1. A Corp. had net sales of P1M.

The actual entertainment, amusement and recreation expense

amounted to P20,000. The deductible “EAR” expense is

a. P20,000 b. P6,000 c. P10,000 d. P5,000

1Mx(1/2x1%)=5k

2. C Corp. had net revenues of P1M. The actual entertainment, amusement and recreation
expense amounted to P20,000. The deductible “EAR” expense is

a. P20,000 b. P6,000 c. P5,000 d. P10,000

1Mx1%=10k

3. C Corp. is engaged in the sale of goods and services with net sales and net revenue of P2M
and P1M, respectively. The actual entertainment, amusement and recreation expense
amounted to P18,000. The deductible “EAR” expense is

a. P18,000 b. P16,000 c. P12,000 d. P6,000

ALLOCATION(lower), 2M/3M x 18k=12,000 2Mx(1/2x1%)= 10k

1M/3M x 18k = 6k 1Mx1%= 10k

4. A, not happy with her present job, resigned and started her own business. The business
requires her to travel so she used her car for the purpose. Assume that A started her business
on April 1 and that she uses the car for business 70% of the time. Assuming total expenses
for the year for the use of the car is P300,000, the deductible expense is
a. P210,000
b. P300,000
c. P225,000
d. P157,500
300k x 70% x 9/12=157,500 april-dec

5. A acquired a machine at a cost of P500,000. Scrap value is P40,000 and the estimated useful
life was 25 years. After depreciating the asset for 20 years using the straight-line method, it
was determined that the remaining life is not five years. The annual depreciation from the 21st
year assuming a remaining life of 10 years without scrap is
a. P17,600
b. P20,000
c. P35,200
d. P13,200
(500k-40k)/25yrs.x20yrs-(500k)+40k/10

6. A building was destroyed by fire in 2017. The building had a book value of P5M. The
insurance company was willing to pay P4M, which was refused by the owner. Finally, the
claim was settled in 2018 for P4.6M. The proceeds will be
 a. Exempt from income tax (return of capital dahil lower)
b. Part of taxable income
c. Subject to final tax
d. Partly exempt, partly taxable

Items 7 and 8 pertain to the following:

A taxpayer engaged in business incurred a partial loss of property as follows:

Asset 1 Asset 2
Book value of the asset at the asset at the time of loss P 200,000 P 200,000
Cost to restore the property back to its normal operating condition 120,000 300,000
Insurance recovery 50,000 None
Salvage None 40,000

7. The deductible loss for asset 1 is

a. P 120,000 c. P 30,000
b. P 70,000 d. P 80,000

120k-50k

8. The deductible loss for asset 2 is

a. P 300,000
b. P 350,000
c. P 160,000
d. P 240,000

200k-40k

Items 9 to 11 pertain to the following:

ABC put up a qualified retirement plan approved by the BIR. It appointed B Corp. to
administer the plan, which called for the payment of P200,000 to cover the retirement of
employees for past services rendered and a yearly contribution of P50,000. The following
amounts were paid for the first three years of the plan’s operation:
Contribution for Services
Past Years Current Years

First year………………… P 100,000 P 50,000

Second year……………… 60,000 50,000

Third year………………… 40,000 50,000

Past service cost is amortize by 10yrs. Add until it amortize completely

If not BIR registered, ignore the past cost services

9. The pension expense for the first year is

a. P 150,000 b. P 15,000 c. P 60,000 d. P 105,000
(100k/10)+50k

10. The pension expense for the second year is

a. P 110,000 b. P 11,000 c. P 56,000 d. P 66,000

(100k/10)+(60k/10)+50k

11. The pension expense for the third year is

a. P 90,000 b. P 9,000 c. P 54,000 d. P 70,000
(100k/10)+(60k/10)+(40k/10)+50k

12. Mr. Santos, a retailer of goods, uses the accrual method in reporting his income and
expenses. His transactions show:
Jan. 1 to June 30 July 1 to Sept. 30 Oct. 1 to Dec. 31
Gross Sales P 1,000,000 P 700,000 P 900,000
Cost of Sales 600,000 200,000 300,000
Business expenses 100,000 50,000 70,000

Non-operating income

In the ITR 50,000 40,000 10,000

If he avails of the OSD(40%), his annual taxable net income under the graduated rates is:
a. P 1,660,000
b. P 1,040,000
c. P 900,000
d. None of the above
(1M+700K+900K) x 60% + NOI

13. Using the preceding number, but using ID, his annual taxable net income is:
a. P 1,380,000
b. P 1,500,000
c. P 1,230,000
d. None of the above

Gross sales - COS - Bus. Exp + NOI

14. Statement 1: Damages for loss of earnings represent taxable income.

Statement 2: Exemplary damages received by the plaintiff do not constitute taxable income
to the plaintiff.

Statement 1 is true.
Statement 2 is true.
Both statements are false.
Both statements are true.

15. The following constitute taxable income except:

a) Refund of real property taxes paid in a previous year but disallowed as a deduction
in the year paid.

b) Recovery of debts which were previously charged off and deducted in a previous year.

c) Casino winnings.

d) Interest income from loan where the interest charged is 100% per annum.
16. Advance rental in the nature of prepaid rental, received by the lessor under a claim or right,
and without restriction as to use is
a) Taxable income of the lessor in the year received if he is on the cash method of
accounting.
b) Taxable income of the lessor in the year received if he is on the accrual method of
accounting.
c) Taxable income of the lessor in the year received whether he is on the cash or
accrual method of accounting.
d) Taxable income of the lessor up to the amount earned in the year the rental is received.

17. One of the following may be a taxable income for a resident individual:
a) Property received as gifts donor
b) Cash received as inheritance estate
c) Interest on Philippine lotto winnings
d) Benefits from the SSS and/or GSIS

18. One of the following represents taxable income:

a) Refund of overpaid rental expense in prior year
b) Refund of donors’ tax paid in prior year
c) Refund of income tax in prior year
d) Refund of special assessment paid in prior year

19. At the testimonial dinner for new CPAs, Christian, a reviewer was requested to sing the
theme song of the movie “Ghost”. Pauline, a new CPA, was so delighted that she felt she
was falling in love with Christian so she decided to cancel Christian’s indebtedness to her.
As a result,
a. Christian realized a taxable income as compensation for services
b. If Christian accepts the cancellation, he will pay donor’s tax
c. Christian received a gift from Pauline and therefore is not part of his taxable
income
d. The amount of indebtedness cancelled is partly taxable, partly exempt

38-39. The records of ABC Corporation, organized in 2007 showed the following data for 2017.

Gross Income P2,000,000

Less: Allowable business expenses
(other than bad debts) P1,850,000
Bad debts written off 100,000 _1,950,000
Taxable net income P 50,000

In 2018, 80% of the bad debts written off in 2017 was collected

20. The income tax due in 2017 is

a. P40,000
 b. P45,000
c. P15,000
d. P25,000

21. In 2018, which of the following statements is correct?

a. There is a deficiency income tax of P24,000 for 2017
b. The taxable net income should be corrected to P130,000
c. There is a taxable recovery amounting to P80,000 in 2018
d. The bad debts expense in 2017 should be reduced to P20,000

22. Dick Tracy Corporation paid the following expenses during the year:
Interest for late payment (delinquent) income tax ₱ 5,000
Surcharge and compromise for late payment of income tax 30,000
Interest on bonds issued 40,000
Interest on money borrowed by the Company from a stockholder
who owns 80% of the outstanding stock of the Company (related parties) 20,000

What is Dick Tracy Corporation’s deductible expense?

a) ₱45,000 b) ₱75,000 c) ₱95,000 d) ₱60,000

23. Net operating loss of a business or enterprise for taxable years 2020 and 2021 shall be
carried over as a deduction from gross income for the next

a. Three (3) consecutive taxable years immediately following the year of such loss.
b. Five (5) consecutive taxable years immediately following the year of such loss.
c. Eight (8) consecutive taxable years immediately following the year of such loss.
d. None of the above.
Gen rule: 3yrs. Because of pandemic, 5 yrs
24. A) The cost of leasehold improvements shall be deductible by the lessee by spreading the
cost of the improvements over the life of the improvements or the remaining term of the lease
whichever period is shorter.
B) Contributions by the employer to a pension trust for past service cost is deductible in full in
the year that the employer made the contributions.

a. True, true
b. True, false
c. False, true
d. False, false

25. I. An expense which is necessary but not ordinary, or ordinary but not necessary is
deductible from gross income.
II. The taxpayer must signify his intention to elect the itemized deduction, otherwise, he is
deemed to have chosen the optional standard deduction.

a. True, true
b. True, false
c. False, true
d. False, false