Phryzyel Pajarillo

BSA 3C

Final Examinations
Income Taxation
1st Semester
SY 2021-2022

Explain and answer briefly the following questions

1. Loti Corporation which is engaged in the manufacture of Tang, Calumet and Kool-Aid,
filed its income tax return for the fiscal year ending in February 2019, and claimed as
deduction, among other business expenses, Php 9,461,246 for media advertising for
“Tang”.
a. Is subject media advertising expense for “Tang” ordinary and necessary expense fully
deductible under the NIRC?
Under Sec29 of NIRC, the media advertising expense for Tang is is not ordinary
and necessary expense deductible. Also, to be considered as deductible, it should
meet the following criteria: ordinary and necessary, but it is only necessary, and not
ordinary.
b. Are expenses for protection of brand franchise fully deductible?
No. The expenses for protection of brand franchise is considered to be part of
capital assets, and therefore it is considered as capital expenditure, and it should not
be deductible.

2. In 2012, Dr. K decided to return to his hometown to start his own practice. At the end of
2012, Dr. K found that he earned gross professional income in the amount of Php
1,000,000.00. While he incurred expenses amounting to Php 560,000 constituting
mostly of his office space rent, utilities and miscellaneous expenses related to his
medical practice. However, to Dr.K’s dismay, only Php 320,000 of his expenses were duly
covered by receipts. What are the option’s available to Dr. K inorder to maximize the
deductions from his gross income?
Dr. K may opt to use the optional standard deduction (OSD) in lieu of the
itemized deduction. OSD is a maximum of forty percent (40%) of gross receipts during
the taxable year. Proof of actual expenses is not required, but Dr. K shall keep such
records pertaining to his gross receipts.

3. Marcelo took out a life insurance policy for Php 1,000,000 naming his only son as
beneficiary. The term of the insurance policy is 20 years. Total premiums paid on the
policy was Php 700,000. Marcelo outlived the policy and received the proceeds of Php
1,000,000.
a. Is the amount received by Marcelo taxable?
The amount received by Marcelo amounting to Php700,000 is not taxable under
Sec 32B of the NIRC. Only the Php300,000 excess is taxable.
 b. If Marcelo died on the tenth year and his son received the Php 1 million, is the
amount received taxable?
No. Under Sec32 (B), the proceeds of life insurance policies paid to the heirs or
beneficiaries upon the death of the insured are not included as part of the gross
income of the recipient. The Php1 million received by Marcelo’s son is not taxable.

4. Corrupt DJP Corporation, a construction firm, recently won as highest bidder in a

government infrastructure project. In connection with this, Corrupt DJP Corporation paid
Php 5,000,000 to certain public officials to facilitate the bidding process and ensure that
the project will be awarded to them. Now, Corrupt DJP Corporation wants to include said
amount in its deductible expenses upon filing of its income tax return. Is the amount
includible in allowable deductions?
Yes. Because the amount given should be considered as a salary and wages, and
it should be included in allowable deductions.

5. The Filipinas Hospital is a charitable organization. X visited the hospital, on his birthday,
as was his custom. He gave Php 100,000 to the hospital and Php 5,000 to a crippled girl
whom he particularly pities. X wants to exclude both Php 100,000 and Php 5,000 from
his gross income. Discuss
Only the Php100,000 contribution of X to the Filipinas Hospital is part of
deduction on his gross income, because it is provided that the same amount paid to
charitable organizations must be deductible. The Php5,000 is not qualified as a
deduction because it does not contemplate those given by individuals.