CPAR

CPA Review School of the Philippines

FINAL PRE-BOARD EXAMINATION September 23, 2021

Taxation
Instructions: Choose the BEST answer for each of the following items. Mark only one answer
for each item on the Special Answer Sheet provided. Strictly no erasure allowed.

1. G, married, resident citizen had the following for 2021:

a.) Business Income
1.) Rental income from real property, net of 5% W/T P 285,000
Real property tax paid by the lessor 50,000
Note: The lessee reimbursed 50% of the tax, as per agreement in the lease
contract
Deductible expense 120,000

2.) Rental income from real property, net of 5% W/T P 142,500

Real property tax paid by the lessor 20,000
Note: The lessee reimbursed 100% of the tax, as per agreement in the lease
contract
Deductible expense 40,000

b.) Sale of capital assets:

1.) Shares of ABC (domestic) not traded:
Selling Price P 300,000 Cost (2004): P180,000
2.) Shares of DEF (domestic), traded:
Selling Price P 100,000 Cost (2012): P150,000
3.) Shares of XYZ (foreign)
Selling Price P 500,000 Cost (2000): P100,000
4.) Vacant lot
Selling Price P 800,000 Cost (2000): P200,000
5.) Toyota Car
Selling Price P 100,000 Cost (2000): P300,000

c.) Other transactions:

1.) In 2000, he purchased shares of A Corporation for P50,000 which became
worthless and was written off in 2019.
2.) In 2019, he received liquidating dividend from B Corporation in the amount of
P450,000. The investment in 2000 was P300,000.
1. Determine the operational net income of G:
A. 265,00
B. 290,000
C. 245,000
D. None of the above

2. Determine the Net Capital Gains of G:

A. 150,000
B. 125,000
C. 175,000
D. None of the above.

3. Determine the net taxable income of G in his Annual Income Tax Return for 2021.
A. 415,000
B. 689,000
C. 440,000
D. 690,000

Gross receipts
Rentals 450,000
RPT paid by lessee 45,000 495,000
Itemized deductions:
Expenses 160,000
RPT paid to LGU 70,000 (230,000)
NI from operations
Add: Non-operating income:
Capital gains
1) Foreign shares 200,000
2) Liquidating div. 75,000 275,000
Capital losses
1) Toyota car 100,000
2) Worthless shares 25,000 (125,000)
Taxable net income
4. A, a real estate dealer sold a house and lot for P600,000 on November 20, 2021. The cost of the
property is P375,000. Terms are: a) Down payment of P100,000 and b) Balance payable in
monthly instalments of P25,000 beginning December 20, 2021. The income to be reported in
2021 is
a. P225,000 b. P125,000 c. P46,875 d. P37,500

Gain (600,000 – 375,000) 225,000

Multiply 125,000/600,000
Installment income 46,875

5. Using the preceding number, except that the asset above is a capital asset, the capital gains tax
payable in 2021 is
a. P36,000 b. P7,500 c. P6,000 d. P3,750

CGT 6% 36,000
Multiply 125,000/600,000
CGT 7,500

6. On December 1, 2021, a real estate dealer sold a residential land for P6M (cost is P3.6M)
receiving P2M as down payment and a promissory note for the P4M balance payable at
P400,000 a month beginning January 1, 2021. The promissory note has fair market value equal
to 75% of its face value. If the income is to be reported under the deferred payment method,
the income in 2018 is
a. P2,400,000 b. P1,400,000 c. P800,000 d. P1,200,000

Cash down payment 2,000,000

FMV Promissory Note 3,000,000
Total 5,000,000
Less: Cost 3,600,000
Income 1,400,000

7. On June 1, 2020, A sold shares of stocks of a resident foreign corporation held as capital assets
for 24 months for P500,000 (cost of P300,000), payable as follows: P200,000 on the date of
sale and the balance is secured by a promissory note where fair market value is 85% of its face
value. Payments on the note were as follows:
January 1, 2021 P100,000
June 1, 2021 100,000
December 1, 2021 100,000

The capital gain in 2020 is

a. P200,000 b. P85,000 c. P77,500 d. P100,000
 Down payment 200,000
FMV of promissory note 255,000
Total 455,000
Less: Cost 300,000
Gain 155,000
Long term Capital Gain 50% 77,500

Dong Company, engaged in restaurant business, uses accrual basis of accounting in its
financial statements. Its operation for the year ended shows the following:

Gross Revenue on account to customers 3,500,000

Gross Receipts from senior citizens, net of 20% discount 400,000
Purchases, directly attributable to customers other than senior citizens, net of VAT 300,000
Purchases, cannot be attributed, net of VAT 200,000
Direct Cost 2,000,000
Purchase of Equipment, used for all services rendered 600,000
Increase in Accounts Receivable (VAT inclusive) 224,000
Operating Expenses 1,000,000

8. Compute the Output VAT?

a. 420,000
b. 468,000
c. 396,000
d. 372,000

Revenue on account 3,500,000

Less: increase in AR 200,000
Total VATable receipts 3,300,000
VAT 12% 396,000

9. Compute the creditable input VAT?

a. 132,000
b. 129,000
c. 123,000
d. 120,000

Purchases, directly attributable to VAT customers P300,000 x 12% = P 36,000

Purchases, cannot be attributed 200,000 x 12% x 3.5/4 = 21,000
Purchase of equipment 600,000 x 12% x 3.5/4 = 63,000
Creditable input VAT P 120,000

* Allocation is based on vatable sales 3,500,000 over total sales of 4,000,000 (including vat exempt
sales of 500,000 to senior citizen).
10. Determine the amount of Gross Income?
a. 900,000
b. 2,000,000
c. 3,500,000
d. 4,000,000
Gross Revenue P 3,500,000
Gross Receipts from senior citizens 500,000
Less: Direct Cost 2,000,000
Gross Income P 2,000,000

11. Determine the amount of allowable deduction?

a. 1,000,000
b. 1,112,000
c. 1,500,000
d. 1,600,000
Operating Expense P 1,000,000
Senior citizen discount 100,000
Input VAT (P200,000 x 12% x (.5/4)) 3,000
(P600,000 x 12% x (.5/4)) 9,000
Total Allowable Deduction P 1,112,000
(allocation is based on vat exempt sales 500,000 over total sales 4,000,000)

Wener Company is engaged in a hardware business. It uses accrual basis of accounting in its
financial statements.

Gross Revenue 3,500,000

Sales Returns 200,000
Increase in Accounts Receivable, VAT inclusive 224,000
Increase in Inventory, net of VAT 150,000
Purchases 1,000,000
Supplies (40% from VAT registered) VAT exclusive 600,000
Services (60% from VAT registered) VAT exclusive 500,000
Other Operating Expenses 200,000

12. Compute the Output VAT?

a. 420,000
b. 396,000
c. 372,000
d. 360,000
 Gross Revenue P 3,500,000
Less: Sales Returns 200,000
Net Sales P 3,300,000
VAT Rate 12%
Output VAT P 396,000

13. Determine the creditable input VAT?

a. 120,000
b. 184,800
c. 166,800
d. 108,000
Purchases (P1,000,000 x 12%) P 120,000
Supplies (600,000 x 12% x 40%) 28,800
Services (500,000 x 12% x 60%) 36,000
Creditable input VAT P 184,800

14. Determine the Taxable Income?

a. 1,000,000
b. 1,082,800
c. 1,350,000
d. 1,500,000

Gross Revenue P 3,500,000

Less: Sales Returns 200,000
Net Sales P 3,300,000
Less: Cost of Sales (Purchases1M-150,000 increase inventory) 850,000
Gross Income P 2,450,000
Less: Supplies P 600,000
Services 500,000
Operating Expense 200,000
Input VAT (600,000x12%x60%) 43,200
(500,000x12%x40%) 24,000 1,367,200
Taxable Income P 1,082,800
 Mang Tits, has an apartment building situated at Mabalacat, Pampanga.
Owner’s Declaration showed the following valuation:
Land - P 9,000,000
Building - P 4,000,000
Assessor’s Value per assessment rolls:
Land – P7,000,000
Building – P6,000,000

Land use Assessment Levels

Residential 20%
Agricultural 40%
Commercial, Industrial and Mineral 50%
Timberland 20%
Special classes: cultural, scientific 15%
Hospital, and water districts 10%

Commercial/Industrial Building
FMV Over But Not Over Assessment Level

300,000.00 30%

300,000.00 500,000.00 35%

500,000.00 750,000.00 40%

750,000.00 1,000,000.00 50%

1,000,000.00 2,000,000.00 60%

2,000,000.00 5,000,000.00 70%

5,000,000.00 10,000,000.00 75%

10,000,000.00 80%

15. How much is the assessed value?

a. P9,000,000
b. P8,000,000
c. P14,000,000
d. P16,000,000
 Land P 9,000,000
Assessed level 50% P 4,500,000

Building P 6,000,000
Assessed level 75% 4,500,000
Total Assessed Value P 9,000,000

16. How much is the Basic real property tax?

a. P180,000
b. P160,000
c. P90,000
d. P80,000
Assessed Value P 9,000,000
Tax Rate 2%
Basic Real Property Tax for P 180,000
Mabalacat City

17. What is the maximum penalty for local taxes?

a. 12%
b. 24%
c. 36%
d. 72%

18. Assessed value shall be classified based on:

a. actual use
b. owners declaration
c. assessor’s declaration
d. owners declaration or assessor’s value whichever is higher

Anthony Cabe, single, an American but resident of Friendship Road, Angeles, Pampanga,
died in year 2021 left the following properties:
Gross estate in Philippines
Family Home P7,000,000
Agricultural land inherited P8,000,000
Cash and investment P15,000,000
Gross estate Foreign country
Dodge Calibre P12,000,000
Tiny House P8,000,000
Funeral expenses P200,000
Administrative expenses P2,000,000
Claims against the estate P5,000,000
Unpaid mortgage P2,000,000
19. How much is the gross estate?
a. P50,000,000
b. P30,000,000
c. P20,000,000
d. 0

Family Home P 7,000,000

Agricultural Land 8,000,000
Cash and Investment 15,000,000
Dodge Calibre 12,000,000
Tiny House 8,000,000
Gross Estate P 50,000,000

20. How much is the total ordinary deductions?

a. P5,000,000
b. P7,000,000
c. P9,000,000
d. P9,200,000

Claims against the Estate P 5,000,000

Unpaid Mortgage 2,000,000
Total Ordinary Deductions P 7,000,000

21. How much is the special deduction?

a. P12,000,000
b. P15,000,000
c. P7,500,000
d. P7,000,000

Family Home P 7,000,000

Standard Deduction 5,000,000
Total Special Deductions P12,000,000

22. How much is the estate tax due?

a. P1,680,000
b. P1,860,000
c. P2,160,000
d. P2,610,000
 Gross Estate P50,000,000
Less: Ordinary Deductions 7,000,000
Special Deductions 12,000,000
Net Estate P31,000,000
Tax Rate 6%
Estate Tax Due P 1,860,000

23. Consider the following statements

A. A special assessment is an enforced proportional contribution from the owners of real
property especially or peculiarly benefited by public instruments
B. The power of eminent domain maybe exercised even by the private entities while the
power of taxation and police power maybe exercised only by the government
C. Unlike tax, a debt draws interest, if stipulated
D. The police power, power of taxation and power of eminent domain being fundamental
powers of the state maybe exercised by the government even without any constitutional
grant
a. A and B are correct
b. Only C is not correct
c. B and D are correct
d. All are correct

24. Requiring a license for the right to engage in business to earn income is an exercise of:
a. Taxation power
b. Power of eminent domain
c. Police power
d. People power

25. Situs of taxation literally means place of taxation. Which of the following statements about
situs is wrong?
a. Poll tax may properly be levied upon persons who are inhabitants or residents of the state,
whether citizens or not.
b. Real estate is subject to taxation in the state in which it is located, whether the owner is a
resident or non-resident.
c. Tangible personal property is taxable where it has actual situs, or where it is physically
located, even if the owner resides in another jurisdiction.
d. Intangible personal property is taxable where the property is located
26. The ABC Bank is a domestic bank authorized by the BSP to operate as foreign currency
deposit unit. For the year 2020, it earned interest income of P100,000 from foreign currency
transactions with residents, OBUs, and other FCDUs. The rate of tax applicable to such
interest income is
a. 20%
b. 25%
c. 10%
d. 7.5%

27. A cash dividend of P100,000 received by a taxpayer in 2020 from a foreign corporation whose
income from Philippine sources is 40% of its total income is
Statement 1- Partly taxable if he is a resident citizen
Statement 2- Partly taxable if he is a non-resident alien
a. Both statements are true
b. Both statements are false
c. Only Statement 1 is true
d. Only Statement 2 is true

28. Using the above data, which of the following is correct? The cash dividend is
a. Exempt from income tax if he is a resident citizen
b. Partly taxable if he is a resident alien
c. Taxable in full if he is a non- resident citizen
d. Exempt from income tax if he is a non- resident alien

29. Tips for gratuities paid directly to an employee by a customer of the employer which are not
accounted for by the employee to the employer are
Statement 1- Considered as passive income
Statement 2- Subject to creditable withholding tax
a. Both statements are true
b. Both statements are false
c. Only Statement 1 is true
d. Only Statements 2 is true
30. Which of the following statements is correct?
a. The monetized value of unutilized vacation leave credits of ten (10) days or less
which were paid to the employee during the year are not subject to income tax and
to withholding tax
b. The salary of an employee on vacation or on sick leave, which are paid notwithstanding
his absence from work is an exclusion from income.
c. Any amount which is required by law to be deducted by the employer from the
compensation of an employee excluding the withheld tax is considered as part of the
employee’s compensation and is deemed to be paid to the employee as compensation at
the time the deduction is made
d. If living quarters or meals are furnished to an employee for the convenience of the
employer, the value thereof should be included as part of compensation income

31. Statement 1- Amounts received by reason of involuntary separation remain exempt from
income tax unless the official or employee at the time of separation, has rendered less than ten
years of service and/or is below fifty years of age
Statement 2- Any amount received by an official or employee or by his heirs from the
employer due to death, sickness or other physical disability or for any cause beyond the control
of said official or employee, such as retrenchment, redundancy, or cessation of business are
exempt from income tax
a. True, true
b. True, false
c. False, true
d. False, false

32. Statement 1- The premiums on health and/or hospitalization insurance paid by an individual
taxpayer is deductible from gross income for maximum amount of P200.00 provided the
family gross income does not exceed P250,000 per month.
Statement 2- The premium on health and/or hospitalization insurance is not deductible by the
spouse who claimed the additional exemption in case of married taxpayers.
a. True, true
b. True, false
c. False, true
d. False, false

33. This income is subject to final tax

a. Fringe benefits given to employees of a domestic corporation
b. Marriage fees, baptismal offerings received by a clergyman, evangelists or religious
workers for services rendered
c. Dividend income from a domestic corporation by a non- resident foreign corporation
d. Share of an individual taxpayer from the distributable net income of a general professional
partnership
34. The monetary value of this fringe benefits is 100% of the value of the fringe benefit
a. The employer purchases the motor vehicle for the use of the employee
b. The employer provides the employee with cash for the purchase of a motor vehicle in the
name of the employer
c. The employer purchases the car in the name of the employee
d. The employer owns and maintains a fleet of motor vehicles for the use of the business
and the employees

35. The following, except one are the basic principles of a sound tax system. The exception is
a. It should be capable of being effectively enforced
b. It should consider the taxpayer’s ability to pay
c. It is levied by the lawmaking body of the state
d. The sources of revenue must be sufficient to meet government expenditures and other
public needs

36. Interest income earned by a resident alien from outside the Philippines is
a. Subject to schedular tax
b. Not subject to income tax
c. Subject to final tax
d. Partly subject to schedular and partly subject to final tax

37. D Co. took two life insurance policies on the of its Executive Vice-President, Mrs. E. In one
policy, the beneficiary is the corporation and the other, designates Mr. F, the EVP’s husband,
as revocable beneficiary. The insurance premiums paid by D Co. is
a. Deductible, only in so far as the first policy is concerned
b. Deductible for both policies
c. Not deductible for both policies
d. Deductible in so far as the second policy is concerned

38. Hidilyn Marcial won the gold in the boxing lightweight division in the recently concluded
Olympic Games. By virtue of this single honor, she brought to the country, he was given P1M
by a car dealer course thru the National Sports Commission.
Statement I- The prize received by AB is exempt from income tax
Statement II- The car dealer can deduct in full the gift for income tax purposes
a. True, true
b. True, false
c. False, true
d. False, false
39. The following are characteristics of special assessment, except
a. It is levied on lands only
b. It is based on the improvements introduced by the government
c. It is based on the benefit derived by the owners of the land
d. It is a personal liability of the persons assessed

40. As to scope of legislature power tax, which of the following is correct?

a. The power to tax is supreme, plenary, comprehensive and without any limit because the
existence of the government is a necessity
b. The discretion of Congress in imposing taxes extends to the mode, method and kind of
tax, even if the constitution provides otherwise
c. Congress has the right to levy a tax of any kind at any moment at it sees fit, even in
the absence of any constitutional provision
d. The sole arbiter of the purpose for which taxes shall be levied is Congress, provided the
purpose is the public and the courts may not review the levy of the tax to determine
whether or not the purpose is public

41. A resident citizen received a prize of P40,000. Which of the following statements is correct in
connection with the imposition of final tax on prize?
a. The first P10,000 is part of taxable income while, the remaining P30,000 is subject to
20% final tax
b. The whole amount is part of taxable income
c. The whole amount of P40,000 shall be subject to 20% final tax
d. The first P10,000 shall be exempt from tax, the remaining P30,000 is subject to 20% final
tax

42. A domestic proprietary educational institution improved its library improvement, for income
tax purposes, may be
a. Deducted in full at the time of completion of the improvement
b. Capitalized or expensed outright at the option of the school owner
c. Capitalized and depreciated over the estimated life of the improvement
d. Capitalized or expensed outright at the option of the government

43. In our jurisdiction, which of the following statements may be erroneous?

a. Taxes are pecuniary in nature.
b. Taxes are enforced charges and contributions.
c. Taxes are imposed on persons and property within the territorial jurisdiction of a State.
d. Taxes are levied and collected by the legislative branch of the government
44. A bought a condominium unit under installment basis, to be used as his office in the practice
of his profession and paying P10,000 monthly. For income tax purposes, the P10,000 monthly
payment shall be
a. Treated as business rental, hence deductible
b. Treated as depreciation expense, hence deductible
c. Treated as capital expenditure, hence not deductible
d. Treated as ordinary business expense

45. A marketing incurred the following expenses in relation to its business during the taxable year:
Provision for bad debts P15,000
Research and development cost, treated as deferred expense 500,000
Contributions during the year:
The government for priority 50,000
The government for public purposes 10,000
To the Catholic church for charitable purposes 25,000
Additional Information:
A. Allowance for doubtful accounts per aging of accounts receivable revealed a beginning
and ending balances of P20,000 and P30,000, respectively.
B. Accumulated depreciation on machine at the beginning and end of the year amounted to
P100,000 and P110,000, respectively.
C. During the year, the firm sold a machine with a cost and accumulated depreciation of
P300,000 and P30,000, respectively.
D. The research and development cost was incurred in the preceding year but the benefit was
received during the taxable year
E. Taxable income before a to d and contributions amounted to P300,00
If A marketing is a sole proprietorship, the allowable deductions for contributions are:
a. P80,000
b. P85,000
c. P57,000
d. P65,500

Taxable income 300,000

Bad Debts (5,000)
R&D (100,000)
Depreciation (40,000)
Taxable income before contributions 155,000
Limit 10%
Allowed contribution 15,500
Contribution in full 50,000
TOTAL ALLOWABLE CONTRIBUTION 65,500
46. Total allowable deductions:
a. P210,500
b. P220,500
c. P202,750
d. P225,000

Charitable Contribution 65,500

Bad Debts 5,000
R&D 100,000
Depreciation 40,000
ALLOWABLE DEDUCTION 210,500

47. Furthermore, the amount of taxable income

a. P220,000
b. P89,500
c. P97,250
d. P115,000

Taxable Income Before Deductions 300,000

Less: Allowable Deductions 210,500
TAXABLE INCOME 89,500

48. A, single, had the following from January 1 to June 30, 2020
Compensation income (net of payroll deductions) P360,000
Deductions made by the employer:
SSS housing loan 48,000
SSS premiums contributions 7,200
Philhealth contributions 4,800
Pag-ibig contributions 3,600
Union dues 4,400
Premiums payments on Life insurance policy 6,000
Health insurance policy 4,800
The taxable compensation income is
a. 292,000
b. 340,000
c. 418,800
d. 370,800
 Compensation 360,000
ADD: Housing loan 48,000
Premiums 6,000
HIPP 4,800
TAXABLE COMPENSATION 418,800

49. Which of the following statement/s is/are correct?

Statement A : Non-resident citizens are taxable on all income derived from sources within
the Philippines.
Statement B : Resident citizens and domestic corporations are taxable on all income derived
from sources within or without the Philippines.
Statement C : Foreign corporations, whether engaged or not in trade or business in the
Philippines are taxable from sources within or without the Philippines.
Statement D : Aliens, whether residents or not of the Philippines, are taxable only from
sources within the Philippines, are taxable only from sources within the Philippines.
a. Statements C and D are correct
b. Statements A, B and D are correct
c. Statements B, C and D are correct
d. Statements A and D are correct

50. Which of the following are basic principles of a sound tax system?
a. Fiscal Adequacy, Economic Feasibility and Theoretical Justice
b. Fiscal Adequacy, Administrative Feasibility and Theoretical Justice
c. Progressive Taxation, Ability to Pay, Symbiotic Relationship
d. Fiscal Deficit, Administrative Feasibility and Ability to Pay

51. How much discount is granted to a senior citizen on his purchase of basic and prime
commodities, subject to limitation?
a. 20%
b. 15%
c. 10%
d. 5%

52. The concept of “situs of taxation” is based on which limitation of taxation?

a. Territoriality
b. International comity
c. Exemption of the government
d. Public purpose
53. Which of the following statements is/are CORRECT?
I. The power to license includes the power to tax.
II. The power to tax may not include the power to destroy
III. The power to tax includes the power to exempt.
a. II and III
b. I and II
c. III only
d. I only

54. The President of the Philippines and the Prime Minister of Japan entered into an executive
agreement on a loan facility to the Philippines from Japan whereby it was stipulated that
interest on loans granted by private Japanese financial institutions in the Philippines shall not
be subject to Philippine income tax laws. What basic characteristic of taxation has been
violated by this agreement?
a. Theoretical justice
b. Inherent limitation
c. Legislative in character
d. Constitutional limitation

Buenas Corporation, a real estate dealer and lessor, on its first year of operation, has received
a Letter of Authority from the BIR. As a revenue officer, you were assigned to audit the
Corporation’s income tax for taxable year 2018. The audited financial statements show the
Corporation’s income statement as follow:

Revenues:

Rental income 2,800,000

Interest from bank 24,000

Gain on sale of land 500,000

Total 3,324,000

Expenses:

Depreciation 800,000

Salaries and wages 200,000

Taxes and licenses 180,000

 Entertainment and representation 40,000

Interest expense 60,000

Office supplies 20,000

Total 1,300,000

Net income before income tax 2,024,000

Income tax expense 450,000

Net income 1,574,000

Income tax due for the year is computed as follows:

Net income before income tax 2,024,000

Less : Interest from bank 24,000

Gain on sale of land 500,000 524,000

Net taxable income 1,500,000

Multiply by: corporate income tax

rate 30%

Income tax expense 450,000

After a detailed examination of the Corporation’s books, you have noted the following:

• Balance sheet as of December 31, 2018 showed an outstanding balance of deferred rent
income amounting to P200,000, representing advance rent payments by tenants.
• Interest from bank is net of 20% final withholding tax
• Gain on sale of land, represents gain on sale of residential lot with selling price, amounting
to P2,000,000
• Taxes and licenses in the Notes to Financial Statements

Showed the following breakdown

• Withholding tax on sale of land, P120,000

• Documentary stamp tax on sale of land, P30,000
• Surcharge and penalties on late payment of tax, P10,000
• Permits and licenses, P20,000
 Interest expense includes interest on late payment of tax, amounting to P5,000.

55. How much should be reflected as net sales and revenue in the annual income tax return of the
Corporation?
a. P3,000,000
b. P5,000,000
c. P4,800,000
d. P3,300,000

Rent 2,800,000
ADD: Advance Rent 200,00
Sale of real property 2,000,000
Total REVENUE 5,000,000

56. How much should be the deductible taxes and licenses?

a. P20,000
b. P180,000
c. P30,000
d. P50,000

Documentary Stamp Tax 30,000

ADD: Permits 20,000
TAXES 50,000

57. How is the deductible entertainment and representation expense?

a. P40,000
b. P33,333
c. P38,000
d. P34,000

Actual EAR Ceiling Prevail

2/5 x 40,000 16,000 10,000 10,000
3/5 x 40,000 24,000 30,000 24,000
Allowed EAR 34,000

58. How much is the basic deficiency income tax due?

a. P250,770
b. P252,200
c. P253,770
d. P250,800
 Gross Income (5,000,000-1,500,000) 3,500,000
Allowable Deductions
(1,300,000-130,000-6,000-9,900) 1,154,100
Taxable income 2,345,900
Tax Due 703,770
Tax Credit (450,000)
TAX PAYABLE 253,770

BTS CORPORATION, is a registered enterprise with the Board of Investments and was
granted an Income Tax Holiday (ITH) Incentives for the first 4 years of operations as a non-
pioneer firm. The Corporation has not applied for an extension of its ITH incentives on its 5th
year. On its 5th year of operations, it reported the following:

Export Sales P120,000,000

Cost of goods manufactured and sold 70,000,000

Operating expenses 20,000,000

Additional information were made available as follows:

➢ Cost of goods manufactured and sold include, imported raw materials with dutiable
value of P1,400,000. Pre-computed customs duties and other charges are as follows:

(a) Customs duties – P200,000

(b) Insurance – P10,000
(c) Arrastre charges – P5,000
(d) Wharfage dues – P7,000.

➢ Included under operating expenses are expenses incurred on the importation of the
said equipment as follows:

(a) Facilitation fee – P100,000

(b) Delivery expense to warehouse after release from Customs P11,200.

➢ Cost of goods manufactured and sold include direct labor skilled and unskilled
workers amounting to P10,000,000 and P20,000,000, respectively. The project meets
the prescribed ration of capital equipment to number of workers set by the BOI.
 ➢ The Company incurred an accumulated net operating loss on the first 4 years of
operations as follows:

(a) 1st year – P2,000,000

(b) 2nd year – P1,600,000
(c) 3rd year – P800,000
(d) 4th year – P400,000.

59. How much is the deductible direct labor cost?

a. P35,000,000
b. P45,000,000
c. P40,000,000
d. P30,000,000
Total compensation 30,000,000
Preferential 150% 45,000,000

60. How much is the deductible net operating loss carry over?
a. None
b. P2,800,000
c. P400,000
d. P4,800,000

61. How much is the income tax due of the Company for the year?
a. P4,500,000
b. P1,750,000
c. P4,530,000
d. P1,869,000

Gross Income 50,000,000

Allowable Deductions (35,000,000–100,000) 34,900,000
Taxable income 15,100,000
TAX DUE 4,530,000
John and Marcia inherited a commercial lot and building from their parents 2 years ago. In 2018
(current year), the inherited property realized rental income of P300,000 per month, in which both
shared the revenues equally. The co-ownership remained unregistered with the Securities and
Exchange Commission. In addition, Jose and Maria reported their following personal income and
expenses.
➢ John, gross compensation income (inclusive of 13th month and other benefits
amounting to P100,000), P1,300,000
➢ Marcia, net income from her laundry service business (net of cost and expenses of
P600,000), P200,000.

62. How much final withholding income tax should the co-ownership remit representing the
revenue distribution to the co-owners?
a. P360,000
b. P540,000
c. None
d. P180,000

63. How much is the income tax due of John in his annual income tax return, assuming optional
standard deduction is used in determining his expenses?
a. P582,500
b. P431,800
c. P253,000
d. P611,600

Share in the partnership 1,800,000

Taxable portion 60% 1,080,000

ADD: Taxable Compensation 1,210,000
TOTAL TAXABLE INCOME 2,290,000
TAX DUE 582,800

64. How much is the income tax due of Marcia in his annual income tax return, assuming optional
standard deduction is used in determining his expenses.
a. P22,000
b. P322,000
c. P358,000
d. P250,000
 Share in the partnership 1,800,000
ADD: taxable business income 800,000
TOTAL 2,600,00
Taxable income 60% 1,560,000
TAX DUE 358,000

65. When is the deadline for filling of the annual income tax return of the co-ownership for taxable
year 2018?
a. April 15, 2018
b. May 15, 2019
c. Not applicable
d. April 15, 2019

ATTY. PAPA, is a practicing lawyer, is also a licensed real estate broker. Both businesses
were registered with the BIR and had the following data made available for year 2018
(months are gross of withholding tax):

Revenues from his profession 3,000,000

Commission received 600,000
Cost of services 700,000
Business related expenses 400,000
Gain on sale of real property held for investment 500,000
Selling price of real property 2,000,000
Wagering gain 150,000
Wagering losses 100,000
Royalties from books published 150,000
Interest Income from banks 30,000

66. Compute Tax due, assuming ATTY. opted to use itemized deduction in computing his income
tax.
a. P810,000
b. P698,000
c. P666,000
d. P826,000
 Gross Income 2,950,000
Allowable Deductions (400,000)
Taxable income 2,550,000
TAX DUE 666,000
67. Compute OSD. Optional Standard Deductions
a. P2,240,000
b. P2,300,000
c. P1,460,000
d. P1,440,000

Gross Receipts 3,600,000

OSD 40% 1,440,000

68. How much is the final withholding income tax of ATTY., assuming 2/3 of interest income
from banks were realized from time deposits with maturity of 5 years?
a. P47,000
b. P17,000
c. P32,000
d. P137,000

Capital Gains Tax 6% 120,000

Final Tax on Royalty 10% 15,000
Final Tax on Interest 2,000
TOTAL FINAL TAX 137,000

69. IMPROPERLY ACCUMULATED EARNINGS TAX was repealed on:

a. July 20, 2020
b. April 11, 2021
c. April 15, 2021
d. None of the above

70. As a rule, Corporate Income Tax rate for year 2020 is?
a. 20%
b. 25%
c. 27.5%
d. 30%

The End