University of Makati SET A

Qualifying Examinations – Taxation

FOURTH YEAR
Bachelor of Science in Accountancy

NAME: __________________________________________________________ Date: ___________________________

Multiple Choice
Identify the choice that best completes the statement or answers the question.

____ 1. They exist independent of the constitution being fundamental power of the state, except
a. power of eminent domain c. power of recall
b. power of taxation d. police power
____ 2. The reciprocal duties of support and protection between the people and the government
a. scope of taxation c. situs of taxation
b. theory of taxation d. basis of taxation
____ 3. On October 12, 2016, Mr. FREDDIE ROACH, an American basketball coach was hired as a team consultant
by one of the teams in the Philippine Basketball Association (PBA) for one conference which will last for a
period not more than three months from October to December 2016. He is coming to the Philippines was for a
definite purpose. However, he was subsequently chosen to coach the Philippine men’s basketball team for a
period of two years. The american mentor intends to leave the Philippines as soon as his job is finished. For
2016 taxable year, the American coach shall be classified as
a. Nonresident alien engaged in trade or business
b. Resident citizen
c. Nonresident alien not engaged in trade or business
d. Resident alien
____ 4. LJ, married, left the Philippines in the middle of the year on July 1, 2018 to go abroad and work there for
five (5) years. The following data were provided as of December 31, 2018:
Gross Business Income Business Expense
PERIOD PHIL ABROAD PHIL ABROAD
1/1 - 6/30 300,000 200,000 100,000 50,000
7/1 - 12/31 600,000 400,000 150,000 50,000
His taxable income is
a. 800,000 c. 1,100,000
b. 600,000 d. 950,000
____ 5. LOKI, married, with two dependent children, received the following income:
Rent, Philippines P1,000,000
Rent, Hongkong 200,000
Interest, peso deposit, MBTC 100,000
Interest, US$ deposit, BDO ($10,000 x P42) 420,000
Interest, deposit in Hongkong (HK$10,000 x P5) 50,000
Prize (cash) won in a local contest 8,000
Prize (TV) won in a local lottery 50,000
PCSO/Lotto winnings 2,000,000
Prize won in contest in U.S. 300,000
Lotto winnings in U.S. 100,000
Dividend, domestic company 600,000

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University of Makati SET A
Assuming the taxable year is 2018, determine the taxable net income assuming he is
RC / NRC / RA / NRA-ETB
a. 1,558,000 / 908,000 / 908,000 / 908,000
b. 180,000 / 80,000 / 1,000,000 / 1,000,000
c. 1,658,000 / 1,008,000 / 1,008,000 / 1,008,000
d. 80,000 / 180,000 / 830,000 / 180,000
____ 6. Income received by the estate during the period of administration or settlement of the estate, for tax purposes
is known as
a. income of the testator c. income of the trustee
b. income of the heirs d. income of the estate
____ 7. Mr. KAMANDAG created a trust naming his eldest son, SNAPE as beneficiary. If the eldest son could not
abide with the terms provided in the trust instrument, Mr. KAMANDAG has the power to cacel the trust
agreement.

For the current taxable year (2020), the trust earned a net income before personal exemption of P1,000,000.
On the other hand, the grantor earned a compensation income of P1,500,000 and business income of
P1,000,000. The taxable income of the trust is
a. 980,000 c. nil
b. 950,000 d. 1,000,000
____ 8. Royalty income from books received by a corporation beginning January 1, 2018 or upon effectivity of the
TRAIN Law shall be subject to:
DC RFC NRFC
a. 20% 20% 30% c. 10% 10% 30%
b. 15% 15% exempt d. 15% 7 1/2% exempt
____ 9. IVANA Corporation provided the following data for calendar year ending December 31, 2018 ($1 - P50)
Philippines Abroad
Gross Income P4,000,000 $40,000
Deductions P2,500,000 $15,000
Income tax paid $3,000
If the corporation is a domestic corporation, its income tax payable is
a. 1,280,000 c. 825,000
b. 675,000 d. 450,000
____ 10. The following data were taken from the financial statements of BARBIE CORPORATION for 2018:
Philippines Abroad
Gross sales P10,000,000 P5,000,000
Sales returns 200,000
Cost of Goods Sold 3,500,000 2,250,000
Operating expenses 2,800,000 1,100,000
Interest from trade receivable 100,000 50,000
Interest from BPI deposits - PH 100,000
Interest from BPI deposits - US - 80,000
Interest income - FCDU 150,000
Interest income from money market placements 200,000 100,000
Dividend income from domestic corporation 75,000
Dividend income from resident corporation 45,000
Dividend income from nonresident corporation - 30,000
Royalty income - in general 30,000 25,000
Royalty income - books 20,000
Gain on sale of shares of stock of domestic corp. held
as capital asset through local stock exchange

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University of Makati SET A
Selling price - P500,000 120,000
Gain on sale of shares of stock of domestic corp. held
as capital asset directly to a buyer.
Selling price - P650,000 150,000
Sale of real property in the Philippines not used in
business, Cost, P4M; FMV, P8M 5,000,000
How much is the income tax due and payable assuming the corporation is:
DC RFC
a. 1,093,500 1,674,000 c. 1,674,000 2,038,500
b. 1,674,000 1,093,500 d. 2,038,500 1,093,500
____ 11. For purposes of taxation, partnership is
I. Classified into two major categories, partnership in trade and general professional partnership
II. Partnership in trade is treated as corporate taxpayer
III. General professional partnership is exempt from income tax
a. I and II only c. I and III only
b. I only d. I, II and III
____ 12. In 2018, LOY and FOY are partners in the following partnership:
Business
Partnership GPP
Gross income P800,000 P500,000
Deductible expense 420,000 375,000

Personal income and expenses: LOY FOY

Gross income P325,000 P380,000
Deductible expense 117,000 205,000
Dividend from domestic corporation 25,000 30,000
Dividend from foreign corporation 12,000 8,250
Prize, Supermarket raffle 15,000 7,500
Royalty, books 10,000 18,000

Additional information:
Partners agreed to share partnership income and losses as follows: LOY = 30% (married with two dependent
children); FOY = 70% (single but supporting her 15 year old sister living and dependent upon him for chief
support)

Determine the income tax payable of the

Business Partnership GPP
a. exempt 114,000 c. 114,000 exempt
b. 114,000 114,000 d. 380,000 125,000
____ 13. Situs, for taxation purposes will depend upon various factors, including
I. The nature of the tax and the subject matter thereof.
II. The possible protection and benefit that may accrue both the government and to the taxpayer.
III. Domicile or residence.
IV. Citizenship
V. Source of income
a. I, III and IV only c. I, II, III, IV and V
b. I and V only d. I, III, IV and V

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University of Makati SET A
____ 14. On January 1, 2017, COZY leased her land to LIZA. The term of the contract of lease is for 16 years and the
rental fee is 360,000 a year. The contract provides that LIZA will construct a building and at the end of the
term of the contract, the ownership of the building will be transferred to COZY. The building, with a useful
life of 30 years, was completed on January 1, 2018 at a cost of 6,000,000.

Assume COZY will spread his income over the term of the contract of lease. For income tax purposes,
COZY’s 2018 income is:
a. 560,000 c. 760,000
b. 6,360,000 d. 360,000
____ 15. EASY CORP is engaged in the sale of goods with net sales of P2,000,000. The actual entertainment,
amusement and recreation expenses for the taxable quarter totaled P20,000. For income tax purposes, how
much is the deductible entertainment, amusement and recreation expense?
a. 1,100 c. 0
b. 20,000 d. 10,000
____ 16. JOJO reported the following for the taxable year:
Gross income 5,000,000
Cost of sales 3,000,000
Salaries of employees, net of 100,000 withholding tax
and 50,000 SSS, Medicare and Pagibig premium
contribution 800,000
Fringe benefits given to rank and file employees 300,000
Fringe benefits given to managerial employees (grossed-up MV) 250,000
Representation and entertainment expenses (business related) 100,000
Rent expense 120,000
Donation to religious and charitable instituition 500,000
How much is the taxable income assuming the current taxable year is 2018?
a. 2,956,000 c. 2,906,000
b. 2,790,000 d. 3,006,000
____ 17. A resident citizen has the following data on income and expenses in 2018:
Gross compensation income 200,000
Gross sales 900,000
Cost of sales 500,000
Business expenses 200,000
He avails himself of the Optional Standard Deductions. How much is his taxable net income
a. 690,000 c. 290,000
b. 420,000 d. 740,000
____ 18. How long must books of accounts be kept?
a. For a period beginning from the last entry in each book until the last day prescribed within
which the Commissioner is authorized to make an assessment
b. For a period beginning the preceeding taxable year until the last day of the same taxable
year.
c. For a period beginning the current taxable year until the last day of the same taxable year
d. Keeping of books of accounts is not required
____ 19. Amounts received by the estate of the deceased, his executor or administrator as an insurance under policy
taken by the decedent upon his own life is
a. Part of the gross estate if the beneficiary is irrevocable
b. Part of the gross estate if the beneficiary is revocable
c. Part of the gross estate whether the beneficiary is revocable or irrevocable
d. Excluded from the gross estate

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University of Makati SET A
____ 20. The estate of PETER, resident citizen decedent, married, who died of April 2018 are as follows:
House and lot (family home) 14,000,000
The lot was acquired at a cost of P3M before marriage while
the house was constructed on March 1, 2018 during marriage
at a cost of P10M from partnership fund. The lot had a FMV
of P4M after construction of the house
Other properties acquired during marriage 6,000,000
Jewelry inherited on Feb. 14, 2017, during marriage, then with
a FMV of P1.3M 2,500,000
Property in US, received as a gift during marriage from a friend
on Jan. 12, 2017 (the applicable donor’s tax was not paid by the
donor) 2,300,000
Rental income on the above property up to time of death 1,200,000

Expenses/claims:
Funeral expense 420,000
Judicial expense 800,000
Casualty loss incurred Dec. 10, 2018 600,000
Claims against the estate 1,600,000
Medical expenses within 1 year prior to death, only half was receipted 4,000,000

How much is the net taxable estate under Conjugal Partnership of Gains?
a. 1,348,000 c. 3,426,000
b. 3,926,000 d. 6,426,000
____ 21. A decedent died in 2018 leaving properties he inherited 2 1/2 years ago which had a FMV of P8,000,000 at
the time of his death (P6,500,000 at the time of inheritance and unpaid mortgage of P500,000 paid by the
present decedent). After inheritance, the decedent mortagages the property for P500,000 and paid the same
before his death. Other properties in his gross estate had FMV of P10,000,000. The total expenses, losses,
indebtedness, taxes and transfer for public purpose amounted to P3,000,000. Included in the total expenses
were the 200,000 funeral expenses and P400,000 judicial expenses.
How much is the vanishing deduction?
a. 3,000,000 c. 3,120,000
b. 2,750,000 d. 2,000,000
____ 22. For the donation to be considered valid, acceptance of the donation must be made
a. None of the choices
b. During the lifetime of the donee only
c. During the lifetime of the donor only
d. During the lifetime of the donor and the donee
____ 23. In 2018, MOMMY DIVINE gave a property with a FMV of P2M, with unpaid mortgage of P200,000 to be
paid by him, to his son MATTEO and MATTEO’s bride SARAH, on account of their marriage few weeks
ago.
The donor’s tax payable is:
a. 300,000 c. 344,000
b. 105,000 d. 120,000
____ 24. Statement 1: A franchise is a privilege to serve the public acquired by special grants from private
organization.
Statement 2: There are franchise holders whose gross receipts are subject to 12% VAT even if not VAT
registered.
a. Both are correct c. Only second statement is correct
b. Only first statement is correct d. Both are incorrect

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University of Makati SET A
____ 25. Statement 1: The tax on life insurance premiums is 12% based upon the total premiums collected whether
such premiums are paid in money, notes, credits or any substitute for money.
Statement 2: The tax on agents of foreign insurance companies is 4% based upon the total premiums
collected.
a. Both are correct c. Both are incorrect
b. Only 1 is correct d. Only 2 is correct
____ 26. LASHLEY, a comedy bar, had the following data during the month of March 2018
Net income during the month 160,000
Collections during the month:
From services rendered in January 200,000
From services rendered in February 1,200,000
From services to be performed in March 40,000
How much is the amusement tax for the month?
a. 252,000 c. 288,000
b. 259,000 d. 216,000
____ 27. One of the following is not a transaction deemed sale:
a. Retirement from or cessation from business with respect to all goods on hand as of the
date of such retirement or cessation.
b. Distribution or transfer to shareholders or invetors of goods or properties as share in the
profits of a VAT-registered person or creditors in payment of debt
c. Consignment of goods if actual sale is made within 60 days following the date such goods
were consigned.
d. Transfer, use or consumption not in the course of business of goods or properties
originally intended for sale or for use in the course of business.
____ 28. GULU-GULU Corporation, a manufacturer, had the following data for the first month of 2018 (first year as a
VAT taxpayer)
Sales:
Export sales P2,000,000
Domestic sales (net) 1,000,000
Purchases:
Raw materials 300,000
Services 100,000
Machinery (useful life is 2 years) 400,000
On January 1, 2018, the company had inventories and taxes paid thereon as follows:
Cost VAT paid
Raw materials P120,000 P2,000
Supplies 40,000 4,000
During the month, additional raw materials were purchased from another enterprise with a total invoice value
of P61,600, not included above.

The VAT payable of GULU-GULU is:

a. 66,000 c. 57,000
b. 11,000 d. 72,000
____ 29. CHINA OIL Corporation, a VAT-registered corporation, is a producer of cooking oil from coconut and corn.
It had the following data for the month of January 2018.
Sales, gross of VAT P784,000
Corn & coconut, December 31, 2018 50,000
Purchases of corn and coconut in 2018 330,000
Corn & coconut, January 1, 2018 20,000
Purchases from VAT suppliers, VAT included:

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University of Makati SET A
Packaging materials 56,000
Supplies 16,800

The value-added tax payable for the month

a. 60,650 c. 56,060
b. 54,900 d. 63,000
____ 30. The running of the prescriptive period for assessment is suspended
a. When the paxpayer request for a reinvestigation which is granted by the Commissioner of
Internal Revenue
b. When the taxpayer is out of the Philippines
c. If the taxpayer informs the Commissioner of any change in address
d. When the warrant of distraint has been duly served upon the taxpayer and no property
could be located
____ 31. MONEY PAKYAW paid his income tax liability for 2012 on April 15, 2013. It was found out later on June
30, 2013 that he overpaid by more than P100,000. The last day to file a claim for tax refund is?
a. June 30, 2016 c. June 30, 2015
b. April 15, 2015 d. April 15, 2016
____ 32. Which of the following is a regular custom duty?
a. Mixed or compound custom duties c. Ad valorem custom duties
b. Specific custom duties d. All of the choices
____ 33. Which of the following statement is incorrect?
a. After Income Tax Holiday period, BOI registered companies are treated as ordinary
corporations.
b. BOI registered companies are subject to zero-rated (0%) VAT
c. BOI registered companies are subject to 5% gross income tax in lieu of national and local
taxes.
d. None of the choices
____ 34. Which of the following incentives is/are granted to BOI registered enterprises?
I. Tax exemption
II. Tax credits
III. Additional deductions from taxable income
a. I only c. II and III only
b. I, II, and III d. I and II only
____ 35. A PEZA registered enterprise has a registered and unregistered activity. The MCIT shall apply to:
a. Unregistered activity c. Registered activity
b. Neither registered nor unregistered d. Both activities
____ 36. MULTI SERVICES COMPANY (MSC) provides 20% discount to senior citizens. It recorded the following
during the year:
Customers
Senior
Regular Citizen Total
Receipts P8,000,000 P1,000,000 P9,000,000
Cost of Sales 5,000,000
Other deductible expense 2,000,000

The net taxable income of MSC is:

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

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University of Makati SET A
____ 37. BOGARD Corporation employs both regular and senior citizen employees and paid the following
compensation:
Regular employees 800,000
Senior citizen employees:
with salary grade above poverty level 200,000
with salary grade below poverty level 100,000
Twenty per cent (20%) of the regular employees are persons with disablity receiving a total compensation of
P160,000, the deductible compensation expense of the corporation is:
a. 1,155,000 c. 1,192,000
b. 1,152,000 d. 1,178,000
____ 38. Statement 1: The 20% senior citizen discount and VAT exemption shall not apply to childrens meals as these
are primarily prepared and intentionally marketed for children, if the PWD is a child, the 20%
PWD discount will be applicable as long as it is for his personal consumption.
Statement 2: The 20% discount on purchase of food and drinks, beverages, dessert and other consumable
items served by establishments includes value meals and other similar food counters, fast food,
cooked food and short order including take outs.
a. 1 is true, 2 is false c. 1 is flase, 2 is true
b. Both are false d. Both are true
____ 39. Real property tax should not disregard increases in the value of real property occuring over a long period of
time. To the otherwise would violate the canon of a sound tax system refered to as:
a. Symbiotic relationship c. Administrative feasibility
b. Fiscal adequacy d. Theoretical justice
____ 40. A municipality may levy an annual ad valorem tax on real property such as land, building, machiney and
other improvement only if
a. the real property is located in the municipality
b. the DILG authorizes it to do so
c. the power is delegated to it by the province
d. the real property is within the Metropolitan Manila Area
____ 41. What is the tax base for the imposition by the province of professional taxes?
a. that which Congress determined
b. the pertinent provision of the local government code
c. the reasonable classification made by the provincial sanggunian
d. that which DILG determined
____ 42. It is defined as any business enterprise engaged in production, processing and manufacturing of products,
including agro-processing, as well as trading and services, with total assets of not more than P3 million. Such
assets shall include those arising from loans but not the land on which the plant and equipment are loacted
a. PEZA Registered entities c. Ecozones
b. RHQs/ROHQs of MNCs d. Barangay Micro Business Enterprise
____ 43. ASHMATT Corporation has the following results of operations from 2015 to 2018:
2015 2016 2017 2018
Gross sales 550,000 650,000 800,000 1,200,000
Cost of Sales 300,000 350,000 400,000 500,000
Allowable deductions 300,000 375,000 300,000 300,000
ASHMATT Corporation was incorporated and registered with BIR in 2006, compute the income taxes
payable:
2015 2016 2017 2018
a. 5,000 6,000 8,000 86,000
b. 5,000 6,000 8,000 112,500
c. 5,000 6,000 8,000 105,000
d. 5,000 6,000 8,000 93,500

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University of Makati SET A
____ 44. PASADO University, a proprietary educational institution, is already in its 10th year of operations. It has the
following selected information for the taxable year 2015:
Tuition fees P7,600,000
Miscellaneous fees 2,400,000
Interest on peso bank deposits (net) 15,000
Interest on dollar deposits under FCDS (net) 11,100
Rent income 3,250,000
Dividend income from a domestic corporation 80,000
Direct cost of services (including capital expenditure
for the newly build school building) 4,500,000
Capital gain on sale of shares of a domestic
corporation directly to a buyer 125,000
Other operating expenses 8,250,000
Quarterly income tax payment 25,000
The School Building was built and finished on April 1, 2015 at a cost of 2,000,000 with a depreciable life of
20 years.

Assuming the university opted to claim the cost of construction as an outright expense, the income tax
payable is
a. 190,000 c. 150,000
b. 25,000 d. 50,000
____ 45. A non-profit domestic hospital, which was organized for profit, has the following data during the year 2018:
Gross income from hospital operations P2,000,000
Operating expenses (excluding depreciation of the
hospital building) 500,000
Rent income of commercial space, hospital ground
floor, net of 5% withholding tax 190,000
Interest on bank deposits, net of 20% withholding tax 40,000
Dividend income on domestic corporation 100,000
Additional hospital building was built and finished on June 30, 2018 at a cost of 4,000,000 with a depreciable
life of 25 year. The hospital would like to expense outright the cost of the building.

The income tax still due and payable in 2018 is:

a. 476,000 c. 396,000
b. 406,000 d. 486,000
____ 46. A taxpayer occupying a managerial position in an Offshore Banking Unit located in Taguig had the following
data for taxable year 2015:
Salaries received 120,000
Other emoluments 50,000
De minimis benefits 5,000
Interest income from deposit substitutes 20,000
Interest income from long-term Philippine
Bank Deposit 10,000
Dividend income from a domestic corporation 150,000
Gain on sale of shares of stock of a domestic
corporation held as investment sold outside
of the local stock exchange 175,000
If the taxpayer is a Special Filipino Employee, his total income tax expense is:
a. 57,000 c. 58,500
b. 83,000 d. 56,500

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University of Makati SET A
____ 47. The levying and imposition of tax and the collection of tax are processes which constitute the taxation system
a. theory of taxation c. aspect of taxation
b. nature of taxation d. basis of taxation
____ 48. Which of the following is a constitutional limitation on the power of taxation?
I. Territoriality of taxes
II. Public purpose
III. Legislative in nature
IV. Non-appropriation for religious purpose
a. II only c. III and IV only
b. II and IV only d. IV only
____ 49. Tax where the rate increases as the tax base increases
a. Progressive c. Proportional
b. Indirect d. Regressive
____ 50. In case of ambiguity, tax laws imposing a tax shall be interpreted
a. liberally in favor of the taxpayer c. None of the choices
b. strictly againt the taxpayer d. liberally in favor of the government

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