TAXATION

1. Caress Corporation tool two life insurance policies on the life of its EVP, Mrs. Lorna in one policy,
the beneficiary is the corporation and the other, designates her husband as the revocable
beneficiary. The insurance premium paid by Caress Corporation is
a. Tax deductible insofar as the first policy is concerned
b. Tax deductible for both policies
c. Not tax deductible for both policies
d. First policy is not deductible; second policy is deductible

2. A franchise cab can be amended by

a. An amendment of special law, which granted the franchise
b. An amendment of a law of general application
c. An amendment of a revenue regulation
d. An amendment of tax laws

Numbers 3 and 4 are based on the following information:

Terence operates a cockpit in Camp John Hay. Inside the cockpit is a restaurant which he also operates.
The data during the month are as follows:
Gross receipts from the gates 390,000
Receipts from advertisements inside the cockpit arena 15,000
Gross receipts from restaurant:
Sale of food and soft drinks 21,000
Sale of liquor 33,000
Disbursements (subjected to VAT) 24,200
Disbursements (not subject to VAT) 12,000
3. Suppose the restaurant is owned and operated by Artemio, a non-VAT registered person, the
business tax payable by Artemio is
a. 1,260
b. 534
c. 4,909.09
d. 1,620

4. Suppose the restaurant is operated by Artemio, the percentage tax due on Terence is
a. 3,300
b. 12,150
c. 92,700
d. 72,900

5. Which of the following taxes is not replaced by VAT?

a. Common carrier’s tax
b. Sales tax on original sales
c. Contractor’s tax
d. Compensating Tax

6. The books of accounts or records of the taxpayer must not be kept in the following language
a. Filipino
b. Chinese
c. English
d. Spanish
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 7. Which among the following statements is not correct?
a. The Bureau of Internal Revenue is part of the administrative machinery for the assessment and
collection of internal revenue taxes.
b. The Bureau of Customs is also charged with the collection of internal revenue taxes.
c. The local government units, such as the municipalities, cities and provinces, form part of
the national tax system.
d. Private banks may be authorized to collect internal revenue taxes.

8. A resident decedent, head of family, left the following:

Personal properties P1,000,000
Real properties (including family home valued at P1,500,000) 2,000,000
Deductions claimed (including actual funeral expenses of P200,000,
and medical expenses of P600,000) 900,000

How much was the taxable net estate?

a. P250,000 b. P1,100,000 c. P1,250,000 d. P2,100,000

9. Marzan sold his residential house under the following terms:

Cash received, January 10, 2008 P100,000
Amount received, June 10, 2008 100,000
Installment due, June 10, 2009 600,000
Additional information:
Cost of residential house 150,000
Mortgage assumed by the buyer 200,000
Mortgage on the residential house executed by the
buyer in favor of the seller to guarantee payment 600,000
Fair market value of residential house 900,000

How much was the capital gains tax due in 2008?

a. P15,882 b. P17,647 c. P54,000 d. P60,000

10. The following fringe benefits were given by an employer to its employees for the quarter ending
March 31, 2008:

Housing benefits to supervisors and managers (representing total P340,000

rents)

Reimbursed expenses of rank and file employees 200,000

De minimis benefits (not exceeding the maximum) 100,000

How much was the fringe benefit tax payable for the quarter?

a. P80,000 b. P108,800 c. P160,000 d. P172,800

11. The BIR may compromise payment of internal revenue taxes when:
First ground: A reasonable doubt as to the validity of the claim against the taxpayer exists.
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 Second ground: When collection costs do not justify the collection of the tax.

a. Both grounds are correct c. Only first ground is correct

b. Both grounds are incorrect d. Only second ground is correct

12. Which of the following government-owned or controlled corporations shall be subject to the
corporate income tax?
a. Philippine Amusement and Gaming Corporation (PAGCOR).
b. National Development Corporation (NDC).
c. Philippine Charity Sweepstakes Office (PCSO).
d. Social Security System (SSS).

13. Proceeds of insurance taken by a corporation on the life of an executive to indemnify it against loss
in case of his death is
a. Exempt from income tax
b. Part of taxable income
c. Subject to final tax
d. Partly exempt, partly taxable

Number 14 to 16 are based on the following information:

Paulo insured his life with an insurance company. Under the contract, he will pay a monthly premium of
Php 2,000 for 10 years. In case of death before the 10th year, his beneficiary will be indemnified by an
amount of Php 150,000. If he is still living on the 10th year, he will receive the Php 500,000.

14. If Paulo dies on the 5th year, his beneficiary will report an income of
a. Php 500,000
b. Php 150,000
c. Php 260,000
d. Exempt
15. Suppose Paulo dies on the 5th year and his beneficiary was offered to receive the Php 150,000 in
lump sum or to receive it at Php 20,000 a month for 10 months and the beneficiary chose the 2 nd
option, he will report an income of
a. Php 500,000
b. Php 150,000
c. Php 50,000
d. Exempt
16. Suppose Paulo survived the policy and was able to receive the Php 500,000, he will report an
income of
a. Php 500,000
b. Php 260,000
c. Php 150,000
d. None
17. Andrew is the owner and beneficiary of a Php 500,000 policy on the life of his father. Andrew sells
the policy to his brother Rolly for Php 150,000. Rolly subsequently pays premiums of Php 50,000.
Upon his father’s death, Rolly must
a. Include Php 500,000 in his gross income
b. Exclude the entire proceeds in his gross income
c. Include Php 300,000 in his gross income
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 d. Include Php 350,000 in his gross income
18. Mr. Monte was injured in a vehicular accident in 2005. He incurred and aid medical expenses of
Php 20,000 and legal fees of Php 10,000 during the year. In 2006, he received Php 70,000 as
settlement from the insurance company which insured the car owned by the other party involved
in the accident. From the above payments and transactions, the amount of taxable income of Mr.
Monte in 2006 is
a. Zero
b. Php 40,000
c. Php 70,000
d. Php 50,000
19. One is entitled to tax credit for taxes paid to foreign country
a. Non-resident allies
b. Foreign corporations
c. Resident aliens with income derived solely from sourced within the Philippines
d. Beneficiaries of the estates and trusts
20. The following taxpayers can claim tax credit except one
a. Domestic corporations
b. Members or beneficiaries of partnership or trust
c. Resident Filipino citizens
d. Nonresidential aliens
21. Vicor Co., a domestic corporation has net income from within the Philippines, Php 200,000 and
from the USA, Php 300,000. Income tax paid on income from USA is Php 110,000. The tax credit on
income tax paid to US government is
a. Php 105,000
b. Php 64,000
c. Php 96,000
d. Php 110,000
22. In default of testamentary heirs, the law determines who are succeeding to the inheritance of the
deceased. Which of the following ranks first in the order of succession?
a. Legitimate children
b. Surviving spouse
c. Legitimate parents
d. Illegitimate children
23. Statement 1: The estate tax accrues at the moment of death of the decedent.
Statement 2: In estate taxation, the taxpayer is the decedent.
a. Statement 1 only
b. Statement 2 only
c. Both statements
d. Neither statements
24. The deductible amount of funeral expense is Php 200,000 if the actual expense and the gross
estate amount to
a. Actual: Php 195,000; Gross Estate: Php 4,500,000
b. Actual: Php 210,000; Gross Estate: Php 4,300,000
c. Both A and B
d. Neither A nor B
25. Which of the following constitutes a taxable gift
a. Creditor’s gratuitous discharge of a debtor’s obligation
b. One day rent-free use of another’s party
c. A gratuitous transfer by an incompetent
d. An agreement to make a future transfer which is not supported by a consideration
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 26. Abarca sold his car to his friend Bengala for Php 100,000 when its value was Php 250,000. The
property was acquired by Abarca for Php 450,000 in 2004. Six months after the sale, Abarca died.
On that date, the property was valued at Php 190,000. The donor’s tax due is
a. Php 1,000
b. Php 1,200
c. Php 45,000
d. None
27. Charlie is an operator of parking lots. What business tax is due on his income from the business?
a. Broker’s tax
b. Caterer’s tax
c. Common carrier’s tax
d. Value-added tax
28. Mr. F is a lessor of real roperty and personal property (cars). The tax that he pays is
a. Excise tax
b. Value-added tax
c. Percentage tax
d. None of the above
29. Which of the following is not considered as a step in making a revenue regulation effective?
a. Recommendation by the Commissioner of Internal Revenue to the Secretary of Finance
b. Approval by the Secretary of Finance
c. Legislation by Congress
d. Publication in a newspaper of general circulation
30. If a corporation distributes its assets to its stockholders upon dissolution, this kind of corporate
distribution will result in
a. Stock dividends
b. Property dividends
c. Cash dividends
d. Liquidating dividends

Numbers 31 to 32 are based on the following information:

Xakto Corporation furnished and granted the use of its condominium unit to its Executive Vice –
President. The fair market value of the property is Php 4,800,000 while the acquisition cost is Php
3,000,000.

31. The monthly fringe benefit tax due thereon is

a. Php 2,941.18
b. Php 4,705.88
c. Php 88,235.00
d. Php 58,823.53
32. Based on the date in number 31 above, the deductible expense from the gross income of Xakto
Corporation is
a. Php 14, 705.88
b. Php 4,705.88
c. Php 12,132.35
d. Php 2,941.18
33. Bernard Company provided fringe benefit to its managerial employees in the amount of Php
136,000 and to its rank and file employees amounting to Php 50,000. The deductible expense by
Bernard Company is
a. Php 186,000
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 b. Php 136,000
c. Php 50,000
d. Php 250,000
34. An example of intangible personal property without is
a. Domestic shares of stock
b. Foreign shares, 85% of the business of the corporation is in the Philippines
c. Foreign shares with business sites in the Philippines
d. Foreign shares, certificate of stock are kept in Makati
35. Decedent Kulot A. has the following data:
Value of the property at the time of sale P1,200,000
Value of consideration sold 1,000,000
Value of property at the time of death 1,500,000

The amount includible in the gross estate is

a. Php 300,000
b. Php 500,000
c. Php 200,000
d. Php 1,500,000
36. Which of the following is a multiplier deduction for purposes of computing the vanishing
deduction?
a. Benefits received under R.A. 4917
b. Medical expenses
c. Standard deduction
d. Transfer for public purpose
37. Which of the following statements is not required to accompany the estate tax return?
a. Itemized assets with corresponding value
b. Itemized deductions from gross estate
c. Estate tax due and payable
d. Itemized ncome and expenses of the decedent
38. An act of liberality whereby one disposes gratuitously of a thing or right in favor of another who
accepts it
a. Succession
b. Occupation
c. Donation
d. Tradition
39. Maurot owns the following businesses/ establishments:
Annual Gross Receipts
I. Restaurant P 1,350,000
II. Barbershop 625,000
III. Seller of agricultural food products 1,875,000

Which combination will subject Maurot to VAT?

a. I only
b. I and II
c. I,II and III
d. None
40. Jackie filed her 2005 income tax return and paid the tax shown thereon in the amount of
Php10,000 on July 15, 2007. The total amount payable is
a. Php 10,000
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 b. Php 15,000
c. Php 15, 625
d. Php 17,500
41. One of the characteristics of tax is that
a. It is generally based on the contract
b. It is generally payable in money
c. It is generally assignable
d. Optional
42. One of the following is not a head of a family
a. Single, individual, supporting his brother, 20 years old
b. Widow, supporting her parents, both 62 years old
c. Legally separated, supporting a child with his former husband
d. Married, supporting 4 children of his wife with the latter’s deceased husbands
43. An ordinary and necessary expenses which is fully documented and supported by receipts may be
fully deducted for income tax purpose over and above the limit set by law
a. Medical Expense
b. Contribution
c. Representation
d. High School Fee
44. Which of the following is a deductible expenses for income tax purposes
a. Salaries of domestic servants
b. Ordinary repair of the personal car
c. Provision for doubtful accounts
d. None of the above
45. A building was partially destroyed by fire in 2006. It had a book value of Php 4,000,000. The
insurance company was willing to pay Php 3,000,000 which was refused by the owner of the
building. Finally, the claim was settled in 2008 for Php 3,500,00. The Php 3,500,000 proceeds is
a. Exempt from income tax
b. Taxable in full
c. Subject to final tax
d. Partly taxable, partly exempt
46. The fringe benefits tax is not imposed on
a. Rank and file employee
b. Supervisory employee
c. Managerial employee
d. All employees
47. The income subject to this withholding tax is not includible in the computation of taxable income
a. Withholding tax on compensation income
b. Creditable withholding tax
c. Final withholding tax
d. All of the above
48. The signature of the following persons must appear in the income tax return of a corporation
except
a. President
b. General Manager
c. Treasure
d. Independent certified public accountant
49. For estate tax purposes, the estate of the decedent shall be valued at the time
a. Of the preparation of the estate tax return
b. The estate tax is paid
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 c. Of death of the decedent
d. The estate is distributed to the heirs
50. All of the following, except one, are exempt from donor’s tax
a. Donation to the Philipine National Red Cross
b. Donation to the Development Academy of the Philippines
c. Donation directly given to the victims of the eruption of Mt. Mayon
d. Donation to the City of Davao for public purposes

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