did not file an income tax
return because rules on “substituted filing of income tax return”, the certificate of withholding tax signed by the
employer and the employee will be the document to use.
Statement 2: The rules on substituted filing of income tax return cannot apply if one of the spouses has business
or mixed income.
a. The first statement is true while the second statement is false.
b. The first statement is false while the second statement is true.
c. Both statements are true.
d. Both statements are false

17. Which of the following statements is true?

a. The final tax on compensation of special aliens is 25% of the gross income
b. Interest income from a foreign currency depository unit in the Philippines of a non-resident alien is not subject
to final tax.
c. Prizes exceeding P 10,000 derived by non-resident alien not engaged in trade or business here in the
Philippines is subject to a final tax of 20%.
d. Share in the earnings received by non-resident alien from a domestic partnership subject to basic tax.

18. Filipino counterparts of aliens employed by regional or area headquarters and regional operating headquarters
of multinational companies in the Philippines, which are engaged in international trade with affiliates and
subsidiary branch offices in the Asia – Pacific region may taxed at 15% preferential tax rate subject to the following
rules:
I. The employee must occupy managerial or technical position and must be exercising such functions
pertaining to said position.
II. The employee must have received or is due to receive under a contract of employment a gross
taxable compensation income of at least P 975,000 (actually/constructively received).
III. The employee must be exclusively working for the RHQ or ROHQ as a regular employee and not
just a consultant or contractual personnel.
a. I and II only c. All of the above.
b. I and III only d. None of the above.

19. Mr. and Mrs. Robino, both CPAs and residents of the Philippines had the following data for taxable year 2014:
Salaries of Mrs. Robino P 150,000
Bonus (13th month pay), Mrs. Robino 42,000
Income from practice of profession of Mr. and Mrs. Robino
(net of withholding tax) 450,000
Expenses – professional practice 120,000
Rental Income (net of withholding tax) 190,000
Expenses on leasing business 80,000
Other Income of Mr. Robino 80,000
Twenty-percent (20%) of the other income is non-taxable while 15% of the professional expenses is non-
deductible. They have 11 minor children. The taxable income of Mr. Robino is:
a. P 173,000 c. P 266,000
b. P 275,000 d. P 234,000

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20. Using the same given in the previous number, the income tax due and payable of Mrs. Robino is?
a. P 56,300 c. P 70,700
b. P 52,100 d. P 68,000

21. Armando, a resident citizen, is employed as a manager of a Regional Operating Headquarters of a multinational
company in the Philippines starting April 2016. Per collective bargaining agreement (CBA), he is to receive a
monthly compensation of P 65,000 and a monthly allowance of P 6,000. Also, at year-end, he is entitled to receive
his mandatory 13th month pay however subject to proportional period of employment. Which of the following is
correct?
a. Armando has the option to be taxed at 15% or at the tabular rate, such choice must be known to his employer
upon the signing of the employment contract.
b. Armando is subject to normal rate of 5% to 32% as he doesn’t have the option to be taxed at 15% preferential
tax rate, however, he may claim personal exemptions.
c. Armando is subject to a preferential rate of 15% as he doesn’t have the option to be taxed at 5% to 32%
tabular tax rate.
d. The determination of compensation income of Armando whether he breached the P 975,000 threshold shall
be computed starting April 2016 through December.

22. Lala, widowed October 2016 with 6 dependent children, had the following income and expenses in 2016:
Compensation:
Salary (net of P 15,000) P 175,000
Transportation expenses from house to office (vice-versa) 2,000
Expenses for snacks and lunch in office 8,000
Tuition fees of children 40,000
Passive Income:
Yield from deposit substitute 14,000
Royalties on books (gross of tax) 50,000
Business:
Gross Sales from store, gross of 1% WT 520,000
Cost of Sales 200,000
Operating Expenses 150,000
Donation to street children 2,400
Her husband, Emong, was claiming the additional exemption. The income tax payable of Lala if she claimed
itemized deduction is
a. P 97,600 c. P 47,800
b. P 19,800 d. P 85,700

23. Melissa, a resident Filipino citizen, is employed as a marketing manager of a XYZ multinational company in the
Philippines starting May 2016. Per employment contract, she is to receive a monthly compensation of P 75,000
and a monthly allowance of P 8,000. Also, at year-end, she is entitled to receive her mandatory 13th month pay
however subject to proportional period of employment. Which of the following is correct?
a. Melissa has the option to be taxed at 15% or at the tabular rate. If she chooses the preferential rate, her
income tax due shall be P 107,100.
b. Melissa has the option to be taxed at 15% or at the tabular rate. If she chooses the preferential rate, her
income tax due shall be P 149,400.
c. Melissa cannot elect to be taxed at 15% because her total compensation for the year does not exceed P
975,000.
d. In computing whether Melissa has breached the limit of P 975,000, the 13 th month pay may be ignored as it
is exempted since it does not exceed the P 82,000 threshold.

24. Which of the following taxpayers is subject to the rule on reciprocity under the Tax Code with respect to their
allowed personal exemption?
a. Non-resident citizen with respect to his income derived from outside the Philippines.
b. Non-resident alien who shall come to the Philippines and stay herein for an aggregate period of more than
180 days during any calendar year.
c. Resident alien deriving income from a foreign country.
d. Non-resident alien not engaged in trade or business in the Philippines whose country allowed personal
exemption to Filipinos who are not residing but are deriving income from said country.

25. A taxpayer, married supports the following:

i. Orland, legitimate child, 21 years old
ii. Jaime, recognized natural child, 18 years old
iii. Armi, stepchild, daughter of wife by a former marriage, 23 years old
iv. Widowed mother of her wife, 62 years old

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For income tax purposes, the taxpayer can claim:

Basic Exemption Additional Exemption Basic Exemption Additional Exemption
a. P 50,000 P 100,000 c. P 50,000 P 50,000
b. P 50,000 P 75,000 d. P 50,000 P 0

26. Which of the following statements in relation to the personal and additional exemptions of an individual taxpayers
is false?
a. The estate of the decedent who died during the taxable year leaving behind his surviving spouse and minor
child can claim personal exemption of P 50,000 and additional exemption of P 25,000 for the said taxable
year.
b. The taxpayer whose minor child died at the start of the taxable year may claim additional exemption of P
25,000 for the said taxable year.
c. The unmarried taxpayer who supports a senior citizen living with him (not relative, 60 years old with an annual
pension of P 60,000) is not entitled to the personal exemption of P 50,000 as head of the family.
d. The dependent child who studies abroad for a continuous 4-year college scholarship qualifies to be “living
with the taxpayer”.

27. Which of the following is subject to the corporate income tax?

a. A non-stock and non-profit educational institution
b. A public educational institution
c. Civic league or organization not organized for profit and operated exclusively for the promotion of social
welfare
d. Mutual savings bank and cooperative bank having a capital stock represented by shares organized and
operated for mutual purposes and profit.

28. The President upon the recommendation of the Secretary of Finance may allow corporations the option to be
taxed at 15% of its gross income, after the following conditions are met, except one, have been satisfied. Which
is the exception?
a. A ratio of 40% of income tax collection to total tax revenue.
b. A tax effort ratio of 40% of the Gross National Product.
c. A VAT tax effort of 4% of Gross National Product.
d. A 0.9% ratio of consolidated public sector financial position to Gross National Product.

29. Zumba Corporation declared and distributed to its stockholders shares of Humba Corporation. One of its
stockholders, W, received 100 shares of Humba Corporation shares as dividends. At the date of declaration, the
fair market value of Humba Corporation shares was P 120 per share and by the time W received the divided, the
fair market value per share was P 180. Which of the following is correct? The dividend is
a. A stock dividend, hence exempt from tax.
b. A property dividend, hence part of the taxable income of W.
c. A property dividend, hence subject to final tax based on its fair market value of P 120 per share.
d. A property dividend, hence subject to final tax based on its fair market value of P 120 per share.

30. A domestic corporation organized in 2000 provided the following information:

2006 2007 2008 2009 2010
Net Sales P 4,000,000 P 5,000,000 P 6,000,000 P 7,000,000 P 9,000,000
Cost of Sales 2,000,000 3,500,000 4,200,000 5,000,000 5,200,000
Allowable Deduction 1,900,000 1,550,000 1,820,000 2,100,000 2,300,000
The income tax due for 2010 is:
a. P 293,000 c. P 344,000
b. P 399,000 d. P 450,000

31. The records of a domestic corporation organized in 2000 show:

2009 2010 2011
Gross Income P 2,000,000 P 3,000,000 P 4,000,000
Other Income
a. Capital Gains from sale of commercial land *6% 400,000 500,000
b. Interest income form bank deposits 80,000 96,000
c. Capital gains from sale of shares – not traded 60,000 70,000
Allowable Deductions claimed 1,940,000 3,100,000 3,500,000

The income tax payable in 2011 is

a. P 150,000 c. P 38,000
b. P 120,000 d. P 68,000

32. A domestic bank authorized by the Bangko Sentral ng Pilipinas to operate a foreign currency transaction provided
the following ($1 = Php 40) for year 2010:
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Interest from loans granted to various borrowers P 10,000,000 Basic

Interest from Philippine peso deposit with another bank 1,000,000 Final (20%)
Interest from US dollar loans to resident borrowers $ 50,000 Final (10%)
Interest from US dollar loans to non-resident borrowers $ 10,000 Exempt
Interest income from abroad P 20,000 Basic
Interest income from US dollar deposit in the Philippines $ 30,000 Final (7.5%)
Operating expenses P 2,500,000 Deductible

The basic income tax of the bank is:

a. P 2,256,000 c. P 2,729,000
b. P 2,490,000 d. P 2,800,000

33. China Airlines Inc., a resident foreign corporation has the following data for the taxable year 2015:
Passengers’ airfare from China to Philippines P 1,800,000
Passengers airfare from Philippines to China 1,500,000
Airfare for cargoes from China to Philippines 700,000
Airfare for cargoes from Philippines to China 1,300,000
How much was the total common carriers tax and income tax payable? OPT (3%) and FT (2.5%)
a. P 120,000 c. P 154,000
b. P 78,000 d. P 160,000

34. Be Jolly Corporation has the following information for the taxable year 2015:
Quarter RCIT MCIT Creditable Withholding Tax
First P 200,000 P 160,000 P 40,000
Second 240,000 500,000 60,000
Third 500,000 150,000 80,000
Fourth 300,000 200,000 70,000
Additional Information:
a. MCIT carry-over amounts to P 60,000.
b. Excess tax credits from prior year amounts to P 20,000.

How much was the income tax payable for the first quarter?
a. P 200,000 c. P 120,000
b. P 160,000 d. P 80,000

35. Bipolar Gains Inc., a domestic corporation, has the following data:
2014
Basic income tax P 110,000
Less: Tax credits ( 125,000)
Excess tax credits ( 15,000)

2015 1st Quarter

Income net of 1% withholding tax P 495,000
Deductions 460,000
For the first quarter of 2015, the corporation will report:
a. Excess tax credit of P 6,000. c. Excess tax credit of P 8,000.
b. Tax payable of P 7,000. d. Tax payable of P 5,000

36. In 2015, a domestic corporation declared and paid dividends to its shareholders as follows:
To Apol, a resident citizen P 100,000 10%
To Alex, a non-resident citizen 100,000 10%
To George, a resident alien 100,000 10%
To LJ, a non-resident alien engaged in trade in the Phils. 100,000 20%
To Francis, a non-resident alien engaged in trade in the Phils. 100,000 25%
To CHEN, a domestic corporation 100,000
To a resident foreign corporation 100,000
To a non-resident foreign corporation 100,000 30% or 15%
How much final tax shall be withheld by the corporation?
a. P 80,000 c. P 85,000
b. P 90,000 d. P 95,000

37. The share of a co-venturer corporation in the net income after tax of a joint venture or consortium taxable as a
corporation is
a. Subject to creditable withholding tax at 10% c. Subject to capital gains tax
b. Subject to final withholding tax at 10% d. Exempt from income tax

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38. Statement 1: The share of a co-venturer individual in the net income of a tax-exempt joint venture or consortium
is subject to normal income tax under section 24A of the Tax Code.
Statement 2: The share of a co-venturer individual in the net income of a tax-exempt joint venture or consortium
is subject to creditable withholding tax under of 20%.
a. Only Statement 1 is correct. c. Both statements are correct.
b. Only Statement 2 is correct. d. Both statements are incorrect.

39. Which of the following statements is correct?

a. Partners of a taxable partnership are considered as stockholders and profits distributed to them by the
partnership are considered as dividends.
b. The share of each partner in net income of a taxable partnership shall be based on their capital contribution.
c. The share of an industrial partner in the net income of a taxable partnership shall be equal to the share of the
capitalist partner with the least capital contribution.
d. The industrial partner shall contribute money and/or property but not services.

40. Which of the following is not correct?

a. A and B, both CPAs can form a general professional partnership to go into public accounting.
b. W and Y, both lawyers, can form a business partnership for the sale of law books.
c. C, a CPA, and D, a lawyer, can form a general professional partnership to go into the practice of taxation as
they have a common field of practice.
d. K, a doctor, and L, a medical technologist can form a partnership to engage in the operation of drugstore.

41. X and Y are partners (both resident citizens) in the following partnerships:
Ordinary Partnership General Professional Partnership
Gross Income P 500,000 P 400,000
Deductible Expense 300,000 180,000

Personal Income and Expenses X Y

Gross Income P 400,000 P 280,000
Deductible Expense 250,000 120,000
Dividend from domestic corporation 20,000 30,000
Dividend from foreign corporation 10,000 8,000
Prize, supermarket raffle 15,000 8,000
Royalty, books 10,000 12,000

The partners agreed to share their partnership profits and losses in the following manner:
X - 40% (He is married with 2 qualified dependent children.)
Y - 60% (He is single but supporting his 18-year old boyfriend living and dependent upon him for chief
support.)
Determine the respective taxable incomes of X and Y in their ITRs.
a. P 148,000 and P 258,000 c. P 248,000 and P 308,000
b. P 88,000 and P 132,000 d. P 98,000 and P 232,000

42. A Co. and B Co., both in the construction business, formed a joint venture to build houses for the poor, a
government project with an agreed equal sharing in net income or loss. Data on income and expenses for the
year show:
Joint Venture A Co. B Co.
Gross Income P 80,000,000 P 2,000,000 P 3,000,000
Expenses claimed 60,000,000 1,200,000 2,000,000

Determine the income tax liability before tax credits of A Co.

a. P 3,240,000 c. P 2,340,000
b. P 240,000 d. Exempt

43. A and B are co-owners by virtue of a property given to them by their father. During 2016, the co-ownership had
a gross rental of P 500,000 (gross of 5% tax) and expenses related to the rental activity of P 300,000 but 10% is
not deductible for the year 2016. A and B share in the profits at 75% and 25%, respectively. A withdraw P 50,000
from the co-ownership net income for the year; B did not withdraw any amount. A and B are both single. The
income tax of the co-ownership is
a. P 102,400 c. P 80,000
b. P 76,800 d. P 0

44. The phrase “related taxpayers” will apply to the following, except:
a. Between members of a family
b. Between the grantor and a fiduciary of any trust
c. Between a fiduciary of a trust and a beneficiary of such trust
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d. Between an individual and a corporation more than 50% in value of the outstanding stock of which is owned,
directly or indirectly by such or for such individual, in case of distribution in liquidation

45. What is the treatment of cash advances by the surviving spouse and the heirs from the corpus of the estate?
a. Taxable income of the surviving spouse and the heirs.
b. Deductible expense of the estate.
c. Taxable income of the estate.
d. Diminution of the assets of the estate.

46. Mr. X, a resident citizen, appoints Bank A – Trust Department to manage his money created through a trust
agreement. Bank A – Trust Department then invests said money in a long-term investment (10-year corporate
bond authorized by BSP) of XYZ Corporation under the account name “Bank A – Trust Department”. Mr. X did
not withdraw his money from such trust agreement for at least five (5) years. The interest of Mr. X from the
corresponding trust agreement is:
a. Exempt from income tax c. Subject to 20% final tax rate
b. Subject to 15% preferential tax rate d. Subject to basic income tax

Note: Exempted only if the account is under the name of Mr. X.

47. A created two trusts, Trust 1 and Trust 2 with different trustees but with a common beneficiary. The following data
pertain to the trusts and the beneficiary’s own account:
Trust 1 Trust 2 Beneficiary
Gross Income P 400,000 P 800,000 P 250,000
Deduction 75,000 125,000 100,000
Income distributed to beneficiary 150,000 175,000
The taxable income of Trust 1 and the consolidated income of the two trusts are:
a. P 175,000 and P 655,000 c. P 175,000 and P 635,000
b. P 155,000 and P 655,000 d. P 155,000 and P 635,000

48. A died on January 2, 2014 leaving a net estate of P 4,000,000. The estate is in the hands of an executor. B, a
nephew of A, married, is one of the heirs of A. In 2015, the estate had a gross income of P 800,000 and expenses
of P 500,000 on the properties in the estate. B, has his own gross income of P 200,000 and expenses of P
120,000. The executor distributed to B the following:

From the properties of the estate P 250,000

From the current year’s income, net of 15% CWT 85,000
Which of the following is correct?
a. In the year when A died, the estate, for income tax purposes, can claim P 20,000 personal exemption as the
law allows for estate.
b. The net tax payable of the estate should be P 32,500.
c. B’s income tax due and payable should be P 5,500.
d. The undistributed income of the estate in 2015 shall form part of the taxable estate for estate tax purposes,
and there would be no double taxation as estate tax is significantly different from income tax.

49. It refers to any Filipino citizen who is a resident of the Philippines, who is sixty (60) years old or above. It may
apply to senior citizens with “dual citizenship” status provided they prove their Filipino citizenship and have at
least six (6) months residency in the Philippines.
a. Senior Citizens c. Pensioner
b. Benefactor d. Retiree

50. A senior citizen availing certain goods or services by means of purchases or acquisition shall be entitled to
a. The actual discount, promo discount or the 20% discount whichever is lower, but not all, based on the selling
price of of the goods sold or services rendered to Senior Citizens by certain establishments.
b. The actual discount, promo discount and the 20% discount, all of which shall be based on the selling price of
of the goods sold or services rendered to Senior Citizens by certain establishments.
c. The actual discount, or that discount, which in no case shall be lower than twenty (20%) per cent of the gross
selling price of the goods sold or services rendered to Senior Citizens by certain establishments.
d. The actual discount, or that discount, which in no case shall be higher than twenty (20%) per cent of the gross
selling price of the goods sold or services rendered to Senior Citizens by certain establishments.

51. Evaluate the following statements.

I. The minimum discount shall be treated as an addition to the promotional discount, provided that, if the
promotional discount is less than the minimum discount prescribed in the Act for Senior Citizens.
II. Only a Senior Citizens Center shall exclusively enjoy the 50% discount on consumption of water, electricity
and telephone by a Senior Citizens Center. Also residential care groups

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III. Senior Citizen who is not gainfully employed, living with and dependent upon his benefactor for chief support,
although treated as dependent, will entitle the benefactor to claim the additional personal exemption of twenty
five thousand pesos (P 25,000.00).
IV. A senior citizen is entitled to a 5% discount on monthly utilization of water and electricity by said senior citizen
provided he met the requirements to be entitled.
V. Senior citizens who are professionals in the exercise of his/her profession shall be exempted from income
tax.

a. I, II and III are true. c. One can be true.

b. IV is true if I and III are true. d. V is false if III is also false.

52. During the year 2016, the following information were revealed to you for evaluation:
Pasang Awa Corporation (established since 1990)
Gross Income P 4,000,000
Business Expenses, excluding salaries 1,500,000
Salaries to rank-and-file, non-senior citizens 550,000
Salaries to rank-and-file, senior citizens 200,000
How much is the taxable income of the corporation?
a. P 1,950,000 c. P 1,750,000
b. P 1,720,000 d. P 1,700,000

53. Mikel, a single 34-year old son of Mercidita (a retired CPA now a senior citizen who is chiefly dependent on her
only son) has the following information:
Compensation income from employment, net P 20,000 EWT P 280,000
13th Month pay 17,000
Household expenses 75,000
Travel Expenses and Allowances 11,000
Medical Expenses for Mercidita 23,000
Note: Mercidita also received the following incomes and incurred expenses:
Income from selling Suman Malagkit and Buko Juice 45,000
Gross Income from practice of consultancy 80,000
Related expenses in the practice of consultancy 20,000
Which of the following is correct?
a. Mikel can claim the status of a head of the family, thus entitled to an additional exemption of P 25,000.
b. Mikel and Mercidita’s income shall be consolidated being in one family and Mikel being the head taxpayer of
the family as Mercidita is not required to file income tax return.
c. Mercidita is taxable on her incomes as she cannot be considered a marginal income earner, even though her
total income does exceed beyond the poverty incidence.
d. Mercidita is considered as a marginal income earner on her income from selling suman malagkit and buko
juice, and her income from consultancy is just merely a habitual engagement with minimum income, thus she
is non-taxable.

54. December 8, 2016. One Thursday evening, Edelberto Rumol and his family decided to go out for a dinner to
celebrate the 61st birthday of his beloved mother, Anastacia Rumol. It was exactly 7:35 in the evening when the
family arrived at Marhalika's Grandeur Kitchen, a premier resto in the city. Together with Edelberto were his wife,
Candelariña, their twin sons, Alberto and Elberto (who both just turned 21 last August 2016), their only daughter
Czarina, Edelberto's sister-in-law who is physically handicapped, Georgina (23), his brother, Ernesto (20, who
will soon graduate as Magna Cum Laude in his degree - Bachelor of Science Accountancy major in Forensic
Auditing), and his mother who was widowed five years ago after the tragic vehicular accident which took the life
of her husband, Carolino.

All of them were greeted with hospitality and solicitude by the receiving personnel who assisted them in their
reserved table just a few tables away from the door. Not so long when the restaurateur approach the table where
the family was seated to personally handle them the Kitchen's lavish menu. Personally picked by the wife who
has expertise in cuisine and has a quiet passion for pastries and culinary, the family finally ordered a homemade
tagliolini topped with two pounds of fresh red prawn linguine, an order of seared duck breast with spicy orange
glaze and Asian greens, a bottle of Passion Sauvignon Blanc White Wine, and of course, the best seller special
chocolate birthday cake.
The family had the great time talking and celebrating Anastacia's 61st. After two hours of dining, Candelariña
hoisted her hand to give a sign to the waitress for the bill, which was gracefully handed to her after a minute. The
bill indicated a total amount of P 35,475.00 where the VAT included was P 4,119.23. Anastacia attempted to
reach the bill to see for herself the total amount. Shocked and flattered, she insisted to avail a discount as she
said she is an active member of the Office of Senior Citizens Affairs. The waitress, however, implied that she
could not avail such a discount as they were in a five-star restaurant and ordered extravagant menus. Ernesto
who had knowledge in Taxation and Accounting came to rescue the embarrassed granny. With a humble tone in

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his voice, Ernesto explained to the waitress the claim of the elder customer and wanted to see the restaurateur,
Ermalyn Terichkova, who once approached them earlier to discuss the matter.

Ermalyn came and listened to the boy's discussion. However, to her regret that the bill could not be changed
as it had already entered in their computing system. There was silence for a while when the cashier, Betty, a
fresh graduate of Finance and newly hired, explained that there could be other way to change the bill. However,
to do so, she required the senior citizen to present the Id issued from OSCA. She also required the other customer,
Georgina, to present the Id as she was also entitled to the discount.

With regrets in her eyes and feeling embarrassed, the restaurateur offered a special discretionary discount
of 15% to the total bill to compensate the shame she just did. Taking advantage of the discount, the Anastacia
got her purse and searched for the id. Georgina also did the same and presented her Id. Anastacia, however,
failed as she couldn't find her ID. She insisted, however, that she is an active member of OSCA. She even
presented her selfies with the other members in one of their gatherings last October 23, 2016. Convinced, the
restaurateur gave them the discounts - the twenty percent to each of the two and the 15% discretionary discount.
The final bill looked like the one presented below:

Orders:
Homemade Tagliolini P 10,600.00
Seared duck breast with spicy orange glaze 6,770.00
Passion Sauvignon Blanc White Wine 10,705.00
Best-seller special chocolate birthday cake 4,175.00
Total Amount (VAT included) P 32,250.00
Add: Management Fee (10%) 3,225.00
Total Billed Amount P 35,475.00
Less: Discount (20% for PWD and Senior) ( 7,095.00)
Discretionary Discount (15%) ( 5,321.25)
Amount Payable P 23,058.75

Given the case above, which of the following is correct?

a. Anastacia is not entitled to a 20% discount, because even if she must have presented a valid Identification
card, the establishment has already given them a discretionary discount on the total amount, which if
computed must be higher than the 20% minimum discount. The law said only one discount must be claimed.
b. Georgina is not entitled to claim discount because her relation to the taxpayer, Edelberto Romul, is as
“stranger” being a sister-in-law. Moreover, she is not the one paying her consumption.
c. The restaurateur is precluded from giving discretionary discount to senior citizens as it will only reduce the
taxable sales.
d. The management fee of 10% may be properly imposed by restaurants and may constitute taxable receipts
subject to VAT, however, a discount of 20% shall be granted to senior citizen, such receipts shall also be
exempted from VAT as to the extent only of the share of the senior citizen.

55. Using the same problem in the preceding number, which of the following is correct?
a. The total and correct discount should have been P 791.85.
b. The total bill subject to VAT should have been P 23,755.58.
c. The total VAT must have been P 3,023.44
d. The net amount payable should be P 28,380.

56. The Republic Act 9442 of 2007 amended some provisions in RA 7277 or the Magna Carta for Disabled Persons
of 1992. Which among the following provisions granting incentives to PWDs is not applicable?
a. A minimum of twenty percent (20%) discount on admission fees charged by theaters, cinema houses, concert
halls, circuses, carnivals and other similar places of culture, leisure and amusement for the exclusive use of
enjoyment of persons with disability
b. At least twenty percent (20%) discount on fare for domestic air and sea travel for the exclusive use or
enjoyment of persons with disability
c. At least twenty percent (20%) discount on burial services of persons with disabilities
d. At least twenty percent (20%) discount in public railways, skyways and bus fare for the exclusive use and
enjoyment of person with disability

57. Statement 1: The rehabilitation of the disabled persons shall be the concern of the Government in order to foster
their capacity to attain a more meaningful, productive and satisfying life.
Statement 2: To reach out to a greater number of disabled persons, the rehabilitation services and benefits shall
be expanded beyond the traditional urban-based centers to community based programs that will ensure full
participation of different sectors as supported by national and local government agencies.
a. True, True c. False, True
b. True, False d. False, False

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58. They are those suffering from restriction or different abilities, as a result of a mental, physical or sensory
impairment, to perform an activity in the manner or within the range considered normal for a human being.
a. Impaired Persons c. Minor Children
b. Disabled Persons d. Handicapped Persons

59. The primarily goals of the special economic zones include all, except:
a. Increased trade c. Job creation
b. Increased investment d. Increased Gross Domestic Product

60. New Ecozone Export or Free Trade Enterprises shall be fully exempt from income taxes levied by the National
Government for the period as follows:
a. New registered pioneer firms - 4 years from commercial operations
b. New Registered non-pioneer firms - 6 years from commercial operations
c. Expanding firms - 3 years from commercial operation of the expansion
d. All of the above are correct.

61. CPA Corporation, a resident foreign, is a PEZA-registered export enterprise which manufactures cameras and
sells all its finished products abroad. Which of the following statements is correct?
a. CPA Corporation is exempt from the 30% corporate income tax on net income, provided it pays value-added
tax.
b. CPA Corporation is subject to the 30% corporate income tax on net income, same as domestic corporations.
c. CPA Corporation is subject to the 5% final tax on gross income earned, in lieu of all national and local taxes.
d. CPA Corporation is exempt from all national and local taxes, except real property tax.

62. Atty. Maralita is a Filipino CPA and a lawyer having his law office situated in a special economic zone. His clients
are these BPOs and banks doing business in such zone. Atty, Maralita is
a. Exempted from all national and local taxes (except real property tax), however, in lieu thereof, he shall be
subject to a final tax of 5%.
b. Subject to a final tax on his total professional income, but exempted from paying VAT.
c. Subject to a creditable withholding tax of 2% for his sale of services.
d. Subject to a creditable withholding tax of 10% for his gross receipt.

63. Diamond Technologies, Inc., a domestic corporation owned by 70% Filipinos and 30% Japanese, for the first time
in five years, applied for PEZA-registration to engage in exporting IT products and services (a pioneer enterprise
as identified by the Investment Priority Plan of the Board of Investments). It has decided to establish an extension
project to satisfy the requirements of PEZA to be exempted. It currently uses a calendar year in filing its annual
income tax return. As a result of such registration, Diamond Technologies, Inc. is granted an income tax holiday
of six years. The following pertinent information were revealed:
Date of Application January 20, 2017
Date Approved and Effective April 1, 2017

Prior Years’ Audited Financial Statements

2014 2015 2016___
Sales, Product A 40 Million 55 Million 60 Million
Sales, Product B 20 Million 60 Million 34 Million
Receipts, Service X 10 Million 22 Million 17 Million
Receipts, Service Y 12 Million 23 Million 18 Million

2017 Audited Financial Statements

Total Sales
Product A P 70,000,000
Product B 50,000,000
Total Receipts
Service X 35,000,000
Service Y 45,000,000
Direct Costs 83,000,000
Business Expenses Claimed as deduction 22,000,000

Using the above data, how much is the income tax holiday of Diamond Technologies Inc. for year 2017?
a. P 4,275,000 c. P 5,700,000
b. P 4,750,000 d. P 14,250,000

64. Using the given in the previous item, assume however that the registration was effective on November 1, 2016
was how much is the income tax holiday of Diamond Technologies Inc. for year 2017?
a. P 4,275,000 c. P 5,700,000
b. P 4,750,000 d. P 14,250,000

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65. These are duties which are one charged upon commodities on their being imported into or exported out of a
country
a. Tariff b. Customs c. Wharfage d. Impost

66. When importation does begin?

a. Importation begins upon payment of duties, taxes and other charges due upon the articles or secured to be
paid at a port of entry.
b. Importation begins when the legal permit for withdrawal shall gave been granted or in case said articles are
free of duties, taxes and other charges, until they have legally left the jurisdiction of the customs.
c. Importation begins when the carrying vessel or aircraft enters the jurisdiction of the Philippines with the
intention to unlade therein.
d. Importation begins when the carrying vessel or aircraft, thru its ground servicing personnel, unloads the object
of importation in anywhere of the Philippine ports.

67. The President is given by the Tariff and Customs Code ample powers to adjust tariff rates in accordance with
Sec. 401 of TCC, as such he is empowered the president to:
a. Increase, reduce, or remove existing protective rates of import duty;
b. Establish import quota or to ban imports of any commodity;
c. Impose and additional duty on all imports not exceeding 10% ad valorem whenever necessary.
d. All of the above.

68. The importation into the Philippines of the following articles is prohibited, except:
a. Dynamite, gunpowder, ammunitions and other explosives, firearms and weapons of war
b. Written or printed articles in any form containing any matter advocating or inciting treason, or rebellion, or
insurrection, sedition or subversion against the Government of the Philippines
c. Gambling outfits, loaded dice, marked cards, machines, apparatus or mechanical devices used in gambling
or the distribution of money
d. Any article manufactured in whole or in part of gold, silver or other precious metals or alloys

69. The following articles shall be exempt from the payment of import duties upon compliance with the formalities
prescribed in, or with, the regulations which shall be promulgated by the Commissioner of Customs with the
approval of the Secretary of Finance, except:
a. Aquatic products
b. Medals, badges, cups and other small articles bestowed as trophies or prizes
c. Articles used exclusively for public entertainment, and for display in public expositions, or for exhibition or
competition for prizes
d. All of the above.

70. Which of the following is not a function of the Commission? The Commission shall investigate:
a. The administration of, and the fiscal and industrial effects of, the tariff and customs laws of this country now
in force or which may hereafter be enacted.
b. The relation between the rates of duty on raw materials and the finished or partly finished products.
c. Both A and B.
d. Neither A nor B.

INCOME TAX TABLE (INDIVIDUAL)

Over But not Over Tax Plus
10,000 0 5%
10,000 30,000 500 10%
30,000 70,000 2,500 15%
70,000 140,000 8,500 20%
140,000 250,000 22,500 25%
250,000 500,000 50,000 30%
500,000 125,000 32%

END

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